Gambling in Macau1: A Brief History and Glance at Todays Modern Casinos

by

Philip H. Loughlin and Clifton W. Pannell

Introduction Macau seems an unlikely place to nd another Las Vegas. It is a tiny area on the southern coast of the Peoples Republic of China, a country where gambling was outlawed, at least ofcially, after the Communist Revolution of 1949 (Figure 1). Yet, Las Vegas moguls are pouring billions of dollars into Macau to build hotels and casinos, and the revenues from gambling there are more than from the two largest U.S. gambling markets (Las Vegas and Atlantic City) combined. Macau is only 11 square miles in size and consists of a peninsula and two islands connected by landll and bridges. About 544,000 people live there. It is located in the western portion of the Pearl River Delta. In 1557, with the consent of the Chinese, the Portuguese established a settlement in Macau. They were granted sovereignty over the territory in 1887, but returned it to China in 1999, at which time it became a Special Administrative Region (SAR). Casino gambling, as we think of it today, didnt start in Macau until the 1930s, but its roots go back to the fan-tan games of the sixteenth century. Period 1: The Early Years (1557-1847) The original purpose and importance of Macau was trade. Gambling was incidental. Macau was a port of the Portuguese sea-borne empire that at one time extended east from Portugal to Japan. For many years the Portuguese at Macau earned immense prots by shipping Chinese goods home to Portugal and by facilitating the trade between China and Japan. Even after the decline of the Portuguese empire, Macau continued as the portal for the The name is spelled both Macau and Macao. Opinions differ as to why this is so. This article will use the former spelling unless a proper name dictates otherwise.
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sea-borne trade of other western nations with China. In 1757, the Emperor of China required that in the future all such trade be conducted at the port of Canton, 90 miles up the Pearl River from Macau. For almost 100 years thereafter, western merchants on their way to Canton were required to enter through Macau, and many of these merchants resided there (Figure 2). The peninsula of Macauthe original territory before the islands of Coloane and Taipa later were addedwas largely uninhabited when the Portuguese arrived (Pires, 1987, p. 10). Almost immediately afterwards it attracted large numbers of Chinese who came there to work or trade. Gambling, which entered the territory during those early years, was technically illegal, but nonetheless engaged in by the Chinese and some westerners. For the rst three centuries after the Portuguese arrived, the Chinese authori-

ties kept tight control over the territory. China opened customhouses there to collect taxes on goods entering and leaving, and the Portuguese were required to pay rent for the privilege of staying there (Pires, 1987, p. 11; Gunn, 1996, p. 16). A Chinese ofcial was stationed at Macau to supervise the local population of Chinese over whom the Portuguese had no jurisdiction (Lelyveld, 1973). Understandably, the Portuguese made no attempt to interfere with Chinese gambling activity. It was accepted as part of the Chinese culture and was clearly outside Portuguese control. If the Chinese authorities wanted to tolerate it, as they did under arrangements that are not clear, then the Portuguese authorities stayed out of it. That is, until the middle of the 19th century when the rst step was taken that eventually led to the modern casinos that are found in Macau today.

Figure 1: Macau, Location Map. Spring 2010 FOCUS on Geography 1

port under Portuguese control and closed the Chinese customhouses. He expelled the Chinese ofcials who were there and began to tax the Chinese residents. China resisted the Portuguese efforts until 1887, when it ceded sovereignty over Macau (Gunn, 1996, p. 61; Porter, 1996, p. 91). At the end of the war Macau was facing serious nancial difculties. The loss of business to Hong Kong and the treaty ports depressed existing revenue. In addition, Macau recently had been given scal responsibility for two other Portuguese settlements (Timor and Solor) in the Pacic and faced a challenge raising new revenue for that purpose (Gunn, 1996, p. 59). The solution was found in the scoresmaybe hundredsof gambling establishments that existed in Macau at the time. According to the Macau SAR Gaming Inspection and Coordination Bureau, gambling was legalized in 1847 and taxed. The result was an instant nancial success, and taxes on gambling became a source of government revenue thereafter because the gamblinghouse proprietors were paying the government large amounts of money each year for their licenses. In 1912, it was reported from Macau that gambling is here a businessall the business there is. [It] pays for everything. (Peneld, 1912, p. 283). The Old Gambling Houses The gambling establishments did not appear to be particularly inviting (Figure 3). They were characterized as vile, monotonously alike, and dingy affairs with no pretensions towards decoration. (Living Age, 1899; Ladies Home Journal, 1927; Forbes, 1932). They cannot but be considered sources of demoralization, warned The New York Times in 1876 (The New York Times, 1876). Some of the patrons appeared no more inviting. Lean wretches, with queues no bigger than a rats tail, said one article (Living Age, 1899). Rickshaw coolies, sailors, and harbour riffraff, said another (Peneld, 1906, p. 285). The Chinese game of fan-tan was one of the more popular games played. One of the interesting aspects of the game was that the more rened players, which would include foreigners and better-class Chinese, could observe the game and place bets from balconies over the game table (Gilbert, 1922). The ancient game of sic-bo, in which bets were placed on the outcome of the roll of three dice, also was popular. Both fan-tan and sic-bo are played in the casinos today and remain popular with the bettors.

Figure 2: 18th Century French Map of Macau Peninsula. (Source: Library of Congress.)

Period 2: Gambling Legalized and Taxed (1847-1930) The First Opium War Conditions immediately after the First Opium War (1839-1842) indirectly led to the legalization and taxation of gambling in Macau. The war fundamentally changed the relationship between China and the western nations, in general to the advantage of the latter. At the end of the war, 2

Victoria Island (Hong Kong), 40 miles to the east, was ceded to the British. Five treaty ports were opened in China in which international trade could take place, and several western nations were given concessions in these ports. Emboldened by this, and taking advantage of the weakened condition of China, the Portuguese Governor of Macau wrested power from the Chinese. He stopped paying rent for the territory. In reaction to the newly established free port of Hong Kong he declared Macau a free

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Figure 3: In the 1870s the western press depicted the gambling houses of Macau as dingy affairs with no pretentions toward decoration. An opium smoker sits in the lower left. (Source: Harpers Weekly, June 14, 1873. p. 517.) Period 3: Gambling Monopolized (1930-2002) The next step in the evolution of gambling was taken when the government replaced the licensing system with a monopoly system in which gambling rights were given to one syndicate. This gave the government more control over the industry. In return for the monopoly franchise, the syndicate not only would pay a special tax, but, more importantly, it would bear related obligations as well. It was at this point that the government began to use the industry to serve the broader needs of Macau. One of the significant obligations was to be active in attracting tourists. Authorities differ on exactly when and to whom the rst monopoly concession was granted. But all agree it occurred in the 1930s. According to Macaus Gaming Inspection and Coordination Bureau, in the year 1930, it was given to a syndicate named Hou Heng. This syndicate held the monopoly until 1937, when it was given to another syndicate named Tai Heng. During this early period of monopolization three casinos were established, the best known being at the Hotel Central (still extant) on the main street of Avenida Almeida Ribeiro. The Hotel Central dressed up the gambling room and offered patrons a number of amenities such as food, cigarettes, and Chinese opera (Macau SAR Government 1). By this time in Macaus history, the gambling houses were attracting tourists from a number of different placesfor example from Hong Kong and Canton by steamer, and from America by the newly established trans-Pacic air route (Figure 4). The Second World War During the Second World War, Macau was ofcially neutral, or at least as neutral as it could be when surrounded by Japanese military forces that wandered in and out at will. So many destitute refugees ooded into the city during the war that at one point the Governor of Macau used all of the colonys gambling revenue for their aid. The wartime gambling halls were frequented by wealthy refugees, locals of means, spies from various nations, and Japanese soldiers who reportedly lost a lot of money (Gunn, 1996, p. 124; McGivering, 1999, p. 109; McCartney, 2006, p. 41). Although gambling is said to have declined briey after the War, by 1951 it was again in full swing. One reporter called it endemic in Macau. It goes on all the time. (Rand, 1951). STDMA New Era The gambling business dramatically changed in 1962 when the government awarded the next monopoly license to a syndicate named Sociedade de Turismo e Diversoes de Macau (Macau Tourist and Spring 2010 FOCUS on Geography 3

Figure 4: In 1930, the gambling houses advertised with lanterns brightly lit at night. (Source: Asia,Vol. XXX, April, 1930, p. 239.) Amusement Company), or STDM. The Tai Heng monopoly, which failed to win a renewal of its contract, had not kept up with the times. Its primary offering was traditional Chinese games in quaint but outdated facilities. STDM, which held the monopoly for 40 years, was able to make the industry more productive. In return for the monopoly, STDM agreed to make a number of infrastructural improvements. For example, it dredged and maintained a better channel between Macau and Hong Kong and provided high-speed ferry service between the two (Figure 5). It built upscale hotels to offer better accommodations to the tourists when they arrived. STDM also agreed to contribute to the social well being of the territory. For example, it resettled a number of squatters, assisted the government in nancing civic construction projects, and offered support to social and educational foundations. The monopoly also promoted Macau tourism in other countries. Further, it introduced European games of chance in addition to the traditional Chinese games that had dominated the earlier gambling establishments. Now the casinos were 4

Figure 5: 1986 Map of Macau.

beginning to look like their Western counterparts. And, STDM introduced greyhound racing and horse racing as additional forms of gambling. In a ragsto-riches story, the syndicate was headed by a man, Stanley Ho, who had been one of the destitute refugees of the Second World War (McGivering, 1999, pp. 100-102). The main center of gambling moved down the street from the Hotel Central to the new and much more elaborate Casino Lisboa, a casino and hotel complex that became a landmark (Figure 6). It opened in 1970 and quickly became the most famous casino in Macau. By 1985, there were ve casinos in Macau. One, the oating Casino Palace, catered primarily to maritime workers. The Casino Lisboa offered high end VIP gambling. The other casinos served market segments in between (Wong, 1988, p. 282). The fortunes of STDM were boosted by the 1979 economic reforms in China, coupled with Chinas more liberal policies on citizen travel outside of the country. The Chinese government established Special Economic Zones (SEZs) in which foreign investment was permitted and export

Figure 6: During the STDM monopoly years, neon lights replaced lanterns. (Photo by Philip Loughlin.) industries were encouraged. One of these zones was adjacent to Macau, where a new city, Zhuhai, grew out of farm land in

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Figure 7: Sic-Bo tables (foreground) still attract a large crowd today. (Photo by Philip Loughlin.) just a few years, creating great wealth and attracting millions of Chinese from all parts of the country. Naturally, since gambling was not legal in China, this provided a whole new clientele for the STDM just across the border. Because casino gambling was not legal in Hong Kong either, and because other casinos in East Asia were relatively undeveloped, Macau was the destination of choice for most of the vast China market. This cross-border market became essential for future development of gambling in Macau. In the 1980s, STDM began to promote VIP rooms that soon became a major source of gross gambling revenue. The VIP rooms were created to cultivate players who wager substantial amounts of money. The rooms operate in many ways like a casino within a casino, restricted to VIP customers and marketed by VIP promoters and junket operators who act as go-betweens for the casinos and the customers (Wang and Eadington, 2008). The VIP rooms produced more than two-thirds of all gross gambling revenues in 2008 (Macau, SAR Government 1). Outside of the VIP rooms, the mass market continued in full swing. It was reported you could nd Chinese grandmothers in silk pajamas mixing with carefully dressed Hong Kong businessmen. Final Years of Portuguese Rule Although the gambling industry took on a new life in the 1960s, Portugal began to lose its grip on Macau. In a spillover from the Chinese Cultural Revolution, violent riots broke out there in 1966. Many local Chinese communist sympathizers were injuredsome were killedand an ofcial apology was extracted from the Portuguese (Chan and Lo, 2006, p. 268). Then, in 1974, a revolution in Portugal was followed by a policy of decolonization. Portugal offered to return Macau to the Chinese after the 1966 riots and again after the 1974 Portuguese revolution. Both times China declined, thus postponing the inevitable until a time that suited China better. Although the Portuguese remained in nominal control, they had lost de facto control and now, once again, agents of the Chinese government living in Macau dominated the Portuguese (Yee, 2001, p. 4; Lelyveld, 1973). During this period, Macau was described as being, in essence, a captive colonial power. A Chinese territory currently under Portuguese administration, it was said (Chan and Lo, 2006, p. 269). It was during these nal years that casino-related crime became a problem. Triads were operating in the casinos. Triads are international Chinese organizedcrime syndicates similar to the Maa. They were attracted by loan-sharking possibilities and by the VIP rooms, which were a good place to make and launder money. It worked well for them for a while, until the late 1990s when various Triad groups fought violently over who was in charge. In 1999, the last year before the handover of Macau, 37 people died in gang-related killings (Manuel, 2001). The publicity was Spring 2010 FOCUS on Geography 5

Figure 8: Map of Cotai area in modern Macau. doing no good for the gambling industry; tourists were being frightened away. For a long time the Portuguese, whose authority in Macau had been substantially weakened and who were on the way out, seemed incapable of controlling the violence. Finally, undoubtedly orchestrated by the Chinese government and shortly before the handover, there was a crackdown on crime. In the year after the handover only one person died in a gangrelated killing. The presence of elements of Chinas Peoples Liberation Army was probably a major deterrent (Manuel, 2001). At the handover, Macau became a Special Administrative Region (SAR) of China. An SAR is an administrative subdivision of China based on the principle of one country, two systems. It is governed by its own constitution, the Basic Law, under which the region is given a high degree of autonomy, a separate political system, and the right to its separate economic system for a period of 50 years. Macau followed 6 closely the model of Hong Kong, which had been returned to China in 1997 as an SAR. The model of one country, two systems seems to be working reasonably well so far in both cases. Period 4: Gambling Liberalization (2002-present) Liberalization Immediately after the handover of Macau, the new government announced plans to study the gambling industry. There was a concern that the 40-year old STDM monopoly was too powerful and that Macau could best be served by allowing competition. In addition, gambling in Macau was suffering from a poor reputation. It had an image of a seedy day-trip destination with old, smoky casinos, and organized crime. (International Herald Tribune, 2006). Even the Lisboa complex, once the show place of Macau, seemed run-

down. Reporters described it as dark and cramped. (Friess, 2006). It was time for a change. It was time to liberalize. The goals of liberalization were to make Macau a major center of gambling by bringing competition and contemporary practices to the industry, and to enhance the economy by developing the tourist industry and providing employment opportunities Further, the government hoped to go beyond the gambling and tourism market and attract the so-called MICE (meetings, incentives, conventions and exhibitions) market. For that reason, Macau now offers several sites for large-scale meetings, some connected with the new casinos and some not (McCartney, 2006, p. 48; Fallows, 2007). Using an internationally known consulting rm as an adviser, the government prepared a new gaming system that ended the STDM monopoly and invited organizations with extensive gaming experience and sources of capital to bid on franchises (Landler, 2002). Twenty-one companies bid on the contract, attracted by Chinas gaming market that was huge; potentially worth hundreds of billions of dollars (Healy, 2004). Three companies were selected in 2002 to receive one of the new 20-year contracts to run casinos. They were Sociedade de Jogos de Macau, or SJM (a subsidiary of STDM), Galaxy Casino, and Wynn Resorts, the last two being American companies with major operations in Las Vegas2. Now everything would be rst-class and modern. Even the vocabulary changed. The word gaming was now preferred to gambling, and the word players preferred to gamblers. The rst of the new casinos was the successful Sands Macao, which opened in 2004 to a raucous crowd pushing and shoving to get inside. By mid-2009, there were 32 casinos where there had been only 11 in 2002. From 2003, the last year before the Sands Macau opened, through 2008, the number of annual visitors to Macau almost doubled from 11.9 million to 22.9 million. More than half of these came from mainland China (Figure 7). (Macau SAR Government 2). During the same period of time, the total gaming gross revenuethat is the casinos income before any expenses are deductedgrew by a multiple of almost

These three franchisees, or concessionaires as they are called, were each allowed to appoint another concessionaire, which each did, so that there are now six concessionaires in Macau running casinos.

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four, going from US$ 3.6 billion to US$ 13.7 billion (Macau SAR Government 1). This growth was in spite of the economic downturn of 2008. Gross revenue of US$ 13.7 billion is more than the two largest U.S. marketsLas Vegas, NV, and Atlantic City, NJcombined. More than 99% of the total gross revenue comes from casinos, the rest from the other gambling activities that include horse racing, greyhound racing, and a variety of lotteries. The direct economic benet for the government of Macau comes from the increase in tax revenue and other charges. The casinos pay a special gambling tax of 35% levied on gross revenue. This produces more than 75% of total government revenue (Macau SAR Government 3). There is a requirement that the franchisees pay up to three percent more of the gross revenue to the tax authorities for the specic purposes of urban development, tourism, and social security. Franchisees pay up to two percent

of the gross revenue to a public charity. Finally, the franchisees are charged a minimum of US$ 9.4 million annually for the right to hold their franchise. Because of the very high tax on gaming, other taxes in Macau are relatively low, which is to the advantage of other industries as well as individuals (Pessanha, 2008, pp. 345-348). The New Casinos The new casinos are everywhere in Macau, including in Cotai, the landlled area between the islands of Coloane and Taipa (Figure 8). The Sands Macao was soon followed by other notablesWynn Macau, a casino and hotel, in 2006 and the Venetian Macau, another casino and hotel, in 2007 (Figures 9 and 10). SJM opened a new complex, the Grand Lisboa, next door to the old Lisboa complex (Figure 11). In contrast to the old Lisboa, each of these new casino-hotels is

spacious and well-lit and offers hundreds of deluxe hotel rooms. Each offers shopping and entertainment, and in many respects functions as a resort. They look as if they had been uprooted from Las Vegas and replanted in Macauwhich in a sense they had. The 32 casinos offer a bewildering array of 24 different games (Figure 12). They include roulette, black jack, and craps, but the favorite game is baccarat. It is the new fan-tan. Close to 90% of total gross revenue from gaming comes from baccarat, most of it from VIP customers. The Macau casinos are not without competition. Although they are probably the best known in East Asia, there are other gaming venuesfor example South Korea, the Philippines, and some of the Southeast Asian countries. However, in comparison to Macau, the growth of gaming in these other venues has been stunted because of legal restrictions, and, in the case of predominately Muslim countries,

Figure 9: The Wynn Macau, an example of one of the new luxurious hotel-casinos. It challenges the old and new Lisboa complexes across the street. (Courtesy Wynn Macau.) Spring 2010 FOCUS on Geography 7

Figure 10: The architecture inside the Venetian Macao reects the new gaming image. (Courtesy Venetian Macao.)

Figure 11: The new Grand Lisboa towers behind the old Casino Lisboa and Hotel. (Photo by Philip Loughlin.)

because of religious restrictions. This may change. The trend in many of these countries has been towards legalizing gaming. In 2005, Singapore legalized casino gaming and issued two licenses for casino-resorts. In early 2009, Taiwan legalized gaming, and soon will have its own casino-resorts. Further, countries that already have casinos, such as South Korea, tend to be increasing their number. Conclusion Over the last 450 years gambling in Macau has gone from a small sideshow to the main event. The underlying policy of taxing gambling to nance the government originated in 1847 and has continued to this day under rst Portuguese and then Chinese control. In the years immediately following 1557, gambling was a back street activity. It attracted mostly local Chinese plus a few westerners. This was of no consequence to the local authoritieseither 8

Chinese or Portuguese. In the 19th Century gambling was legalized and taxed to raise needed revenue for the Portuguese government of Macau. At the beginning of the 21st Century, the new government of the Macau SAR liberalized gambling in an effort to boost the local economy. By 2009, the casinos were state-of-the-art, offering 24 games of fortune 24 hours a day. In addition, Macau offers greyhound racing, horse racing, and a variety of lotteries. All of this attracts more than 22 million visitors a year and produces over 75% of the local governments revenue. In thinking about Macaus future, tourism and recreation appear to be the main activities on which Macaus livelihood and economy will depend. Gaming and betting are the underpinnings of its tourist industry, and Macau appears well positioned and well located to take maximum advantage of the Chinese enthusiasm for gaming and recreation. The future looks bright indeed.

Acknowledgements The authors wish to thank the Department of Geography at the University of Hong Kong and Mr. Wong Ting-bor (T.B. Wong) for assistance in drafting three of the maps. Thanks also to Ms. Reddy Leong of Wynn Macau and Ms. Mabel Wu of Venetian Macao for permission to use photos of their casinos and for their gracious assistance and courtesies during our visit to Macau. The Library of Congress allowed the copying of one of its 18th century French maps for which we are most grateful. References Chan, Ming K. and Shiu-hing Lo (2006). Historical Dictionary of the Hong Kong SAR and the Macao SAR. The Scarecrow Press. Lanham, MD. Fallows, James (2007). Macaus Big Gamble, The Atlantic Online. September.

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Figure 12: In 2009, the gaming tables are depicted as spacious, well lit, and surrounded by elaborate decorations. (Courtesy Venetian Macao.)

Forbes, Edgar Allen (1932). The National Geographic. Macao, Land of Sweet Sadness. Vol. LXII, No. 3, September. Friess, Steve (2006). A Vegas size bet on China, Newsweek. September 4. Gilbert, Rodney (1922). The Living Age Lotus Life in Macao: Where Conscience Troubles Not and Man May Rest. July 15. Gunn, Geoffrey C. (1996). Encountering Macau: A Portuguese City-State on the Periphery of China, 15571999. Westview Press. Boulder, CO. Healy, Tim (2004). The Wall Street Journal. Big Gamblers Bet On Macau. March 5. International Herald Tribune (2006). A $1 billion bet on Macao as the Las Vegas of the East. September 5. Ladies Home Journal (1927). Around the World I Go. March. Landler, Mark (2002). Las Vegas is going to Asia: A gamble maybe for all sides. The New York Times. February 9. Lelyveld, Joseph (1973). Booming Macao belongs to the Portuguese, but Chinese residents and Peking call the tune, The New York Times September 29.

Macau SAR Government 1. Gaming Inspection and Coordination Bureau. http://www.dicj.gov.mo. Macau SAR Government 2. Tourist Ofce. http://www.macautourism.gov.mo. Macau SAR Government 3. Director of Economic Services. http://www.economia. gov.mo. Manuel, Glen (2001). Is rowdy Macau ready for its close-up? The New York Times, August 21. McCartney, Glenn (2006). Casino Gambling in Macao: Through Legalization to Liberation, in Hsu, Cathy H. C, ed. Casino Industry in Asia Pacic: Development, Operating, and Impact. The Haworth Hospitality Press. New York. McGivering, Jill (1999). Macao Remembers. Oxford University Press. Hong Kong. Peneld, Frederic Courtland (1912). East of Suez: Ceylon, India, China and Japan. The Century Co. New York. Pessanha, Luis (2008). Gaming Taxation in Macau. Gaming Law Review and Economics. Vol. 12. Number 4.

Pires, B.V. (1987). Origins and Early History of Macau, in R.D. Cremer, ed. Macau: City of Commerce and Culture. UEA Press. Hong Kong. Porter, Jonathan (1996). Macau, the imaginary city; culture and society, 1557 to the present. Westview Press. Boulder CO. Rand, Christopher (1951). The New Yorker. Letter From Macao. November 11. The Living Age (1899). Cities of the Far East. Vol. V, December 30. The New York Times (1876). Gambling in Macau. January 2. Wang, Wuyi and William R. Eadington (2008). The VIP-room contractual system and Macaos traditional Casino industry, in China: An International Journal. September 2. Wong, Hon-Keung, Compiler, Huang Wen-Wei, trans. (1988). Economy of Macau, Jornal Va Kio Macau. Yee, Herbert S. (2001). Macau in Transition: From Colony to Autonomous Region. Palgrave. Basingstoke, Hampshire.

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