April 13, 2018 / 6:25 AM / 6 months ago

Breakingviews- Retiring Macau mogul had first-mover disadvantage

Hong Kong (Reuters Breakingviews) - A new casino game can be tricky to master. Stanley Ho, who at 96 is stepping down as chairman of SJM Holdings, enjoyed a decades-long head start in Macau, now by far the world’s biggest gaming hub. But SJM quickly lost ground to Wynn Macau, Galaxy Entertainment and others.

Veteran Macau tycoon Stanley Ho, Managing Director of Sociedade de Jogos de Macau (SJM), attends a news conference during the opening of SJM's flagship casino Grand Lisboa in Macau in this February 11, 2007 file photo. Ho has undergone brain surgery in Hong Kong and is in intensive care, local media reported on August 4, as stocks in his flagship gaming firm dipped on the news. REUTERS/Paul Yeung (CHINA BUSINESS HEADSHOT)

For decades, the mogul had the sole gambling licence in Macau, which was a Portuguese colony until 1999. That gave him ample time to build casinos, win clientele, and establish relationships with other power brokers, like the junket operators which organise trips by big spenders, and lend them money to bet with.

Yet in the 2000s, the now Chinese-controlled Macau opened its doors to other operators, allowing in industry veterans such as Steve Wynn and Sheldon Adelson, who had cut their teeth in more competitive markets such as Las Vegas.

Without Ho’s monopoly, the $5 billion SJM has proved a losing bet. Earnings fell nearly 16 percent last year, to HK$2.0 billion($250 million). SJM is the only one of six Hong Kong-listed casino operators to hand shareholders a negative total return, including reinvested dividends, over the past five years.

Much like Ho, the business is showing its age. Its share of overall gaming revenue has shrunk to a sixth, compared with a quarter in 2013, as punters have favoured shiny new properties opened up by the likes of Wynn and Galaxy. And other outfits may have better relationships with mainland-focused junket specialists, giving them an advantage in luring the Chinese VIPs who nowadays dominate Macau.

Corporate governance is off-putting, too. The company now boasts not only a chairman, daughter Daisy Ho, but also two co-chairmen, a vice chairman and, in Ho himself, a chairman emeritus. As Bernstein analyst Vitaly Umansky notes, this “hydra-like” set-up doesn’t bode well for strategy.

SJM shares rose on news of Ho’s departure: hardly how the founding father of Macau’s gaming industry would want to mark this occasion. But punters seem to be betting SJM has a chance to prosper in a new era.

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