RICH PICKINGS: Busted flush, by James Thomson - Business Spectator - 2nd January 2009

It’s the saying that rings in the ears of every gambler – the house always wins.

Not any more.

In the last 12 months, the world’s biggest casino magnates – including James Packer, US bigwigs Sheldon Aldelson and Kirk Kerkorian, and Macau veteran Stanley Ho – have seen more than $70 billion wiped off their fortunes after putting the bulk of their cash in the biggest casino of all, the sharemarket.

It’s not that long ago that many of these billionaires were celebrating a new golden age of gambling thanks to the rise of the tiny island of Macau as the world’s biggest gambling centre.

While cashed-up high rollers were keeping the cashiers busy in the traditional gambling hotspots such as Las Vegas and Australia, Macau was the centre of the action. The country’s decision to open its gambling market in 2002 resulted in gaming revenue soaring from $US3.5 billion in 2003 to a staggering $10.4 billion in 2007. The number of casinos has jumped from five to 29 over the last five years, as casino operators across the globe jostled for a piece of the Macau action.

But the glittering star of the East is quickly losing its shine. While most experts were predicting gambling growth in Macau would continue at double-digit levels in 2008, the global financial crisis – and, it has been suggested, the overcrowding of the market – has hurt the region’s casino operators badly.

A few weeks ago, reports surfaced that VIP gambling – the lifeblood of Crown’s Macau casino – is set to fall by 25 per cent next year. Managers are considering closing some of the casino’s restaurants and forcing the 3000 staff to choose between two and six months of unpaid leave.

Not surprisingly, investors in Crown Limited and its Macau joint venture partner Melco having been growing increasingly worried about the Macau outlook. The share price of Crown has fallen more than 60 per cent since the start of the year, wiping $2 billion off the value of James Packer’s stake. It is now worth about $1.3 billion.

Melco is controlled by the grandfather of Macau’s casino scene, Stanley Ho, and his wider family. Up until 2002, Ho was the only person allowed to run a casino in Macau and while his control of the market has reduced in recent years, his influence over the region remains strong.

His bank balance is looking a little less than strong these days. The value of Ho’s stake in Melco International Developments (including the shares owned by son and heir Lawrence Ho) has plunged 85 per cent from around $1.1 billion to about $150 million. His stake in casino company Sociedade de Jogos de Macau (better known as SJM), has lost more than half its value since the company listed in July, dropping from $780 million to $390 million.

But the losses of Packer and Ho are nothing compared to those of America’s casino kings, Aldelson and Kerkorian.

Kerkorian, who is 91 years old, has had a rough trot. Kerkorian owns just under 5 per cent of stricken car maker Ford, which has fallen 80 per cent this year, reducing the value of his stake from $1 billion to around $210 million. He also owns 35 per cent of Delta Petroleum Corp, which plunged from $US20 a share to around $US4.50 a share since the start of 2008, cutting Kerkorian’s stake from $1.1 billion to around $260 million.

But his main investment is a 54 per cent stake in MGM Mirage, the largest casino operator in Las Vegas (it owns iconic casinos such as the Bellagio, Luxor and Circus Circus) and a casino in Macau. Since the start of the year, the company’s market capitalisation has fallen 87.5 per cent from $34.3 billion to just $4.3 billion, wiping $15.8 billion off the value of Kerkorian’s stake.

Still his losses are nothing compared to Aldelson, the major shareholder of Las Vegas Sands Corporation. Since the start of the year, the value of Aldelson’s stake in the company has fallen by a staggering $50 billion as the company’s shares have plunged. If that wasn’t bad enough, Aldelson has personally spent around $1.5 billion in the last eight weeks propping the company up as it teetered under its massive debt load.

It’s a sad state of affairs for a man who claimed in 2006 he would be richer than Bill Gates. Still, Aldelson is nothing if not a survivor, as one former associate reminded Bloomberg recently: “If the world came to an end, there would be cockroaches and Sheldon. And Sheldon would immediately be smart enough to open a pest-control company.”

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