Quotes of the Day

Business in Asia is played very much like ice hockey. The big guys — state-backed behemoths, massive conglomerates and supertycoons — almost always pin smaller enterprises against the glass to score the plum deal. So it seemed for Lawrence Ho, CEO of NASDAQ-listed casino operator Melco Crown Entertainment. Less than a year ago, the giants of the gaming industry — Vegas legends Steve Wynn and Sheldon Adelson, chairman of Las Vegas Sands — had shoved the little-known Ho to the edge of Asia's casino market. But his rivals should have taken note of how Ho, a recreational hockey player, likes to mix it up on the ice, no matter the size of his opponent. "He's checked me now and then, I'll tell you that," says one competitor.

Ho did the same to the Vegas big shots. Melco Crown is one of only six companies permitted to run casinos in Macau, the Chinese enclave that has surpassed Las Vegas in total gambling revenue. And Ho, 31, has matched his competitors chip for chip. His first casino-hotel, the Crown Macau, saw few customers when it opened in May 2007. But Melco Crown swiftly closed the gap. Its market share of 16% in the first half of 2008 was just a whisker behind Wynn with 17% and Las Vegas Sands at 21%, according to Citi Investment Research. More impressively, the Crown has become Macau's top casino for VIP high rollers. "A lot of people were surprised we turned it around so quickly against the big boys," Ho says.

Ho says he did it by capitalizing on his home-field advantage and ample gaming experience. His pedigree is certainly formidable. Ho is the son of Stanley Ho, the 86-year-old tycoon who held a monopoly on Macau's casinos for four decades until the government issued new licenses in 2002. Lawrence and sister Pansy both started working in the family business but struck out on their own after the market opened up — in competition with their father. Pansy teamed with Vegas firm MGM Mirage to develop casino-hotels in Macau, opening the MGM Grand Macau in 2007. Stanley and Lawrence founded Melco Crown as part of a joint venture with Australia's Publishing and Broadcasting Ltd., founded by the late billionaire Kerry Packer. (Kerry's son James is now co-chairman of Melco Crown.) Citing a conflict of interest, Stanley later left the operation to run his original casino company, Sociedade de Jogos de Macau. Lawrence says he never wanted to work for his dad. "I thought I wouldn't learn anything because people would either handle me with kid's gloves or not let me learn," he says.

At first, Ho looked unlikely to contribute much to the family empire. The venture's first major investment, the $524 million, 216-room Crown Macau, appeared a feeble alternative to the ornate 600-room Wynn Macau, which opened in 2006, and Adelson's gargantuan 3,000-room Venetian, a re-creation of his famed Vegas resort that opened three months after the Crown Macau. Located on one of the enclave's outer islands, the Crown was too far from the city's other casinos to attract walk-in gamblers. In the month of its opening, the Crown claimed an embarrassing 1.7% share of the gaming market. Melco Crown lost money in the first three quarters of its casino's operations.

Rookie mistakes, perhaps. Ho admits the company "got a little too greedy" by rushing the opening and by targeting mass-market customers. Crown's managers believed all they'd have to do was set up shop to see a rush of gamblers. But with a growing number of casinos in Macau, success was no longer so automatic. "In an all-out competitive environment, it's really a game of inches," Ho says. "Management didn't adapt for the local market." Unlike in Vegas, where casinos are filled by average Joes pumping coins into slot machines, high rollers account for some 70% of the gaming revenues in Macau. Realizing the mistake a few months after the Crown's opening, Ho decided to instead go after wealthy gamblers by positioning the casino as a haven for high rollers.

Melco Crown ripped out slot machines and low-end gaming tables and expanded its VIP casino. But more importantly, Ho outmaneuvered his competitors by coming up with an unusual arrangement to ensure a steady flow of big fish. Macau casinos attract most of their wealthy clientele by working with junket operators, companies that function like specialized travel agencies. By maintaining close ties to high-end gamblers and often providing them with credit to bet, junket operators funnel traffic to the casinos, which pay them commissions. Macau has scores of independent junket operators, making business unpredictable. Ho figured out a way to get a core group of operators to act as consistent suppliers. In December 2007, he formed a partnership with an affiliate of a Hong Kong – listed gaming company named Amax Entertainment Holdings; Amax raised $250 million through a stock sale, which was then used to provide financing to eight junket operators. In effect, Amax became like a central bank for the high-roller market. Using this financial leverage, the Amax affiliate funneled gamblers to the Crown and in return got an above-market commission, some of which is passed on to the operators.

The gambit worked. In July, according to Citi Investment analysts, Melco Crown may have claimed the largest share of Macau's VIP market. Now Ho's challenge is staying on top. The Macau government has announced that it intends to cap commission rates paid to junket operators as part of a larger effort to bolster regulation of the industry. That could reduce Ho's leverage, but analysts say Amax's financing power still gives him an advantage. "Once you've got the kind of critical mass Ho's got, it will be difficult to dislodge him as a true contender in Macau," says Anil Daswani, Citi's head of gaming research in Hong Kong. Ho "has invented a product that will be difficult to replicate."

Ho's success has come at the expense of his father, who has lost a large chunk of his high-roller business to Melco Crown and others this year. Ho says his mentor has remained supportive. "He's been great," Ho says. "Even when we weren't doing so well, he did give us advice. It's almost like the two of us have formed our own little casino association. When we have meals together, he looks at me as his son rather than a competitor — even though we go after the same piece of chicken sometimes," Ho says.

It's not clear whether there will be enough chicken to go around. The red-hot growth rate of Macau's gambling market is set to ease in the second half of 2008 due to local government efforts to cool Macau's overheating economy. The slowdown could come as several major new projects are launching. Early next year, Melco Crown will open the City of Dreams, a $2.3 billion megaresort that boasts several hotels (including a Grand Hyatt and a Hard Rock Hotel), a 2,000-seat theater, a shopping mall and a 550-table casino.

Located on Macau's Cotai Strip, the resort presents a whole new challenge for Ho. He'll have to compete head to head for mass-market gamblers with Adelson's Venetian, situated right across the street. Adelson, too, is bringing even more options to Cotai, including a Four Seasons hotel, which opened in late August. "In the beginning, [City of Dreams] may have a tough time," says Gabriel Chan, a gaming analyst at Credit Suisse in Hong Kong. Ho, though, says he isn't worried. "Unlike some of our competitors who have cookie-cutter projects from the U.S., my vision has always been to create unique 'Wow' experiences," he says. The hockey player could yet keep the big boys in check.

• Michael Schuman