Casino Money and a New Market, Taxes and Politics, the Media and Pay Per View: Manny Pacquiao Moves from Las Vegas to Macau
by Mike Gallagher on May 9, 2013

When undefeated heavyweight champions Muhammed Ali and Joe Frazier met on August 3, 1971 to engage in the “Fight of the Century,” there probably was never a question in anyone’s mind where such an important fight would take place: Madison Square Garden in New York City.  For decades up to that point it was the location for major, major fights. It is why “The World’s Most Famous Arena” is also known as “The Mecca of Boxing.” Although Ali-Frazier II was also held at MSG, a new player began to rise in the boxing game: boosted by gambling money and tourism (and maybe money from less than reputable sources), Las Vegas, NV,  became an alternate destination for major fights.

The 1981 welterweight unification match between superstars “Sugar” Ray Leonard and Thomas Hearns and the 1982 heavyweight championship bout between Larry Holmes and Gerry Cooney were two of the more famous fights that Vegas received instead of MSG during its early years, before the rise of Vegas as the new fight capital of the world. In the following years, different venues and cities would attempt to challenge Las Vegas’s status: Atlantic City and more recently Cowboys Stadium in Dallas, TX, would rise as contenders. While such challenges would result in those venues hosting some large events, of course, Vegas’s status as the leader in hosting boxing has remained unchanged.

Manny Pacquiao, one of the two biggest stars in boxing, has agreed to have his next fight against Brandon Rios venued at the Cotai Arena at the Venetian Casino in Macau, China. Not the Venetian in Las Vegas. Not the MGM Grand, which has hosted Pacquiao’s last four and seven out of his last nine fights and the last seven Floyd Mayweather fights. Not the Mandalay Bay where Pacquiao stays in Las Vegas (because he feels comfortable there even though he fights at other venues), has Church services in their event space and has performed in concert. Not even Cowboys Stadium (where Pacquiao fought twice in 2010) or Madison Square Garden (where Pacquiao has never fought despite New York having a sizeable Filipino population and being the media capital of the world).

Macau. China.

If you fly twenty hours from the United States to attend the fight (or watch the PPV on the night of November 23 while it is the morning of November 24 where the fight is occurring wondering why the crowd looks so tired), you may wonder how did we get to this point. There are actually quite a few answers.

Casino Money

As mentioned earlier, Las Vegas was able to become the fight capital of the world because of its casino money. However, the thrill of games of chance is not the only way a casino gets gamblers in the door. Indeed, casinos need something to distinguish themselves from each other or even a home poker game. Thus, casinos host top restaurants, superstar comedians and musicians, extravagant shopping and decadent nightlife. In addition to those amenities casinos regularly host boxing events. The idea is simple: big gamblers would enjoy an evening at a four star restaurant, watch a world class prize fight and cap off the night surrounded by beautiful people and energetic music in a club. Before, in between and during all of those activities, the gambler is betting large sums in the casino. If hundreds or even thousands of gamblers are doing that, then the casino is potentially making huge sums of money. Thus, the casino can pay the promoters and fighters more money to have the fights in their casino than Madison Square Garden, L.A’s Staples Center or even the 100,000 plus seat Cowboys Stadium.

Fighters and promoters go where the money is.

Pacquiao, in particular, has always been a good draw for Las Vegas. Of course, his action style, amazing speed, fantastic power which led to more than a few crushing knock outs and fascinating back story all contributed to his drawing power. However, his ethnicity as a Filipino also helped his ability to fill seats in “Sin City.” When Pacquiao would fight in Las Vegas, many Filipinos and many Asians would make the long journey to the desert to watch their hero while also staying in the hotels, shopping, eating, drinking, being entertained and, most importantly, gambling. Indeed, when Pacquiao returned to fighting in Las Vegas in 2011, promoter Bob Arum mentioned that the influx of money from Asian gamblers was a prominent reason for the MGM Grand seeking Pacquiao’s return.

Those gamblers, however, have not been traveling to Las Vegas as frequently with the rise of extravagant luxury casinos in Macau, China. Macau, like Hong Kong, is a “Special Administrative Region” of China that, while dependent on China for military protection and foreign affairs, has its own economic and legal systems. In other words it is not really a communist city. Beginning in 1999, when Portugal officially turned over control of the city to China, casinos began being built and that process was accelerated by liberalization of the laws relating to the gaming industry in 2001. That led to Las Vegas based casinos such as the Sands (2004), the Wynn (2006) and the Venetian (2007) opening Macau locations. In fact, the Venetian Macau is the sixth largest building in the world by floor space (at the time it opened, it was second). Numerous other casinos have followed. With the gamblers of Asia staying close to home but still enjoying games of chance, these casinos have prospered to the tune of huge profits. Kevin Iole of Yahoo reported that during the weekend of the Zou Shiming fight at the Venetian Macau in April, 2013, the casino’s profits were up 70%. Further, Arum stated that the profits for those two days were more than the profits of some Las Vegas casinos for a whole year.

With all that money, Macau casinos can certainly afford mega-events, including those involving a Pacquiao whose minimum guarantee for fights is reported to be in the neighborhood of $25,000,000. So the casinos in Macau have the money and the incentive to bring the fights to their properties. But do the promoters and the fighters have the same incentive?

A New Market

While the population of Macau is only 568,000, both the 2010 Chinese census and a 2012 estimate calculate China’s current population to be over 1,350,000,000.  By these numbers, China’s population is at least 1,034,000,000 larger than that of the United States and is approximately three times larger than the combined populations of the United States, Mexico and Canada. China is also the world’s fastest growing major economy.

Pacquiao’s promoter, Top Rank, run by Arum and Todd DeBouef, has been extremely successful in promoting boxing events throughout North America.  Boxing is increasingly becoming a sport where only the major fights receive mainstream attention.  Outside of a Pacquiao or Mayweather fight, the sport largely goes unnoticed by non-hardcore boxing sports fans.  While Top Rank does good business on other fights, it does not reap the massive windfall that a Pacquiao event does.  Additionally, Top Rank has faced increased competition over the past 10 years from Golden Boy Promotions.  This competition ranges from everything from signing free agent talent, signing away fighters from the other company (Golden Boy works with Mayweather, whom Top Rank developed into a star; signed Victor Ortiz while he was under a Top Rank contract; and tried to poach Pacquiao and Nonito Donaire), scheduling particular venues, alliances with television networks (both in the US and Mexico), particular dates from the pay per view industry to sponsorships by Mexican beer companies (notably, Top Rank is sponsored by Tecate while Golden Boy is sponsored by Corona).  While Top Rank is no stranger to competition, as Don King and Main Events would certainly attest to, the competition which occurred decades ago was for a much bigger boxing industry.  As today’s boxing industry is smaller than it once was, having another giant promotional company like Golden Boy must be cutting into Top Rank’s business in some fashion.  Indeed, their battles over premium network dates has led to Golden Boy being the (mostly) exclusive provider of boxing content for Showtime and Top Rank being barred from that network leaving them to only do business with HBO.

With the competitive landscape in North America, Arum has turned some of his attention to China.  Although Top Rank staged their first event in Macau only this April, Arum has been talking about promoting events there for a number of years.  He talked about it so much and even mentioned bringing Pacquiao and Donaire there that boxing journalists began making jokes about Arum being “the boy who cried Macau.”  Joke no longer.  Top Rank is serious about Macau.  For the April card, it agreed to allow HBO2 to air it for a minimal licensing fee just because the Venetian wanted the HBO brand attached to the show.  The April card and the Pacquiao-Rios fight are not the only events Top Rank has planned; a July card featuring Shiming is also scheduled.

The most important piece in the development of the Top Rank-Venetian Macao relationship was Top Rank’s signing of Shiming. As an amateur fighter, Shiming represented China in three Olympic games and won a bronze medal and then two gold medals. The first gold medal was won when the Olympic games were held in Beijing. During the course of his wildly successful amateur career, Shiming became a national hero. Sure, Pacquiao is a national hero in the Philipines, a country with a population of just under 100,000,000. Shiming is a similar hero but for a country 15 times the size! Thus, it cannot said to be surprising that the April show featuring Shiming was a success at the box office and the casino. The television numbers, though, even considering the huge population of China, are extrodinary: it has been reported that 300 million viewers in China watched the bout. 300 million viewers for a four round professional debut! No fight, or any sporting event for that matter, in the North America even comes close to those kind of numbers.

Keep in mind when thinking about those numbers… there is no competition. Golden Boy has no presence in China and has no Chinese boxers under contract. The same goes for Don King (although he has promoted cards there in the past, his entire organization is rapidly declining), Main Events, Dan Goosen, Gary Shaw or non-US promoters such as Frank Warren, Matchroom Sport, K2 Promotions, Sauerland Event and Teiken Promotions. As such, Top Rank has access to a billion and a half people. Now, they plan on using Pacquiao, in addition to Shiming, to break that market.

Taxes

That explains why the promoter is interested in China… but why would Pacquiao be interested? For years, he has received huge paydays in the United States. Why would he look to change that? Taxes.

The United States federal government charges income taxes for those who make Pacquiao money of about 40%. Thus, if Pacquiao receives just his guarantee, assume $25,000,000, he really only makes $15,000,000 and pays $10,000,000 to the United States government (and you wondered why Pacquiao met with President Barack Obama when he visited the White House in 2011). Also, keep in mind that Nevada, like Texas (where Pacquiao has also fought) and Florida, has no state income tax. So, if you are wondering why Pacquiao has never fought in New York it is because in addition to the 40% charged by the federal government, he would also be subject to New York State Income Tax.

Fighting in Macau, on the other hand, Pacquiao would not be subject to that tax rate. Rather, Macau’s income tax rate is just 12%. That also assumes that the Macau government does not cut a deal with Pacquiao to lessen the tax burden. Such a negotiation, given the publicity a Pacquiao fight will bring to Macau and the potential economic benefits that may follow, is quite possible. Thus, on a $25,000,000 guarantee, Pacquiao would take home $22,000,000 or $7,000,000 more than he would take home for a fight in the United States. Even if Pacquiao’s guarantee was only $19,000,000, the Macau tax rate would allow him to take home $16,720,000, almost two million more than a $25,000,000 guarantee in the US would allow him to bring home.

The math is quite simple.

Politics

At this point, you may be thinking that with type of numbers being discussed, Pacquiao must be so rich that he would not care about the 40% tax rate. Such a thought could not be more wrong.

According to biographer Gary Andrew Poole, that Pacquiao spent “millions” on a losing effort in 2007. Interestingly, Poole claims that in Filipino elections, money from campaigns needs to go to ward leaders to protect the candidates interests and insinuates that money is needed for purposes that the United States would deem to be less than legal. Following the loss, Pacquiao became more organized in his approach to running for political office and even went as far as forming his own political party, the People’s Champ Movement. Poole noted that Pacquiao spent “probably more than $7,000,000 of his own money” on his first winning campaign in 2010 for Congress in the Philipines.

As part of his political party, Pacquiao’s wife now runs for office. Jinkee Pacquiao is currently running for Vice-Governor of their home province, Sarangani. This is in combination with Jinkee’s reputation which is described by Poole as having “more unorthodox spending and saving habits.” His younger brother, Rogelio, is also running for Congress. Like his own campaigns, the campaigns of Jinkee and Rogelio are funded by Pacquiao.

Perhaps because of his political ambitions, because he is a charitable fellow or because he is, as Poole claims, “an easy mark… to anyone with a sob story,” Pacquiao often gives enormous sums of money away. Poole actually wrote that “[w]hen anyone wants cash, Pacquiao immediately agrees.” The anyone refers to the many individuals Pacquiao employs for whatever reason (stories abound about contests where winners get paid in addition to salaries), the 150-200 people who claim to be his relatives, washed up and broke ex-fighters and ex-athletes and generally anyone else. He pays for funerals of random Filipinos, donates hospital beds, gives money to friends for medical bills and hands out school supplies to children. It even goes so far that people often just show up at Pacquiao’s house and, amazingly, he gives them money!

So combine all of that with Pacquiao’s former gambling and partying days and current devotion to religion, you have a recipie as old as boxing. A recipie for a broke boxer. Pacquiao needs money and Macau can provide it.

The Media

Because the fight is in China and Pacquiao will be training for the bout in his native Philipines, the US media will not have access to Pacquiao or his training staff which includes Hall of Famer Freddie Roach. Arum has arranged for Pacquiao to participate in a press tour as well as spending one week at the Wild Card Gym in Hollywood, California so the press can have access to Pacquiao. However, this is much less access to the fighter than the media is used to. It is also unknown how HBO, which is the distributor of the pay per view, will promote the event. Normally, it would film the fighters for a multi-episode arc of its “24/7” series. In the past, they have filmed Pacquiao in the Philipines. This time, though, it appears that may not happen.

The issue with Pacquiao not being in the United States creates a potential “out of sight, out of mind” problem. If he is fighting overseas exclusively in the future, as his advisor Michael Koncz has suggested is possible, and is not featured in reality shows, will US fans forget him? Would an awesome knock out victory that occurred in China against an opponent who is not that well known (Rios has only been in two HBO co-featured bouts, two pay per view undercards, two Showtime main events, one HBO main event and as the main event of a very small pay per view card) be dismissed because it was not well reported on? That is certainly an issue that bears watching.

Pay Per View

Without media access to the superstar fighter, the media will likely write less about the fight which will result in less publicity. The effect of this could be a dramatic reduction in pay per view buys. An example of this was the recent Mayweather-Robert Guerrero pay per view which is rumored to have done less buys than past Mayweather events. Many reasons are cited for this reduction but many experts point to the lack of media availability by the fighters as one of the reasons.

Thus, Pacquiao’s lack of a presence might cost him pay per view buys. According to numerous reports, Pacquiao receives a certain amount of money per pay per view buy in addition to his guarantee. Obviously, not fighting in the United States may cost him money that way.

Is that cost outweighed by other gains, such as the tax issue discussed above? Another gain could be through Chinese Pay Per View. Arum has told multiple writers that the event will be sold for $4-$6 in China and will be available on smart phones, I-Pads, computers and other technologies. This is an interesting development because the use of such devices for pay per view in the United States has not really taken off. Regardless, Arum has said that the people of China are very tech-savy and may watch the fight this way. If that is the case, then $4 a pop for even half of the amount of people that watched Shiming’s debut and, well, that math is pretty simple too. That could make up for the loss in revenue from US pay per view.

The only way we will know whether the move to Macau is successful is if Pacquiao’s next bout is also held there. Of course there are other factors such as whether Pacquiao wins and if major opponents are willing to go to Asia for the fight (it appears that Pacquiao’s great rival Juan Manuel Marquez is not willing to do so). But money talks. For this fight, at least, it has talked Pacquiao into going to Macau. It may entice him to stay there too.



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