MACAU — When U.S. casino giants Las Vegas Sands and Wynn Resorts first set foot on these islands in the South China Sea a few years ago, skeptics warned that their bet on Asian gambling could turn into a bust.

But their bet appears to be paying off, at least for now. Macau (sometimes called Macao) has not only overtaken Las Vegas as the world's top gambling market, its casinos are rebounding smartly even as gambling "remains stuck in America's recessionary mud," as Moody's senior vice president Keith Foley puts it.

In October, Macau gambling revenue hit an all-time high of $1.59 billion after setting a record just two months earlier. The Chinese new year's holiday, which lasts for about two weeks starting Feb. 14, should provide another boost as vacationing Asian workers head for the casinos en masse.

"People want to try their luck," says Manuel Joaquim das Neves, director of Macau's Gaming Inspection and Coordination Bureau. The Chinese believe that on new year's, "If you have luck, then you'll have luck all year."

The emergence of Macau — about 40 miles west of Hong Kong — as a gambling powerhouse is a sign of China's economic might and the spending potential of the country's 1.3 billion occupants. In just a few years, American gambling companies have seen their Macau properties become as vital, if not more so, to their bottom line as their more established Las Vegas properties. The global economic downturn has also highlighted the need for U.S. companies to diversify their gambling operations. At the moment, Asia is as promising a market as any for gambling.

"This is a market you have to be in if you want to be a world-class operator," says Mark Dvorchak, a managing partner at Pro Forma Advisors, which provides economic analysis to gambling- and entertainment-related development projects. "You have to be here, given the population, given the economic power."

But with the promise of this region come the pitfalls of a still-nascent casino industry struggling to gain its footing. Because Macau relies heavily on visitors from the mainland, the Chinese government's sporadic travel restrictions to the area could severely crimp profits.

More gambling venues and hotels are also planned for the Cotai Strip — a patch of reclaimed land between the Taipei and Coloane Islands that forms part of Macau — which, when completed, will increase competition for existing casinos.

And U.S. companies here are still struggling to fulfill their vision of turning Macau into a full-throttle shopping, gambling and dining venue, like Las Vegas.

Macau's gambling revenue fell sharply in early 2009. But it's since recovered, along with the Chinese economy — unlike Las Vegas, where casinos are still struggling amid flagging consumer spending and airlines' reduced flights there.

MORE ASIAN THAN U.S.

For the first nine months of 2009, Wynn Resorts collected nearly 60 percent of its net revenue from Macau, with the rest coming from U.S. properties, including Las Vegas. Meanwhile, the Las Vegas Sands posted $2.35 billion net revenue in Macau during that time, more than double that of its U.S. casinos.

"Clearly, you might say that we are more of an Asian company with properties in the U.S." than a U.S. company with properties in Asia, says Sheldon Adelson, chief executive of Las Vegas Sands, which owns three casino properties in Macau through a publicly traded Hong Kong company and is opening a $5.5 billion casino development in Singapore this year.

At Adelson's 10.5 million-square-foot Venetian Macao on the Cotai strip one recent rainy day, gamblers staked out their spots at baccarat, blackjack and poker tables. They were mostly Asian men, with a disproportionate number playing in the Red Dragon gaming area.

Many Asian gamblers believe in superstitions such as changing their clothes — preferably to red — if they're on a losing streak, or not allowing someone to touch their back while they're playing because it could rub their luck off.

In Asia, "There's a reliance on luck that probably drives more acceptance of gambling," Dvorchak says.

Such beliefs help explain why gambling is so entrenched in Chinese culture, why people flock to casinos during the new year's holiday, and why standard baccarat — a game of pure chance rather than skill — is such big business in Macau, says Ricardo Siu, an associate professor at the University of Macau. It also points to the challenge for U.S. gaming operators in understanding, and serving, this high-spending population.

In 2008, the average Macau visitor gambled $594, nearly three times the amount gambled by a Las Vegas visitor, according to research and brokerage firm CLSA Asia-Pacific Markets.

Wynn, Las Vegas Sands and MGM Mirage — which operates its Macau casino with a local partner — are hoping to persuade Macau high rollers to spend even more.

But their posh restaurants, luxury shops and elaborate entertainment have yet to catch on: While the average Las Vegas visitor stays nearly four days, Macau visitors stay only about a day and a half, generally coming in just to gamble.

It is "very unlikely that Macau will ever replicate the Las Vegas model," given Asians' preference for gambling, writes Anil Daswani, global head of gaming at Citigroup Global Markets, in a January research report.

"Macau is about gaming; Vegas is about entertainment," says Daswani.

Some say it might be a blessing in disguise that Macau wasn't overly reliant on entertainment rev-e-nue during the downturn. One reason Las Vegas casinos have yet to recover is that U.S. consumers hit by the recession have cut back on dining, shopping and entertainment.

STILL HEDGING BETS

Gambling has generally been more recession-proof, says Kareem Jalal, publisher of Inside Asian Gaming. Yet, even Las Vegas' gambling has been hit by the severity of the recession and credit crunch in the U.S., he notes.

In recent months, the Las Vegas market has shown signs of a fledgling recovery. Visitors are returning, but revenue is still down significantly, according to the American Gaming Association, a trade group.

"A lot of people are going to Las Vegas, but they're not spending as much," says the group's CEO Frank Fahrenkopf. Fahrenkopf expects another few tough quarters for Las Vegas.

Analysts say that while Las Vegas casinos are down, they're certainly not out.

"Anybody who bets against Las Vegas in the long run will be placing a losing bet," says Jonathan Galaviz, an independent travel and leisure strategist. "I am very confident in the long-term viability of Las Vegas as a tourism destination."