It took Las Vegas more than five decades to go from desert to glittering gambling mecca but, in just five years, a tiny Asian territory has surpassed Nevada as the world�s No 1 casino centre. Just how did Macau do it � and can its remarkable growth be sustained? From Niall Fraser in Macau

MUCH in the way as Elvis Presley and Tom Jones beat a path to Las Vegas in the 1970s, last week, two of the biggest teams in America's NBA - including arguably its most bankable star, LeBron James - arrived in Macau for a basketball extravaganza. Next month, tennis legends Roger Federer and Pete Sampras will lock horns at the same venue, which is still on a high after the visit of Alex Ferguson's Manchester United all-star cast and a performance by soul diva Diana Ross earlier this year.

These are changed days for this tiny (just 28sqkm) former Portuguese colonial outpost, with a population smaller than Glasgow's, which five years ago would have struggled to attract Sid James if he had still been around.

US billionaire businessman Sheldon Adelson recently opened a resort with the biggest casino floor in the world here - and complained that the 11 million square feet of real estate it occupies "was awfully inadequate to meet demand".

Add to that a gambling-mad population of 1.3 billion just up the road, in an increasingly wealthy mainland China where betting of any sort is illegal, and you can see why, in gaming circles, all the money is on Macau.

In the four years from 2002, gross gaming revenue from Macau's casinos has almost tripled from US$2.8 billion a year to $7.2 billion - outstripping Las Vegas, which pulled in $6.6 billion last year. Over the same period, the number of casinos in Macau has risen from 11 to 26, leading to a 10-fold increase in the number of gaming tables and slot machines. Some 22 million visitors hit the tables last year, a figure expected to rise to 36 million by 2010.

Add to that, revenues from the city's horse and greyhound racing, supplemented by thriving books run on British and European football games and US basketball matches, and you have a heady mix that is driving the development of gaming around Asia.

Sean Monaghan, a Singapore-based Asian gaming analyst, says: "The transformation of Macau is truly phenomenal, it is impossible to run out of superlatives when talking about the place. What Macau has done in five or so years it took Vegas more than 50 to do - and it shows no sign of letting up."

A decade ago it all looked so different. As Macau's handover to Chinese rule in 1999 loomed, the city was labouring under an ineffectual Portuguese administration that struggled to control the entry into the casinos of organised crime groups eager to cash in on the crumbling monopoly of Chinese tycoon Stanley Ho Hung-sun, who had held the only licence to run casinos since 1962.

The final years of his reign were chaotic, as Triad gangs battled for control of the highly lucrative VIP rooms in Ho's casinos, sparking a gangland war that lasted four years and cost the lives of government officials, police officers and dozens of gangsters.

Ho, whose four-decade reign as casino king has made him one of Asia's richest men, managed to distance himself from the rampant organised crime surrounding his casinos and is still very much in the game - owning one of the three casino concessions handed out after liberalisation in 2002.

The enigmatic ballroom dancing octogenarian's dynasty is not going away anytime soon either, as both his daughter, Pansy, and son, Lawrence, have been cut in to the boom-town deal, running lucrative casino sub-concessions with American and Australian partners.

But his former fiefdom - which, like Hong Kong, is termed a "Special Administrative Region" of China - changed forever in 2004 when former Boston shoe-shine boy Sheldon Adelson opened the Sands casino under the new, Beijing-backed, liberalised and (ostensibly) cleaned-up regime and within 12 months had recouped every cent - and more - of his investment.

Fellow US gaming mogul Steve Wynn was quick to get the next piece of the action before Hong Kong and Australian consortiums followed suit. In Macau, casinos are now opening at a rate of one a month and there's little of Gordon Brown's concern over problem gambling seen here.

"The only problem gamblers in Macau are the ones who bring in too much cash in a suitcase from mainland China and get found out by the Communist Party bosses up north," says Paulo Avezdo, a long-time Macau resident and the publisher of a monthly business magazine.

It's just before 8am on a hot and sticky Monday morning and mainland Chinese gambler Zhang Liaoning is sat at one of the newly opened Venetian Resort Hotel's baccarat tables, chips piled high in front of him with a glass of steaming hot Chinese tea, only the air conditioning disguising his sweat at the turn of the next card. Above him in the sprawling 11 million square foot complex, which has made a tacky yet spectacular attempt to replicate ancient Venice - canals, gondolas and all - are 3000 hotel suites, 350 top brandname shops and a 15,000-seat entertainment arena.

It may be early, but at least half the 850 gaming tables on offer in the complex are busy. An overwhelming majority of the gamblers are from either mainland China or Hong Kong and most of them have been there all night.

This is the 24-hour Cotai Strip, Macau's audacious attempt to out-Vegas Las Vegas by creating a gambling avenue unlike anything Asia has seen. Hong Kong and Australian consortiums, including James Packer's Melco PBL Entertainment group, aim to open another three such complexes on the strip which has risen from what was a sprawling piece of swampland just a decade ago.

None of this fazes Zhang, who comes from the southern Chinese city of Guangzhou. From his position at the table, he says: "We Chinese have always come here to gamble. The place is good, it looks nice, very big but what happens at the tables is what is important. Even my wife prefers the tables to the shops but maybe if she gets bored she will take a look."

Such is the lure of the Cotai Strip to investors that last month - despite being unable to get a licence to operate a casino - another of the Vegas "big boys", Harrah's Entertainment, bought into the region, snapping up a little-used golf course there. Harrah's Asia-Pacific region president, Michael Chen, insists the gaming and entertainment giant are only in it for the golf but no-one is buying that explanation.

David Green, Pricewaterhouse Coopers' Macau gaming analyst, said of the deal: "So far, Harrah's has been one of the most notable big players missing from the market. I think it is fanciful to think that they would simply want to run it as a golf course in perpetuity. I look at it as a land bank exercise, a move in the hope that a concession might become available in 2009."

But while the cash flows in and the garish glass, neon and metallic frontages of the temples to the gaming dollar continue to sprout up, some cracks are beginning to show in the Macau success story.

Casinos form the bulk of the territory's tax revenue and have also - even before liberalisation - been its biggest employer. With the entrance of the US casino operators, wages have been driven up, sucking in school leavers, civil servants and university graduates who can earn more as a croupier than they can anywhere else in many other jobs. Tens of thousands of cheap construction labourers from mainland China have flooded the market, creating tension which boiled over into angry street demonstrations by local Macanese on May Day this year.

Macau University assistant professor Elio Yu says: "Aside from the cheap labour issue, the casino boom is causing a skills shortage in other sectors and further down the road, who knows what negative effect this might have on the rest of the economy."

Infrastructure is also creating problems, such has been the breakneck pace of development and influx of visitors. Macau - reckoned to be the most densely populated place on Earth - is struggling to move the hordes of mainland Chinese and Hong Kong gamblers from the ferries and planes into the region and out to the tables where the money is made - and lost.

The situation will only be exacerbated when an ambitious project to build a 29km road and rail-link between Hong Kong, Macau and the neighbouring Chinese city of Zhuhai is complete, bringing even more people to gamble.

Then, of course, there is the spectre of corruption. Several corruption scandals have erupted in the past year: the former transport minister, Ao Man-long, is facing charges of graft and money laundering in one of city's largest fraud cases. And an unnamed official in the same department was arrested in July for allegedly embezzling public funds. He was suspected to have used the money to bet on football matches.

Britain's honourary consul for Macau, Glenn McCartney, says: "When you have the kind of accelerated growth we have had here there are bound to be social problems as a result. Yes, there have been a lot of winners, but there are the losers too and that problem needs to be addressed."