Casino billionaire Francis Lui fakes a puzzled frown as he poses for a photo behind a mountain of chips at a baccarat table normally reserved for high rollers who bet as much as $250,000 a hand.

“Do you want me smiling or poker-faced?” he says with a baritone laugh that reverberates in the wood-paneled penthouse suite of his StarWorld Casino in the Chinese gambling enclave of Macau.

Flanked by willowy hostesses in split-to-the-thigh cheongsams, the conservatively dressed and bespectacled Lui, 55, has much to smile about. His family-controlled Galaxy Entertainment Group holds one of six licenses to operate casinos in the biggest casino market on Earth.

Macau, a former Portuguese colony on the South China coast that’s half the size of Manhattan, is the only place in the world’s most populous nation where 1.3 billion Chinese are permitted to gamble in casinos.

Revenue from casinos in the territory, 37 miles southwest of Hong Kong, soared 58 percent to $23.5 billion last year — more than quadruple the $5.8 billion gambled on the Las Vegas Strip, according to statistics compiled by both jurisdictions.

The rise in Hong Kong-listed Galaxy’s share price is as impressive. As of March 8, the stock had more than tripled to HK$10.92 from HK$3.21 at the start of 2010. The shares have outperformed those of such rivals as Sheldon Adelson’s Las Vegas Sands, Steve Wynn’s Wynn Resorts, Australian billionaire James Packer’s Melco Crown Entertainment and Stanley Ho’s SJM Holdings.

On March 10, the Lui family announced the opening this spring of its biggest development. The $1.9 billion, 2,200-room Galaxy Macau resort will feature five gaming areas with a combined floor area equivalent to three football fields; three hotels; 50 restaurants; and, on the roof, a palm-fringed beach with 350 tons of white sand imported from neighboring Guangdong province and lapped by artificial waves.

Meanwhile, the dominant figure in Macau gaming for the past half century may be fading from the scene. On Jan. 24, Ho, 89, appeared to surrender control of the company that operates 20 of Macau’s 33 casinos. SJM notified the Hong Kong Exchange that Ho had transferred his shares in Lanceford, a family company, to relatives, effectively ceding ownership of Sociedade de Turismo e Diversoes de Macau, the company that controls SJM.

Two days later, Ho, who fathered 17 children by four women he refers to as his “wives,” filed a lawsuit alleging that two wives and five children had illegally grabbed control of his assets. Ho withdrew the suit March 10, saying his legal dispute with family members had been resolved. The announcement drove up SJM share prices, which had lost more than 7 percent in value within weeks.

As the Ho dynasty trembles, the Lui family, whose five casinos account for 12.5 percent of Macau’s gaming revenue, is betting it can extend a winning run. The Luis have a track record of defying the odds. Chairman and founder Lui Che-woo, 81, arrived in Hong Kong in 1934 as a 4-year-old refugee from war-ravaged mainland China. Francis Lui says that at the age of 13, his father was helping support his family by selling food on the streets of the British colony before making his first pot of gold trading war surplus equipment and then moving into construction, property and hospitality.

Today, with three sons and two daughters, Lui Che-woo presides over a multinational empire that includes U.S. hotels, office towers in China, quarries in Hong Kong and the Macau casinos. Although Francis Lui declines to discuss the family’s wealth, its holdings in Galaxy and K Wah International holdings alone are valued at about $3.5 billion.

Success with the new venture is no one-way bet. Although Macau, like Hong Kong, is an autonomous special administrative region of China, its surging casino revenue hinges on the policies of the government in Beijing, which controls the movement of people across the border.

With a population of 550,000, Macau is dependent on 25 million annual visitors. In recent years, Beijing has at times temporarily reduced visa permits to cool an overheating Macau economy that as recently as the second quarter of 2010 soared by 31 percent, compared with a 10.3 percent rise in China during that time.

Although the Macau government supports the gaming industry, Beijing is of two minds, says Zeng Zhonglu, a professor of gambling research at the Macau Polytechnic Institute.

“The central government does not want too many pathological gamblers,” Zeng says.

Francis Lui says it’s in Beijing’s interests for Macau’s casino industry to grow. He says Chinese government policy encourages domestic consumption, which at present makes up just 35 percent of gross domestic product.

“If you believe in the China consumer story,” he says, “you have to believe in Macau.”

The Luis should have no problem filling the Galaxy Macau, says Billy Ng, Hong Kong-based gambling analyst at Bank of America’s Merrill Lynch unit who rates the stock a “buy.”

In a decade, annual disposable urban household incomes in China have tripled to $2,600. Wealthy individuals, such as the high rollers who pack the VIP rooms at the StarWorld, now control $2.3 trillion in disposable income, according to Bank of America Merrill Lynch. Given all that wealth, Ng estimates Macau’s casino revenue could rise an additional 27 percent this year to almost $30 billion. Revenue has risen 33 percent in January and 48 percent in February, from the same months a year earlier.

The Luis have built Galaxy Macau next door to Adelson’s 3,000-room Venetian Macao-Resort-Hotel. The Venetian, the territory’s biggest casino, is a replica of the U.S. company’s flagship Las Vegas resort, right down to the imitation Grand Canal, singing gondoliers and artificial blue sky.

The ‘Vegas model’

When the Luis won their gambling concession in 2002, they planned to run casinos in partnership with Adelson’s Las Vegas Sands. Within a year, however, the partners fell out because Adelson wanted to re-create the Las Vegas Strip in South China and the Luis wanted to build casinos and resorts designed for Asian tastes.

“If we followed the Vegas model, we would always end up number two,” Lui says. “We do not want to settle for that.”

One small but telling difference in emphasis between the former partners: In November, Adelson’s Sands Macao opened Asia’s first Playboy Club — complete with blond Bunnies, some of whom hail from the United States and Australia. By contrast, Galaxy Macau’s showpiece nightspot will be called China Rouge and feature scantily clad Asian performers in a display of what it describes as “Shanghai 1930s decadence.”

Permira Advisers, a European private-equity fund that controls about $28 billion in assets, is wagering that the Luis hold a winning hand. In 2007, London-based Permira paid $838 million for a 20 percent stake in the company.

“We were looking for a Chinese partner to enter the Macau market, and we believe in the Lui family’s vision and entrepreneurial flair,” says Martin Clarke, a Permira partner who sits on the Galaxy board.

Should the Ho dynasty fragment, the Luis will be in an even stronger position because they are the only other Chinese casino owners in Macau, says Miguel de Senna Fernandes, a Macau lawyer and former legislator. Gambling taxes account for two-thirds of the Macau government’s revenue. Given the importance of the industry, Beijing would rather it be run, where possible, by Chinese, Fernandes says.

“If there is a split or any kind of instability in SJM, Galaxy will benefit for sure,” he says. “The Luis have better access to the Chinese government and know better than the Americans what the Chinese gambler wants.”

End of a monopoly

In 1979, Lui Che-woo built his first Hong Kong hotel, a Holiday Inn since rebranded as the InterContinental Grand Stanford Hong Kong.

As the K Wah business empire expanded into the United States and mainland China, the Lui children spotted an opportunity closer to home. Just an hour by ferry from Hong Kong, Macau in 1999 was to be returned to Chinese rule after 400 years of Portuguese control.

A gambling monopoly awarded to Stanley Ho in 1962 for 40 years was to expire Dec. 31, 2001, and the Beijing-appointed government was promising to introduce competition.

Ho’s casinos were no-frills gambling dens. Yet each of their 340 tables returned, on average, 10 times as much as those in Las Vegas, according to a 2002 Deutsche Bank report.

“Casinos then were smoky rooms associated with vice and crime,” Francis Lui says. “We weren’t the wealthiest people in Hong Kong, but we saw an opportunity others didn’t. As kids, we had gone to school in the States and had been to Las Vegas. We were convinced that the entertainment and gaming industries could be merged into a super industry.”

Lui Che-woo was also well-connected in China. Like Ho, he had served on the Chinese People’s Political Consultative Conference, a Beijing-appointed body that advises China’s parliament. Chinese government scientists had even named an asteroid in his honor.

The Lui family, which teamed with Adelson, was among 17 applicants for the licenses — and one of three initially selected by the Macau government. Another went to Wynn and the third to Ho. When Lui and Adelson had a falling-out, the Macau government, not wanting to lose Las Vegas Sands, allowed each of the license holders to issue a sublicense. Las Vegas Sands received Galaxy’s.

As Galaxy’s StarWorld, completed in 2006, started to attract high rollers to its VIP rooms, the Luis began to build the even bigger Galaxy Macau on the Cotai Strip.

Just weeks after Permira made its $838 million investment to help fund the new casino, the global financial crisis intervened, hammering the stocks of casino companies worldwide. From a high of HK$9.14 in October 2007, Galaxy’s shares plunged 94 percent to 53 Hong Kong cents a year later.

Galaxy rebounds

The Luis and Permira slowed work on the Galaxy. Simultaneously, Galaxy reduced debt by buying back $285 million of bonds at 50 cents on the dollar. In 2009, the company reported a profit of $145 million, following a HK$11.5 billion loss the previous year. The stock later catapulted back to surpass its pre-crisis peak. On March 8, the value of Permira’s stake had risen to $1.13 billion.

With StarWorld, the Luis target the VIP market, high-rolling gamblers mostly brought to Macau from China by junket operators. Apart from the hotel rooms, many of the floors are made up of plush suites where gamblers, mostly playing baccarat, can bet up to HK$2 million a hand.

Executive suites on the top two floors of the hotel are reserved for the highest of high rollers. They feature their own gambling tables as well as bathrooms with Jacuzzis and private massage tables.

The much-bigger Galaxy Macau will appeal mainly to the mass market of middle-class Chinese. Unlike Adelson and Packer, who have brought in famous Western hotel brands such as Four Seasons, Hard Rock and Sheraton to manage the accommodations in their casinos, Galaxy Macau’s three hotels will be operated by Japan’s Okura Hotels & Resorts, Singapore-based Banyan Tree Holdings and Galaxy’s own hotel unit.

They will provide an Asian-flavored standard of service, Francis Lui says.

“It’s like when you go on an airline,” he says. “Which would you prefer? I would bet eight out of 10 customers would prefer to fly Cathay Pacific or Singapore Airlines than United.”

One question Lui leaves unanswered is what comes after Galaxy. The casino covers one-fourth of the land the company has leased on the Cotai Strip. Lui says he doesn’t want to develop that too soon in case Chinese gamblers’ tastes change.

“Look at Beijing and Shanghai,” he says. “The lifestyle today is night and day compared to five years ago. In China, customer preferences are evolving so quickly that there’s no telling what people will want in another five years.”

That’s why the casino tycoon who finds it hard to keep a poker face for the cameras isn’t yet prepared to show his hand.

A version of this article appears in the April edition of Bloomberg Markets magazine.