IAG JANUARY 2015 - page 17

ResearchMacauManaging Partner Grant Govertsen doesn’t believe
that’s a big enough edge to driveMelco Crown to divert VIPs from
Macau toManila. “We aren’t necessarily sold that themathworks.”
City of Dreams Manila is a partnership between Melco Crown
Entertainment’sManila-listed subsidiaryMelco Crown (Philippines)
Resorts Corporation and Belle Corporation, part of the Philippine
conglomerate SM Group, which holds the casino license though a
Melco Crown Philippines operates City of Dreams Manila as
master lessee of the property. It pays rent to Belle, and they split
property revenue based on either net gaming win (gross gaming
revenue minus comps) or property EBITDA, according to Belle
Executive Vice President and Chief Financial Officer Manuel Gana.
Belle chooses either 15% of mass net win plus 5% of VIP net win or
50%of EBITDAwith rent addedback—“I’mnot going topay for rent
tomyself,”Mr Gana says—minus a theoretical management fee to
theoperator of 20%of net winor 7%of EBITDA.
“Ultimately Melco Crown owns about 70% of Melco Crown
Philippines, which in turn owns about 50% of the economics of City
of DreamsManila,” UnionGaming’sMr Govertsen says. “We think
that VIP profit is probably 20 cents on the dollar in the Philippines
versus about 10 cents on the dollar inMacau. Melco Crown would
only receive 70% of 50% of that 20 cents, or 7 cents on every dollar
of VIP revenue, which is slightly unfavorable relative toMacau. For
the economics tomake sense forMelcoCrown, VIP EBITDAmargin
would need to be 30% or better, which we’re not convinced will be
the case.
“The reason that markets like the Philippines (or Korea, or
Cambodia, etc.) are able to attract VIPplayers is that they pay higher
commission rates to VIP junkets given that they face a lower tax
burden. As such, most of the benefit of having a lower tax on VIP
gaming is therefore eaten up by the junkets who are receiving a
higher commission rate,” theMacaubased analyst says.
“Melco Crown can still generate incremental cash flow from
theManila project as some number of customers therewill be new
to the Melco Crown family and/or these are players who might
otherwise have allocated incremental trips to other operators and
are now allocating trips to another Melco Crown property,” Mr
Govertsen adds.
Cover Story
hotelswitha total of
around900 rooms areall due toopenbymid-February.
inManilawill be the star-studdedgroup’s
first inAsia, afterLasVegas andRiyadh.
welcome theirnewrival to town. “The
openingofCityofDreams shouldexpand
themarket.They’ll bebringing ina
wholenew setofplayers,”Travellers
CorporatePlanningPatriciaMaySiy says.
ofMelcoCrownPhilippines,which in turn
ownsabout50%of theeconomicsofCity
Govertsen says. “We think thatVIPprofit
isprobably20 centson thedollar in the
Philippinesversusabout10 centson the
dollar inMacau.MelcoCrownwouldonly
receive70%of50%of that20 cents, or7
centsoneverydollarofVIPrevenue,which is
slightlyunfavorablerelative toMacau.”
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