Inside Asian Gaming

INSIDE ASIAN GAMING | September 2009 12 5 (6) Lawrence Ho Yau-lung Co-Chairman and CEO, Melco Crown Entertainment 6 (5) Francis Lui Deputy Chairman, Galaxy Entertainment Group LawrenceHo’sapprenticeshipintheAsian gaming industry has been fully served and Dr Stanley Ho’s son is now ready for the next phase—executive maturity. That certainly seems to be on the agenda following the opening of City of Dreams by Mr Ho junior’s joint venture with James Packer’s Australia- based casino company Crown Ltd, known as Melco Crown Entertainment Ltd (MPEL) and listed on Nasdaq in New York. City of Dreams, located opposite Venetian Macao on Cotai, has the potential to take Mr Ho and his partner into Macau’s big league. Prior to its launch on 1st June, MPEL’s mass market coverage was limited to Mocha Clubs, the slot machine clubs away from the territory’s casino hot spots and drawing mainly local players. Most of MPEL’s revenues were coming from the VIP- focused Altira Macau (formerly known as Crown Macau) on Taipa, and that property’s success was founded on the market- leading 1.35% commission rate on rolling chip volume offered to betting agents in order to get them to bring their high roller high performing product. The local slot players at Mocha clubs are a distinctively different clientele from the slot players coming from Hong Kong and Mainland China that populate the casinos’ main floors. Mocha showed that careful selection of slot product, attractive surroundings, effective marketing and enthusiastic leadership gave the lie to the notion that ethnic Chinese players either didn’t like slots or didn’t trust them. A question for the future is whether Lawrence Ho will play any kind of role in running STDM and SJM when his father leaves the stage, or whether the assets of his father’s company could be divested and absorbed into the gaming operations of Lawrence Ho and his sister Pansy. customers in the doors, up in the lifts and out to the VIP gaming suites. Now that the industry (with some prodding from the government) has agreed in principle to a 1.25% cap on the VIP commission rate, Altira’s competitive advantage has effectively been cancelled out. Mr Ho’s first executive role in the gaming industry was as managing director of Hong Kong-listed Melco under the chairmanship of his father. Prior to joining Melco, Mr Ho worked at the merchant bank Jardine Fleming from September 1999 to October 2000 and iAsia Technology Ltd (the predecessor of Value Convergence Holdings Ltd). Melco was a long-established company with a relatively low profile before Mr Ho took over. He used it as a vehicle to transform Macau’s local slot club market. Mocha, a Ho-family business unit operating slot machine clubs aimed mainly at local players, was rapidly developed into the more contemporary and marketing-focused organisation branded as Mocha Clubs. The relaunch involved an extensive refurbishment programme of the company’s existing properties and the addition of some new ones, and the creation of Macau’s first VIP slot lounges and main floors stocked with Francis Lui took a momentous decision earlier this year when he decided to put Galaxy’s nearly-finished integrated resort on Cotai into what amounts to suspended animation. He cited the need for caution until market conditions were shown to be right. That, in part, accounts for him slipping one place from fifth to sixth in this year’s Asian Gaming 50 – 2009 list. Mr Lui could reasonably argue he doesn’t care where he sits in any list, provided he offers consistent and improving value for shareholders and uses his investors’money wisely. The company faced a dilemma familiar to rapidly expanding industries. This was whether to conserve cash to service existing debt on venues already opened, or whether to press on with launching new venues. The latter judgement required faith that there was enough liquidity ain the Macau casino industry to service the start up costs of the new venue. Mr Lui and his executives were not convinced that Macau—despite its significant revenue growth even in the second half of 2008—currently has the necessary ‘legs’ to support a strategy of aggressive expansion of supply. In reaching their decision, Mr Lui and his executive team took into account the global credit crisis and the knock on effect it appears to have had on China’s exporting industries and the credit rating of Chinese VIP gamblers. In the end, Mr Lui and his team opted for what might be seen as a classically Chinese piece of pragmatism. This was to continue building the company’s Cotai resort but to stop short of fitting it out, while at the same time reducing overall corporate debt by making cash-hungry bond holders an offer they found hard to refuse. Delaying the interior fit out of the property until the eve of its launch certainly makes sense. That’s in terms of the potential for cost savings by beating down suppliers on price in a distressed market. It also makes sense because of Macau’s notoriously humid sub tropical climate, which can render any unoccupied, non air-conditioned property mould-ridden within weeks. Time will tell if the decision to delay opening Galaxy’s Cotai resort was prudent and far sighted, or a missed opportunity. Galaxyisaninterestinganimalcompared to the other five concessionaires and sub- concessionaires in Macau. The Lui family- run core company, K. Wah Construction Materials, had no direct involvement in the gaming industry prior to liberalisation of the Macau market in 2002. This is not necessarily a disadvantage. Not only did Galaxy hire experienced gaming industry people to help guide it, but familymembers,