Inside Asian Gaming

September 2015 inside asian gaming 13 important going forward in drawing the rising younger cohort within China’smiddle class—those born after the late ‘80s when China started opening to the world, who are by far the most westernized generation of Chinese and will soon supplant the preceding one to become the country’s major consumers. Melco Crown also notably recently outbid Sands China to stage two Madonna concerts in February at Studio City’s 5,000-seat arena (The VenetianMacao’s arena has 15,000 seats), as it vies to establish itself as Macau’s most buzz-worthy destination. Mr Ho, son of Macau gaming legend Stanley Ho, co-chairs Melco Crown with James Packer, the son of another gaming legend, Australian casinos and media mogul Kerry Packer. Together and separately, they are pursuing a wide-ranging strategy of global expansion. Melco Crown, in which they hold equal stakes of 33.5%—Mr Ho through his Melco Leisure and Entertainment conglomerate, Mr Packer through a subsidiary of his Melbourne-based, PSX-listed Crown Resorts—experienced a 24% year-on-year decline in net revenue in the second quarter to US$917 million, attributable mainly to lower gaming volume in Macau. Still, Melco Crown’s Q2 revenue decline was significantly better than the Macau-wide 37% drop in gaming revenue in the quarter, thanks in large part to to the contribution of City of Dreams Manila, which started operations in December as the second integrated resort to open at the Entertainment City tourist district on Manila Bay. Still, adjusted property EBITDA in the quarter was off 35% to $205 million. “Macau is currently experiencing a difficult period,” noted Mr Ho. “However, we believe that through the strong leadership from the Macau and Chinese governments, the ongoing build-out of significant local and regional infrastructure, together with an expanding and increasingly affluent Chinese middle-to-upper-class, Macau remains the world’s most important and exciting gaming market. We look forward to continuing our leadership role in the development of Macau into a truly diversified tourist destination.” Beyond Macau—where Melco Crown’s flagship and biggest earner, City of Dreams, has been operating since 2009—and now Manila, Mr Ho’s other Southeast Asian operations fall under the purview of Nasdaq-listed Entertainment Gaming Asia, which goes by the abbreviation EGT and is 38% owned by his Melco International Development. EGT’s main revenue source, Dreamworld Poipet on Cambodia’s border with Thailand, has enjoyed strong performance over the past year. EGT also enjoys income streams from machine games it supplies on a revenue-sharing basis, mainly in Cambodia, and casino currency it manufactures under the Dolphin brand. Through a separate investment vehicle, Hong Kong-listed Summit Ascent Holdings, in which he holds a majority stake, Mr Ho is developing the Tigre de Cristal casino in Russia’s Far East, slated for an early October soft opening. Tigre de Cristal’s first phase, budgeted at a modest $172 million—there’s a commitment to spend “up to” $700 million in subsequent phases—will include 121 hotel rooms, 42 mass- market tables, 25 VIP tables, and 769 slot machines and electronic table games. The project envisions drawing customers both locally and from around northeast Asia. It will be the first-to-market of four casinos licensed so far in the Primorye gaming zone, and will likely be followed in 2018 by a project from Hong Kong-listed NagaCorp. The youngest of five children and the only son of Stanley Ho and his second wife, Lucina Laam, Lawrence Ho took a degree in commerce from the University of Toronto and returned to Hong Kong, where his eldest sister Pansy, 14 years his senior, was already making her mark, and where he acquired a venerable and money- losing concern called Macau Electric Lighting Co. (the origin of the Melco name). He rebranded it and turned its focus to leisure, hospitality and gaming and has never looked back. Melco International hooked up with Mr Packer in 2004 to create Melco Crown, then known as Melco PBL Entertainment, which they took public on Nasdaq in 2006. Mr Ho at that point had opened the first of his Mocha Clubs machine gaming venues in Macau (Mocha would be folded into the joint venture), and in December 2007, Melco PBL opened its first casino, the 38-story, VIP- focused Altira Macau (Crown Macau as it was known then), with a sub-concession purchased from Wynn Resorts for a whopping $900 million. But Crown Macau wasn’t the end game. It would be two more years before the sub-concession justified its cost with the June 2009 opening of City of Dreams on Cotai, and it did so in a big way. CoD encompasses 668,000 developable square meters, it cost $2.4 billion to build, and it was critical to Melco Crown’s ability to diversify beyond VIP and into the high-limit, high-margin mass-market and premium-mass segments that were only beginning to flower at the time, but have now become the dominant profit centers and keys to the business’ survival in the new Macau. Forbes pegs Mr Ho’s net worth at $1.7 billion. Steve Wynn Chairman and Chief Executive Officer Wynn Resorts Chairman and Chief Executive Officer Wynn Macau Never one to mince words, the eminently quotable Steve Wynn used to outdo even himself in the extravagance of his pubic praise of the Chinese government—a sagacious and prudent bunch, as he saw them—to broadly paraphrase him, the very model of business-friendly managerial expertise whose decisions were worthy of respectful attention, be they promulgated outright or cloaked in an inscrutableness whose wisdom might escape us at first, as they undoubtedly would redound to the benefit and long-term interests of Macau and its principal industry. Ultimately, this may well be the case, that is, if the cold-turkey approach to weaning Macau off its gambling habit works to speed the city’s transformation into a well-rounded destination with bonafide international appeal, which is what everyone says they want. For now, though, this approach, an adjunct to a nationwide Communist Party crackdown on corruption, graft and capital flight, is wreaking havoc with the VIP-centric business model that propelled