The year 2015 will see initial-phase openings for two new Macau casino resorts – the first events of that type since Sands Cotai Central launched in April 2012. There will also be a clutch of new launches in secondary Asian markets.
Macau’s two 2015 openings – both on Cotai – are Galaxy Entertainment Group Ltd’s Galaxy Macau Phase 2 and that for Melco Crown Entertainment Ltd’s majority-owned Studio City.
The two projects combined involve around US$5 billion in capital spending, and the openings are only months away. But there has been little public detail so far on precisely when the launches will happen – or even what facilities will be included in the properties.
In its interim results in August, Galaxy Entertainment only mentioned project “completion” in mid-May 2015. In its second quarter results, also in August, Melco Crown said its Studio City scheme remains “on track” to open in mid-2015.
While it is normal on any big real estate project to seek to manage market and investor expectations regarding opening dates, in the case of Macau there is a range of local factors that could also be weighing on the timing of announcements.
Political and regulatory headwinds include mainland China’s ongoing anti-corruption campaign and central government calls for Macau to diversify its economy away from gaming. An earlier and persisting Macau government policy of live table rationing was also designed to curb gambling growth. Initially one of the side effects of the table policy was to push up price points for minimum bets, contributing to further aggressive GGR growth.
There is little evidence so far that the subsequent and less subtle political decision to rein in the Macau casino industry via greater mainland government scrutiny of the players in any way reflects a wider change of attitude in Chinese society regarding casino gambling.
Nonetheless, table allocation – perhaps more than any other factor, including the recent drop in casino revenue – appears to be weighing on the timing of the 2015 Macau openings. GGRAsia has been told separately by three industry sources that there is significant behind -the-scenes lobbying by all the operators regarding allocations for table quota on Cotai.
According to government policy, table growth is capped at 3 percent annual compound expansion for 10 years until end-2022, from a base of 5,497 tables recorded in end-2012. According to statements that have been made by Macau casino operators regarding the tables they are seeking for their Cotai projects, those requests – if granted at the opening stage – would greatly exceed the table growth allowed under the table cap.
Lawrence Ho Yau Lung, co-chairman of Melco Crown, mentioned to GGRAsia on the sidelines of an event on December 1, the importance of table allocation for Studio City.
On November 6, during Melco Crown’s third quarter 2014 earnings call, Mr Ho had told analysts: “In terms of number of tables, the truth is that honestly we don’t know because the government is in a kind of in transition.” That was a reference to the then pending revamp of the government, including the replacement of all existing secretaries. The change was confirmed in early December.
Mr Ho had previously mentioned the firm hoped to get “400 gaming tables or more” for Studio City, in which it has a majority stake of 60 percent.
Table allocation could also be a factor in the timing of an announcement for Galaxy Macau Phase 2 – or possibly for Phase 2A, according to some sources.
Galaxy Entertainment had said in announcements in 2012 it hoped to get 500 gaming tables for Phase 2. More recently it hasn’t mentioned a specific number.
As a sideshow to the main event, Galaxy Entertainment is also expected to announce in early-2015 the reopening of the revamped and probably rebadged Grand Waldo complex, located next door to Galaxy Macau. It is expected to have 45 gaming tables – the number recorded before its closure for refurbishment in July 2013.
Some analysts anticipate that at Galaxy Phase 2, the company will open first the shopping mall and hotel portions, and only later the casino area. Normally with major casino schemes the gaming opens first, as it is the earnings from casino operations that drives and subsequently pays for the huge up-front capital investment of the marble floors, swanky lobbies and other expensive fixtures and fittings.
Nonetheless, senior management from Macau market rival Las Vegas Sands Corp – the parent of Macau-based operator Sands China Ltd – has said in company presentations to investors there is a positive relationship between the number of bedrooms in a casino property and yield from gaming operations. In the Macau context, opening more hotel rooms before more gaming tables might not simply be a case of making the best of a less than ideal situation, but about more efficient use of that table inventory the operators already possess.
In the first 11 months of 2014, Macau had 29 million visitors, but fewer than 28,000 hotel rooms at November-end, according to official data. The average hotel occupation rate for the January-November period stood at 86.6 percent, a very high figure by international standards.
Melco Crown is currently building a fifth hotel tower at its City of Dreams casino resort in Cotai. It is scheduled to open in the first half of 2017, according to company statements. The firm has made no mention of whether it will be entitled to extra table allocation in association with the new tower.
Cameron McKnight of Wells Fargo Securities LLC in New York suggested in a note on December 22 that what he referred to as “Galaxy Macau Phase 2A” would open in May, and that this amounted to a delay relative to private guidance by the company to the investment community of a first quarter 2015 opening for “Phase 2A”.
On December 23, Michael Mecca, president and chief operating officer of Galaxy Entertainment, told GGRAsia that this was “simply not correct”. In filings and company statements, Galaxy Entertainment has referred only to Phase 2 being “on schedule to complete by mid-2015”.
Mr Mecca did tell GGRAsia however that a public announcement regarding Galaxy Macau Phase 2 would be made “soon”.
The New Year will also herald a series of likely new openings in secondary Asian casino markets. Those openings, in the Philippines and in Russia’s Far East, could be as closely watched by casino investors as the launchings of the big-name properties in Macau. That’s because Macau’s VIP gaming promoters – known as junkets and currently under orders to assist the mainland government with its anti-corruption drive – are reportedly looking for fresh opportunities to send Chinese players to alternative destinations offering greater privacy for high rollers (and better deals with the casinos for the junkets themselves).
The first Asian opening of 2015 outside Macau is really a ‘semi-opening’. Melco Crown-operated City of Dreams Manila had what industry sources have described to GGRAsia as a “very soft” launch of phase one on December 14. Even company boss Mr Ho previewed the event as “soft and for the local market only” when disclosing the date to GGRAsia on December 1.
But Mr Ho also told us that the “main” opening would probably be in February. That might provide an opportunity for the management to co-ordinate the event with the Lunar New Year holiday, which in 2015 falls on February 19. The festival – known in Greater China as Chinese New Year – is a popular time for many Asians to gamble, and in Macau in previous years has been associated with a spike in gaming revenue.
The multi-phase City of Dreams Manila has been described in reports as a US$1.26 billion project, and is expected to have 380 gaming tables, 1,700 slot machines and 1,700 electronic table games, according to previous announcements.
Under a complicated arrangement with local partners – led by interests controlled by the family of Filipino-Chinese billionaire Henry Sy – Melco Crown’s side must pay fees to a local partner entity in order to access the local gaming licence for City of Dreams Manila, while at the same time being required to share gaming revenue with the local partners. Industry sources suggest to GGRAsia that the gaming licence fee commitment explains Mr Ho’s desire to get the casino running even before the ‘hard’ launch in 2015.
The casino licence was issued by the local regulator, the Philippine Amusement and Gaming Corp (Pagcor), as part of the country’s drive to create an international-standard strip of gaming resorts in the Manila Bay area.
A short distance from City of Dreams Manila and also in the so-called Entertainment City development zone of Manila is Japanese entrepreneur Kazuo Okada’s US$2 billion Manila Bay Resorts casino property. In late September, management told GGRAsia it hoped to open the property by “end 2015” although admitted that this is not guaranteed. Pagcor wants it open earlier.
The first phase of the casino resort would have about 500 gaming tables and 3,000 slot machines, according to management.
Local media in October quoted Pagcor’s chairman Cristino Naguiat as saying that March 2015 was the deadline for the phase one launch originally agreed between the casino operator and the government. He additionally was quoted saying it were possible a PHP100 million (US$2.2 million) guarantee lodged by Mr Okada’s side would have to be forfeited if the deadline were missed. The project has been mired in regulatory and legal controversy for the past two years.
Much further to the north in the Russian Far East, another planned 2015 opening is a casino scheme led by Hong Kong-listed Summit Ascent Holdings Ltd, for the Primorsky Integrated Entertainment Zone (IEZ), near the port city of Vladivostok.
Summit Ascent – controlled by Melco Crown’s Mr Ho – had previously said the first phase of the project was targeted to open in the fourth quarter of 2014.
But in September Summit Ascent said the initial phase’s completion date had been put back to April 2015.
The Russian casino resort complex is expected – according to Summit Ascent filings – to have 119 hotel rooms, 800 slot machines, 25 VIP gaming tables, 15 mass market baccarat tables and 25 mass market tables providing other table games.
In September 2013, Mr Ho pledged to invest US$700 million in the gaming resort, signing a deal with the Russian authorities.
While the investment community is already familiar with the target audience for Manila’s new casinos, the potential of Primorsky is yet to be tested.
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”Assuming that our [Tigre de Cristal] phase two project and the other future operators’ development plans remain on track, we may see the benefits of a ‘cluster’ effect [in the Primorye Integrated Entertainment Zone] as early as 2021”
Summit Ascent, lead developer of Tigre de Cristal