Exclusive interview | Lawrence Ho: ‘The cold hard truth is, non-gaming will never make any money’

“Unless Macau wants to pick itself up and move to Las Vegas, it’s never going to change”

Melco Crown Entertainment (MPEL) announced yesterday its Q2 results in New York and, as expected, they continue to be on the fall as is the whole gaming sector – although close to estimates.MPEL’s CEO and Chairman Lawrence Ho, 39, may smile at the results, which lend support to his prediction that the gaming market may have hit the bottom of a steep decline. But his thoughts are to the future, not the past. “The question is,” when does it start to recover?
The son of the old gambling tycoon Stanley Ho, Lawrence led with “hope” and enthusiasm this week’s media tour to the newest Melco Crown 3.2 billion-dollar stellar property at the heart of the Cotai Strip.
Studio City is scheduled to open in style on October 27, over a month after the initial opening schedule – a delay which the gaming billionaire attributed to market conditions and designed as “the best auspicious date there was between early September and late October.”
“We didn’t want to rush like we did before,” said Mr Ho in an exclusive interview with Macau Daily Times.
Although moderately confident about Macau’s future as a gambling hub, Ho says little more can be done on his side to control things that only the government can improve, basically transportation and seamless connections with greater China. Once regarded a “bullet-proof” industry, the gaming sector has been in recession for over a year. Now, actually, “it needs help,” says Mr Ho, adding that they are at the mercy of the government’s goodwill.

Macau Daily Times (MDT) – October 27, 2015. Is it an auspicious date; do you care about that?
Lawrence Ho (LH) – Yes, absolutely.  Although “feng shui” doesn’t drive us, we do believe in it, so the date is definitely auspicious […] If we wanted to, we could have opened it probably a month earlier, a month and a half earlier, but unfortunately, in that [period] there was no better auspicious date.

MDT – So the uncertainty regarding the smoking law didn’t play any part in the delay?
LH – No. Not so much related to [the] smoking [ban], but more to the gaming market, which is obviously, still in steep decline and so, our thinking was we’d much rather deliver a product in the best possible light and take a little bit more time to open it.  Of course, if we wanted to, we can probably rush it and open it in a months’ time, but we didn’t really want to.  We’ve rushed some of our previous openings and we’ve got a lot of flak for it and then it takes years to rebuild the credibility and so, we just didn’t want to do it again, and given that we’re not under any financial distress, we said, “Look, let’s spend a little bit more time and make sure.”

MDT – At the other end, the full ban on smoking won’t be in effect probably before 2016.
LH – Well, I hope not!

MDT – Will that help the business?
LH – Yes, of course.  We hope that the [Legislative Assembly] commission will engage more parties and engage more studies to really look into it [because] the environment has changed quite a bit. If you asked most people a year and a half, two years ago, whether the gaming industry was a bullet-proof industry, they would say, “Yes,” but as you can clearly see so far this year, the fall this year has effectively wiped out the gains in the last two or three years.

MDT – Do you think the market has bottomed-out now?
LH – I think we’re close to the bottom. We’re either at the bottom or very, very, very close to the bottom.  The question is: when does the recovery start?  The truth of the matter is the recovery starts when there are more favourable [government] policies.  The industry needs help, it’s not as bullet proof as people once thought.

MDT – You just said at that press conference and I quote by heart, “I hope that the Macau government will reward us in terms of number of tables.” You expect 400 [new-to-market] tables. If they give you less than that, how can you manage?
LH – To be honest at this stage, we don’t even expect, we hope. There’s no expecting anything, there’s just hoping.  It’s like literally praying. It’s almost like a lottery ticket now.  So, we hope.  We hope that our actions speak louder than words for the last ten years. We want to be looked upon differently from our competitors and I think our actions speak pretty loud. It’s just like Macau wanting to be looked differently from Hong Kong, which has been the most uncooperative and naughty, you know. We just want to be looked upon differently [too].

MDT – You are a believer of a more non-gaming Macau, is that your vision?
LH – Our vision has always been, more innovative, integrated resorts with these amazing non-gaming attractions, but at the same time, I don’t want people to think, “These guys think non-gaming is going to make a whole lot of money.” It’s not.  The cold hard truth is, non-gaming doesn’t make any money and it will never make any money.  For all the foolish people out there that think non-gaming is going to save the day, it’s not.  Non-gaming is there as an added attraction, to draw gaming business in Asia; it’s not just Macau, you look at Singapore. The Singapore government doesn’t like to say it, but 90% of the integrated resorts’ revenue was coming from gaming, just like Malaysia.  It’s all the same in Asia, it’s just the Asian way. Unless Macau wants to pick itself up and move to Las Vegas, it’s never going to change.

MDT – In the press conference, you were very, very clear about your market, the target market. It’s China, preferably beyond Guangdong, is that feasible?  
LH – Yes. We want China and also Asia as well.  I think Macau has good enough components to attract other visitors from Asia, but the truth is that it’s a China market.  I’m confident that with more hotel rooms [we can diversify the markets]. But again, we are really at the mercy of the government in terms of infrastructure. There’s nothing we can do more. Light rail, Pak-On ferry terminal, airport expansion, more flights to China – rather than just Air Macau choking the market to death – Hong Kong-Zhuhai-Macau bridge – there’re a lot of factors that we cannot control. But do I think the investment thesis holds when all of these things come along?  Of course, and Macau is going to be a great place.  People can fly into Hong Kong, take a bus over, it’s going to be convenient, but right now people are saying, “Oh my God, I need to take the ferry.  Oh my God, I have to wait at immigration for two hours… You know, the government is not so welcoming.”

“We are really at the mercy of the government in terms of infrastructure”

MDT – Do you feel you have the support of the central government for this whole development of Macau, the so-called Cotai 2.0?
LH – Well, again, I wouldn’t go so far as the central government. Although I sit on the CPPCC [Chinese People’s Political Consultative Conference] and I do have a voice; at the same time, this is stuff that is way above my pay grade [smiles].  So all we can do is – the strategy at Melco Crown has always been – we put our best foot forward every single time and we just hope that other people will recognise our efforts and we are collaborators. We like to work with the governments and we’ve been amazing corporate citizens.

MDT – You are the only operator that has no properties on the peninsula, except for the Mocha parlours.  Do you think that Cotai is the future for Macau?
LH – I think for the last ten years, we were – beyond Sheldon Adelson – the biggest supporter of Cotai.  After Venetian, the second resort to open on Cotai was City of Dreams (COD).  So from the very beginning, we’ve supported the Macau government.  When we built City of Dreams, people said, “Crazy!” Wynn, MGM, everybody, my dad – they’re all on the peninsula – don’t want any part of Cotai.  “Why would you guys do it?”  We supported the Macau government vision and we believed in it, we were sold on it and I think we’ve been rewarded for it that way. The peninsula is more like downtown Las Vegas and [Cotai] strip is the real Las Vegas.

MDT – Do you think there will be a moment when all the casinos will move here [to Cotai], creating like an exclusive zone for gaming?  That will solve a lot of problems on the Macau Peninsula…
LH – I think naturally, the business is already coming over to Cotai now. But those casinos were built at a cost.  I don’t know if those operators would be willing to [move to Cotai]; I don’t know what they can do in those properties – tear down the buildings or something?  I don’t know, what I can say is that we’re not interested in the peninsula because we’ve always been trying to accommodate guests further on down the road, rather than what is present right now.

MDT – You are going to have the premiere of “The Audition” on October 27.  Who’s coming for the premiere?
LH – [Laughs] That’s a surprise!

MDT – Is it Scorsese?
LH – You know, when there are such big directors and stars involved, with their busy sho-
oting schedules, it’s not always very easy to conciliate everyone. So, we’ll leave it as a surprise just in case there are any last minute changes.

MDT – Studio City, being a Hollywood-themed resort, are there more projects in the pipeline? Movies?
LH – Well “The Audition” was pretty [costly]… Again, it depends.  How much we contribute to the market, really depends on how much support we get from it. If we don’t get the type of support that we hope to get, it causes us to rethink whether we’ve done a bit too much.

MDT – As you said, the money is not in non-gaming…
LH – Yes. And if everybody is treated the same way, [it wouldn’t be fair]. It’s like at school, if everybody is going to get an A-grade, well, everyone would say, “Okay, I’ll just be lazy.”

Q2 results | Melco Crown’s revenue drops 24 percent

Melco Crown’s net revenue for the second quarter of the year was USD916.8 million, representing a decrease of approximately 24 percent for the comparable period in 2014. Net income attributable to the company was USD24.3 million, the unaudited financial results for the second quarter released yesterday indicate.
According to a statement issued by Melco, the decline in net revenue “was primarily attributable to lower rolling chip revenues and mass market table games revenues in Macau, partially offset by the net revenue generated by City of Dreams Manila, which started operations in December 2014.”
During the second quarter, adjusted property EBITDA was USD204.9 million, which represents a 35 percent year-over-year decline.
Melco’s co-chairman and CEO Lawrence Ho, commented:  “We delivered a solid operating and financial performance in the second quarter of 2015 in what continues to be a challenging environment for Macau. During the quarter, we maintained our company-wide cost control focus, including continuous strong discipline on marketing costs, player reinvestment and payroll costs. While we are focused on managing costs during this challenging demand environment, we remain fully committed to the long term development of our employees.”