Melco Crown Entertainment Ltd.’s most expensive resort is set to open its first gambling rooms targeting high spenders from mainland China, switching gears from an earlier strategy that focused on recreational gamblers as it looks to reverse two years of slumping profit.
Studio City, controlled by billionaire Lawrence Ho, is planning three VIP rooms as early as this quarter, according to people familiar with the matter. Suncity Group and Tak Chun Group, which bring in bettors from mainland China and loan them money to gamble with, are among gaming promoters that will operate these rooms, said the people, who asked not to be identified because the plans aren’t yet public.
The rooms are aimed to help offset last year’s 83 percent drop in net income at the casino company. Melco, which operates VIP rooms at its City of Dreams and Altira Macau casinos, in May reported first-quarter revenue that missed analysts’ estimates, and Australian billionaire James Packer’s Crown Resorts Ltd. cut its stake in Melco on the same day. The latest move underscores how casino operators in the world’s biggest gambling market are struggling to bolster revenue after a two-year slump.
In a statement, Melco said it “will not rule out the possibility of VIP component if we believe that it will result in an improved and more diversified product offering for our customers.” Mass and premium mass markets remain Studio City’s focus, it said.
“It is sensible for casino operators to try every way to maximize the profit of the existing assets” as Macau’s economic environment continues to be “very challenging,” said Jamie Soo, an analyst at Daiwa Capital Markets Hong Kong Ltd. Competition will further intensify with new property openings in the coming months, he said.
Nasdaq-listed Melco fell 4.7 percent to USD12.30 in New York trading. The casino operator’s shares have fallen about 30 percent since Studio City’s opening, double the decline in Bloomberg Intelligence’s Macau Gaming Index in the same period. Crown Resorts dropped 0.5 percent to AUD12.09 in Sydney.
Studio City debuted on Oct. 27 to much fanfare with actors Leonardo DiCaprio and Robert De Niro making an appearance. Ho, chairman of Melco and the son of Macau casino kingpin Stanley Ho, said at the time that the $3.2 billion resort would target leisure players.
Months later, Lawrence Ho said he was dissatisfied with Studio City’s performance. The project lacked premium customers because of the absence of VIP rooms, the Macao Daily newspaper reported in May, citing Ho.
A Suncity spokesman couldn’t immediately comment when reached by Bloomberg News. A representative for Tak Chun declined to comment.
Melco boosted its share of the mass-market gaming segment with Studio City, rising to 16.5 percent in the first three months of this year, from 14.2 percent in the third quarter of 2015 before the project opened, according to CLSA’s data. Melco’s market share of VIP gambling remained flat over the period, according to the brokerage.
The Hollywood-themed resort boasts a Batman ride, a figure-eight Ferris wheel, and 1,600 hotel rooms aimed at drawing families and leisure-seekers. At Studio City’s opening concert, a star-studded cast performed, including Grammy winner Mariah Carey, who walked down the red carpet with Packer.
Casino tycoon Packer resigned as co-chairman of Melco and became deputy chairman after Crown cut its stake to 27 percent from 34 percent. Hong Kong-listed Melco International Development Ltd., of which Ho is also chairman, became the largest Melco shareholder with 37.9 percent after that deal, according to the Macau casino operator in a May statement. Daniela Wei, Bloomberg
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