“Counterproductive” action by government
In the midst of a historic slump in Macau’s gaming industry, the first of the Cotai Strip’s new megaresorts opened last week. The $3 billion Galaxy Macau Phase II and Broadway Macau, conceived before the beginning of a historic downturn in the city’s gaming industry, opened with a total of three new hotels including a Ritz-Carlton; a casino; 100,000 square meters of gross retail area; and a 3,000-seat theater.
“It is the first major resort opening in Macau since 2012, marking a new milestone for the city,” stated a press release from the company. “It also underlines the group’s commitment to helping the territory to fulfill its potential as a ‘World Center of Tourism and Leisure,’ to nurture local talent and to promote local culture.”
Galaxy had requested 400 new gaming tables for its casino expansion, and has room for 500. But the Macau government awarded just 150 tables, in keeping with a 3 percent annual cap on table growth in the territory. Union Gaming Research said the decision “is a negative indicator for other slated openings…. Increasingly opaque and counterproductive Macau government policy toward table allocations and its ‘mid-term’ review of the gaming industry reset our Macau property target multiples lower.”
Melco Crown Entertainment Ltd. hopes for a more generous allotment for its $3.2 billion Hollywood-themed Studio City project, set to open later this year.
A collective $20 billion in new development is slated for the Strip, including the $4.1 billion Wynn Palace; Sands China’s $2.7 billion Parisian, an as-yet-unnamed $3 billion resort from MGM Resorts International; SJM’s $3.9 billion Lisboa Palace, and the $1.5 billion Louis XIII from former investment banker Stephen Hung.
Since mid-2014, Macau’s gaming industry has declined by 39 percent due to a crackdown on corruption by the Mainland China government; in February, the most recent month on record, year-on-year revenue fell a record 49 percent. Even so, points out CEI Asia, Macau still generates three to four times more gaming revenues than Las Vegas, and continues to rank as the world’s No. 1 gaming jurisdiction.
Union Gaming has faulted the local government for exacerbating the slump. It says officials in Macau have “created an environment of increasing unease amongst operators and investors as it interprets Mainland directives and offers knee-jerk reactions to Macau citizen whims,” including the demand for a full casino smoking ban.
Meanwhile, Union applauded Galaxy Phase II, which it said will enable the operator, “for the first time, to fully compete across all market segments, and to provide a much more meaningful IR experience. This should allow the company to be a near-term market share taker across all gaming segments.”
Broadway Macau will allow Galaxy “to go after a lower-value mass market customer” and “represents a significant improvement relative to the old Grand Waldo property” where it is located, Union said.
“The one thing Galaxy is known for is their focus on Chinese gamblers and tourists,” added Stephen Yang, an analyst at Sun Hung Kai Financial Ltd. “It’s positive they’re looking at who their target audience is as the demand is there—it’s just been suppressed by government policies.”
SJM CEO Ambrose So Shu Fai, noting that VIP business has decreased “30 percent to 40 percent, more or less,” says the gaming industry will see a turnaround in time. “We should wait a little to see what happens in the second half to see if the decrease is narrower than before, then we can better draw a conclusion whether we are reaching the bottom or not,” So told the Macau News. So added that he remains “optimistic” about the future of the city and his company’s investment in Cotai. The Lisboa Palace is scheduled to open in the second half of 2017.
“In the long run, with the Hong Kong-Zhuhai-Macau Bridge in use in 2017, business would be back to normal. When the roads are open, money will come in,” he said.
Richard Longhurst, director of operations at Galaxy Macau, told news media at the Galaxy opening that 150 additional tables “are sufficient for the current market.”
“We will allocate the tables based on where we think the growth opportunities are… Phase II is mostly about mass gaming, so you will see a migration of tables from Phase I to Phase II,” Longhurst told reporters. “We are quite comfortable with what we have received.”
