It would not be surprising if Melco Resorts’ purchase of 20 percent of Australian casino operator Crown Resorts isn’t part of an accelerating international expansion by Asian gaming companies.
Aside from Genting’s gaming subsidiaries, expansion by Asian gamers beyond national boundaries has been fairly limited. As examples, Chow Tai Fook owns Baha Mar in the Bahamas. It and Far East Consortium own 4.99 percent of Crown competitor Star Entertainment. Melco operates a Philippines casino and parent Melco International is building on Cyprus. The casino zone near Vladivostok Russia has attracted Hong Kong-listed Summit Ascent and NagaCorp.
The motivation for geographic diversification is clear for Macau casino operators like Melco.
For defensive reasons, they have too many eggs in the Macau basket in a time of emerging regional competition and the uncertainties of Macau’s plans for issuing, or reissuing, casino concessions come 2022.
For positive motivation, the Macau operators now have the financial resources and integrated resort experience to become international growth companies.
Thus, the three Hong Kong-based Macau operators—Melco Resorts, Galaxy Entertainment and SJM—are joining their American peers and Genting Singapore in competing for the three pending Japanese casino licenses.
There has been speculation as to why Melco is buying a stake in Crown. Some suggest a mere diversification of revenue streams. Others say Melco intends to buy all of Crown over time. All agree that with debt-to-EBITDA at just 1.9 times and with a purchase price of just 10 times EBITDA for Crown, Melco has the financial wherewithal for more.
One attraction is surely Crown’s A$2 billion VIP casino under construction in Sydney. The idea is to attract Asian high rollers. Melco might decide Crown Sydney is a perfect complement to its Macau VIP business, especially with gaming revenues taxed at 10 percent in Australia versus 39 percent in Macau. This link gives you Crown’s plans for Crown Sydney: https://www.crownsydney.com.au/sydneys-new-icon.
Meanwhile, the aforementioned Chow Tai Fook and Far East Consortium have applied for regulatory approval to increase their ownership in Star.
A natural question is whether these companies would take the big leap across the Pacific Ocean to Las Vegas and/or elsewhere in the U.S. or Canada.
One answer might be not if they win a Japanese license and will have to focus full attention and upwards of $10 billion on development there. But there are only three Japanese licenses available, and no doubt a requirement for a license will be taking on Japanese partners who could bring their own financial resources for joint expansion elsewhere.
And there is the lure of the Las Vegas Strip. The American casino operators in Macau have demonstrated the cross-marketing value of having casinos both there and in Las Vegas.
That also brings up the question of, if these companies would decide they want an American presence, how would they get here?
One can speculate that Wynn Resorts at some point may be for sale and, if so, it has the quality of properties to attract a Melco or Galaxy. It might also be a way to sell Wynn’s Macau properties to other regional companies such as Suncity, thus achieving the goal of some Macau interests who want to see one or two more new casino operators in the city.
However, until Japan is decided, no company might be willing to make the size of financial commitment a move to North America would require.
