Resort needs 400 to dodge loan default
Macau’s newest gaming resort, Melco Crown Entertainment’s Hollywood-themed Studio City, will open on the Cotai Strip October 27. The operator is awaiting word from Macau’s Gaming Inspection and Coordination Bureau, the regulatory body that will decide how many gaming tables the resort can introduce. And industry observers say the resort could get more than its rival in the district, Galaxy Entertainment.
Earlier this year, the regulator granted just 150 new-to-market tables to Galaxy’s Phase II and Broadway resorts, properties that had room for 500.
Studio City must have a minimum of 400 gaming tables or risk being technically in default with its lenders for a $US1.4 billion loan. But the World Casino Directory says Melco Crown’s new resort has 12 months to satisfy that condition. And Lawrence Ho, head of Melco Crown with partner James Packer, has expressed confidence the government will allocate more tables to Studio City, whose many nongaming amenities are in keeping with Macau’s push for greater economic diversity.
Studio City is a US$3 billion resort with a Batman virtual reality ride; a Ferris wheel in the shape of a figure 8; 1,600-room hotel towers; a 40,000-square-foot Warner Bros. Fun Zone play center; a 5,000-seat event center; a working broadcast studio that will encourage audience participation; a 350,000-square-foot “immersive” retail and entertainment district; and more than 30 restaurants.
Analysts agree Studio City begins on a better footing than Galaxy Phase II due to its “family-oriented entertainment,” reported WCD. And the Sydney Morning Herald says Melco Crown’s bid to “appease” Macau gaming officials with a more mainstream resort may work out as planned. Credit Suisse analyst Kenneth Fong predicts Studio City will get 250 tables by the end of the year, possibly with more to come.
“There is opportunity that Galaxy group may also get additional 50 new tables in the coming weeks (around the Studio City opening) and even a further 50 new tables towards end 2015 or early 2016 to align the interests for new properties,” he added. “This would be a potential positive for Melco Crown and Galaxy. The under-allocation of new tables is one of the biggest market concerns for new projects.” If he is right, Fong said, it would add 8 percent more tables from the end of 2014, exceeding the annual 3 percent cap on table growth.
However, according to GGRAsia, Daiwa Securities analysts say more new-to-market gaming tables could prove an “incremental negative” for Macau’s casino industry by heating up the competition.
“Despite ongoing pressure in the VIP segment, (Macau) continues to face table shortages as casinos increasingly have reallocated tables to the mass floor. As such, we see this influx of tables as detrimental to the negotiating power for casino operators,” analysts Jamie Soo, Adrian Chan and Jennifer Wu wrote in a note to investors.
The possibility of more tables, “while perceived to be positive … is actually an incremental negative for the industry as a whole,” the team wrote. It could lead to “longer ramp-up periods for new properties and further cannibalization of existing properties.”
