Lawrence Ho Says Melco Resorts Sold Out for Lunar New Year
Lawrence Ho, the chief executive of Melco Resorts & Entertainment, said he expects to see growth in 2019 from the Macau casino industry. Mr. Ho said Macau’s casino operators are sold out already for the upcoming lunar new year holidays — the biggest holiday of the year.
In remarks to discuss the 2019 fiscal year, Melco’s CEO played down concerns about decline in China’s casino destination city. In a Wednesday interview with Bloomberg Business, Ho said that analysts are “overreacting” to Chinese economic data.
The Macau casino executive predicted the city would have mid-to-high single digit growth in 2019. Many gaming analysts predict a 1% decline in 2019 — a figure attained in a Bloomberg survey of analysts.
Ho said foreign analysts are taking a simplistic look at the Chinese economy, but not seeing how that economy works for the mass market visitors to Macau. He said, “The global economy has started to weaken but at the same time, China mainland where we depend on heavily, has been aggressively loosening policies, asking banks to facilitate more liquidity to small and median businesses.”
Lawrence Ho added, “The overall consumer sentiment is still okay.”
Chinese New Year Sold Out
The Chinese New Year is time when many Chinese residents vacation, because many of them take the entire week off. Melco’s chairman said all three of his company’s resorts — City of Dreams, Altira Resort, and Studio City — are all sold out at higher rates than were listed in 2018.
Morpheus, the new addition to City of Dreams, also is sold out.
Much of the concern analysts show involves the slowdown of the Chinese economy. China’s 6.9% growth in 2018 Q4 was the lowest total in the past 20 years. Western countries would be thrilled by 6.9% growth, but most economists believe the Chinese GDP growth is wildly overinflated. Because officials who generate economic data have incentives to report optimistic figures to their superiors, no one knows the accurate GDP growth figures — but it is likely to be under 6.9%.
Concern about casino licensing in 2020 also drives analysts’ low numbers. Each of the six major casino companies face a re-licensing process in 2020 and the government so far has given little indication if all six licenses will be renewed. While it seems inconceivable that companies which invested billions of dollars in Macau might lose their licensing, nothing would keep the government from taking that step.
Retail Chains Concerned about Macau
In light of that fact, companies might not invest as much in their Macau properties in 2019. That could lead to a slow-down of growth in itself. Due to the creation of integrated casino-resorts, all those decisions are not in the hands of the casino companies anymore.
Macau casinos now partner with global retail chains and world famous restauranteurs. Big brand names and luxury brands who are invested in Macau might be getting cold feet. Financial analysts point out that brands like Prada SpA and Moet Hennessy Louis Vuitton (LVMH) are concerned about Apple’s decline in China, which caused high instability on Wall Street when they were announced last month. If Apple has trouble in China, then any company can struggle.
The Chinese economy, of course, faces some instability due to the tariff war between the United States and China. If the trade war is protracted, American casino companies like Las Vegas Sands, Wynn Resorts, and MGM Resorts could be the next targets.
December 2018 Revenue Decline?
Some expect a decline in the December 2018 numbers, which would end a 29-month period of growth. The growth period happened after the Wynn Palace, Parisian Macau, and MGM Cotai opened. Prior to the current phase of growth, Macau had undergone a 26-month period of decline.
Since such periods tend to be protracted, even one month of decline would be a bad sign for Macau.
Studio City Expansion
Still, Lawrence Ho seems unconcerned. He just began a $1.4 billion construction project for Phase 2 of Studio City, the Hollywood-themed integrated casino-resort on the Cotai Strip. The Studio City project includes two 5-star hotels with 1,000 rooms between them.
It is part of Lawrence Ho’s plan to switch to mass market gamblers. Macau’s 10-year boom from 2004 to 2013 was on the backs of its VIP high rollers, who spent tremendous amounts of cash in Macau’s private “junket operator”-organized casino rooms. With the decline of VIP revenue from 2014 to 2016, many casinos focused more on mass market (middle class) gamblers than high rollers.
Last year, Lawrence Ho introduced Morpheus, the Phase 2 of Melco’s flagship property, City of Dreams. When he opened Morpheus, Lawrence Ho said it would not feature VIP high roller rooms.