Melco’s Morpheus Tower Will Not Rely on Junket Operators
Melco’s $1.1 billion expansion to the City of Dreams Macau is set to open next month, Lawrence Ho said that Morpheus will not rely on junket operators to make a profit. Morpheus, the 160-meter hotel tower, will house 700 hotel rooms, a convention center, and casino table games.
Lawrence Ho, the 42-year old CEO of Melco Resorts & Entertainment, said his company is using a long term strategy to fill Morpheus.
Instead of relying on third-party VIP junket operators who arrange trips and gambling sessions inside Melco’s private rooms, Melco wants to build its own ever-growing database of loyal customers. Melco’s CEO said at a Friday press conference, “Eventually it’s much better to develop your own database than rely on junkets.”
No Junket Operators for Morpheus
The decision to avoid junket operators comes at a time when Macau officials have been told they should diversify away from a gambling-only economy. The junket industry has been under increasing scrutiny the past 3 to 4 years, because of their suspected ties to Chinese organized crime syndicates.
That scrutiny led to 26 months of decline in Macau’s casino sector, from mid-2014 to early-2017. Since then, Macau’s casino revenues have shown a sharp increase, mainly boosted by new multi-billion dollar casino-resorts like Parisian Macau, Wynn Palace, and Melco’s Studio City.
28% Revenue Growth in April 2018
April 2018 saw the best growth yet since the recovery began, as casino revenues increased 28%. In an interview with Reuters’s Farah Master, Lawrence Ho said, “Year-to-date growth right now is well over 20 percent. It will normalize but will still blow out the original expectations.”
“We Have Tried to Do It Our Own Way”
When asked by Reuters about his decision to build a casino apart from SJM Holdings, Lawrence Ho said, “From day one, creating Melco was to be separate from that empire. Everything we have done…we have tried to do it our way.”
The same could be said of Melco’s decision to build a player database for Morpheus without the use of junket operators. Morpheus is going to cut out the middle man and build a business the way a Las Vegas Strip casino might. Of course, the Vegas Strip collects 60% of its revenues from non-gaming revenue streams — something Lawrence Ho said would never work in Macau.
Premium Mass Customers
Now, it appears that Lawrence Ho has a new vision that other Macau operators have not tried. With the amazing growth in China’s economy over the past 15 to 20 years, a new class of gambler might be able to sustain a billion-dollar resort like Morpheus. Lawrence Ho said that his new expansion of City of Dreams will cater to “premium mass customers“.
At first glance, the term appears to combine two types of casino gamblers — high rollers and mass market players. “Premium” refers to high rollers who play for significantly less than whales. Where a whale might play for $100,000 a hand or more, premium players bet $10,000 a hand.
As the Reuters reporter explained in Macau terms, “VIPs bet about HK$1 million ($127,395) at a time, while premium mass customers bet thousands of Hong Kong dollars.”
The idea is to tap China’s upper middle class gamblers — people of wealth, but not opulent wealth. Lawrence Ho is betting that enough such bettors exist to pay for a $1.1 billion hotel-resort.
Lawrence Ho’s Melco Resorts
Lawrence Ho is casino royalty in China. He is the son of the legendary “King of Gambling”, Stanley Ho, the 96-year old founder of SJM Holdings. Stanley Ho is retiring in June 2018 from his own gambling empire, leaving the day-to-day operations to his daughter, Pansy Ho. Stanley Ho’s daughter, Daisy, is also a gaming mogul.
The CEO of Melco took a different path. Instead of staying under the SJM Holdings umbrella, Lawrence Ho built his own casino company, Melco, which competes alongside SJM Holdings in Macau. The companies are 2 of 6 major casino groups active in Macau, alongside China’s Galaxy Entertainment Group (GEG) and three American casino companies: Las Vegas Sands Corp, MGM Resorts, and Wynn Resorts.
Melco Crown Era
When Lawrence Ho founded Melco, he established a partnership with Kerry Packer of Australia. Kerry Packer was an Aussie media mogul who also owned the island-continent’s largest land-based casino company, Crown Limited Group. The joint venture “Melco Crown” was majority-owned by Lawrence Ho, while Kerry Packer’s Crown Limited owned 33%.
After Kerry Packer died in 2005, his son James Packer took control of Crown Resorts. Together, the two sons of gaming giants had phenomenal success together with Melco Crown, which built casinos like City of Dreams, Altira, and Studio City.
Studio City Grand Opening
Even by the grand opening of Studio City in the fall of 2015, Crown was divesting itself of Melco Crown shares. When the Australian company faced an advertising scandal involving 18 casino employees in China in October 2016, Crown sold most of its stake in Melco.
Lawrence Ho took the opportunity to buy out several longstanding investors, then changed the name of the company to Melco Resorts & Entertainment. By that time, the company owned City of Dreams Manila and had won the lone casino license on Cyprus — a resort which will be called City of Dreams Mediterranean. Another casino company owned by Mr. Ho built the Tigre de Cristal near Vladivostok, Russia, while Ho wants to build a City of Dreams Osaka.