Melco Crown, Ho jnr grab Macau
spotlight By Muhammad Cohen
MACAU - The city's longest running casino
development drama, Macau Studio City, is back in
production. And, just like in the movies, out of
the project's tribulations analysts say a star is
born.
City of Dreams owner Melco Crown
Entertainment agreed last week to pay US$360
million for the 60% share in the long-dormant
project held by eSun Holdings, a subsidiary of
Hong Kong's Lai Sun Group. Melco Crown chief
executive Lawrence Ho said his company will
develop a resort with 2,000 hotel rooms,
retailing, entertainment and a casino with up to
400 tables and 1,200 gaming machines, tentatively
scheduled to open in the first half of 2015.
"It's the best remaining piece of land in
Cotai, and one day may
be the best property of them
all, considering its position right next to the
Lotus Bridge immigration checkpoint," Intelligence
Macau chief executive Anthony Lawrance said. He
called the acquisition "a game-changing
opportunity" for Melco Crown, the Nasdaq-listed
partnership between Ho, son of former Macau
gambling monopoly owner Stanley Ho, and James
Packer of Australia's PBL and son of the late
media mogul Kerry Packer.
The 13-hectare
Studio City site, located at the southern end of
the Cotai resort district, has long ranked among
the most coveted and controversial building plots
in Macau. Hong Kong's eSun Holdings, part of the
Lai Sun Group that includes leading Chinese movie
studio Media Asia Entertainment, acquired the site
in 2001 for HK$300 million (US$38.5 million) to
build a film school. After gaming liberalization
was announced in 2002, eSun secured government
approval to develop the site instead as a casino
resort, retaining the movie studio theme.
Casting call eSun assembled an
impressive cast for Macau Studio City (MSC). New
Cotai, headed by former Las Vegas Sands executive
David Friedman and backed by a pair of US hedge
funds, paid US$200 million for 40% of the project
including the exclusive right to develop the
casino under Melco Crown's gaming license.
Renowned US retailing developer Taubman
paid US$55 million to manage the proposed mall,
measuring nearly million square feet (93,000
square meters), and own 25% of it. Ritz-Carlton,
Marriott and Starwood signed on as hotel partners,
along with Lai Sun board member David Tang, who
planned to create a signature hotel based on his
Shanghai Tang brand.
Playboy agreed to
create the first Playboy Mansion outside the US,
including a casino, nightclub and lounge.
Singapore's CapitaLand took a 20% stake in MSC for
US$100 million. The project was budgeted at HK$16
billion.
Groundbreaking for MSC took place
in early 2007, poised for a 2009 opening. But the
project soon stalled. eSun denied a Macau Business
magazine report that it couldn't fund its portion
of the project without the cash flow from the
casino backing loans. According to the report, the
partnership needed to restructure or one side
needed to buy out the other in order to go
forward, but the partners couldn't reach
agreement.
In any case, Macau's slowdown
from mid-2008 and the accompanying global economic
slump left MSC floundering. Playboy and Taubman
abandoned the project. The then Macau chief
executive, Edmund Ho, reportedly intervened in the
final months of his term to try to break the
deadlock before leaving office in late 2009.
Instead of settling, eSun and New Cotai filed
dueling lawsuits in Hong Kong courts.
Missing the train While MSC has
sat idle, Cotai - the landfill joining Macau's
outer islands of Coloane and Taipa - has become
the focal point of growth for Macau's
world-leading gaming industry. Sands China opened
its Venetian Macao in 2007, with its Four Seasons
annex coming on board the following year. Melco
Crown's City of Dreams opened in 2009, and Galaxy
Macau followed last month. Cotai now has nearly
8,000 of Macau's 20,148 hotel rooms and about
2,000 of its 5,303 gaming tables.
Macau's
gaming revenue soared 58% last year to US$23.5
billion - four times the Las Vegas Strip's figure
- and has risen more than 40% so far this year,
including four straight monthly records.
That growth, plans for the first phase of
Macau's light-rail system to include a stop
adjacent to MSC, and the Macau government's
reticence in approving new casino projects all
made Macau Studio City increasingly attractive.
"Given the recent growth in gaming
revenue, it was inevitable that something would
happen to the property," Gaming Market Advisors
principal Andrew Klebanow said.
"I frankly
like the Studio City site," Klebanow said. "It is
the closest project to a critical border crossing,
and it offers sufficient acreage to support a
property that will support the mass market that is
rapidly evolving. While high-end play has driven
growth this past year, the future belongs to those
properties that can best serve both the mass
market and premium play."
"The Macau
Studio City acquisition by Melco Crown resonates
with Lawrence Ho's bullish stance on Macau, and
specifically the Cotai Strip," CLSA analyst Huei
Suen Ng said. "As Melco Crown had already been
awarded the management contract for the casino in
Macau Studio City way back in 2007, Melco is close
enough to understand the details of the project,
and it is not completely surprising to have Melco
taking over the deal."
Bless this
mess Some hurdles remain, including
government approval of the revised plans for the
site, which at present has a 2013 completion
deadline that won't be met.
"We wouldn't
have done this without the Macau government's
blessing," Ho told the Wall Street Journal. Since
the project has been started, there's speculation
MSC may be able to get construction labor ahead of
projects still awaiting official approval,
including proposed Wynn and SJM Cotai properties.
There's the risk of another blow-up among
the new partners. However, CLSA's Ng believes the
structure of the deal, which includes a US$100
million to New Cotai in three installments, Melco
Crown's majority stake, and its "indispensable"
gaming license lessen the chance of further
partnership issues.
"Lawrence [Ho]
obviously did not see the need to add even more
debt to his balance sheet by buying [New Cotai]
out, when 60% is enough to control the project.
Smart move," Intelligence Macau's Lawrance said.
Not everyone thinks MSC is a sure winner.
"Today in the Macau casino resorts landscape, it
is all about relying on junkets for survival," one
industry expert said. This former Macau gaming
executive, who asked not to be named, believes the
Studio City concept is outmoded, adding, "Cotai is
in a state of oversupply of casino resorts."
Early nightmares One reason for
that sentiment has been the mediocre performance
of Melco Crowns's City of Dreams (COD), which
forms the gateway to Cotai with Venetian Macao
across the street. Even so, that too is changing.
"It was a difficult concept to build a
brand around," Gaming Market Advisors' Klebanow
said of the complex with three hotels, a casino,
retail, the House of Dancing Water show and other
attractions. "The COD development was part of the
learning curve. It continues to evolve and
eventually will be a prodigious performer."
"Given that Melco Crown has successfully
turned around City of Dreams, especially on the
mass market side, we are increasingly confident in
the execution capability of the company," CLSA's
Ng said.
"Execution has already improved
enormously at COD," Lawrance said. "The team is
well-focused on high-margin play. But COD is a
terribly designed property. [Lawrence Ho] has a
chance with MSC to get the basics done better
right at the start."
According to
Klebanow, "The reason why one should believe
Studio City will be a more successful execution is
because Lawrence Ho [is] like all smart developers
- [they] learn by their mistakes, and the really
smart ones grow stronger by them,"
Center stage After an initial
spike, Melco Crown's shares in New York have
bounced around following the MSC announcement, but
Lawrence Ho's stock in Macau has skyrocketed.
Macau Studio City shines the spotlight firmly on
Ho, now in his mid-30s, and observers think he's
ready for his star turn.
"Lawrence Ho has
been seriously underestimated. He has shown a lot
of patience, focus and determination in getting
this deal done," Lawrance said. "Lesser casino
bosses would be trying to shore up their balance
sheets now if they were in his position. Instead,
he has the guts to seize a game-changing
opportunity when it presents itself."
Klebanow said: "I think that the deal says
a lot about Lawrence Ho's maturation as a casino
operator, and a player in the Asian gaming sector.
Lawrence Ho is articulate, well-spoken and very
smart. Granted that City of Dreams opened to
lackluster reviews and it took time for the
property to find its market, but it is succeeding
in carving out a niche in both the high-end and
mass market segments. Having said that, I do not
think anyone expected Lawrence Ho to pull off this
deal. He is a talent that most people
underestimated."
Ng thinks the deal is
another step in creating an identity for the Melco
CEO beyond being the son of Stanley Ho. "When
Lawrence decided to partner with Crown, it already
showed that he is keen on building his own empire
and not living under his father's shadow."
Macau Business magazine special
correspondent and former broadcast news producer
Muhammad Cohen told America's story to the
world as a US diplomat and is author of Hong
Kong On Air, a novel set during the 1997
handover about television news, love, betrayal,
financial crisis, and cheap lingerie. See his blog
and more at MuhammadCohen.com.
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