Asian Gaming Intelligence was among several charabancs-worth of media types given a preview tour of Melco Crown Entertainment’s City of Dreams at Cotai ahead of its expected mid-June opening.
A very interesting tour it was too. Those readers familiar with the design style of Crown Macau should close their eyes and imagine something with a similar feel—but super-sized with brass knobs on. The brass knobs include Asia’s first Hard Rock Casino to complement the Hard Rock Hotel Macau, complete with a starter pack of rocker memorabilia donated by Cantopop legend Jacky Cheung. There’s also a dome for a multimedia entertainment show and there will be a fancy shopping mall and restaurant complex as well as 520 gaming tables, around 1,350 slot machines and Crown’s signature fine dining facilities.
How on the Good Lord’s Earth phase one will be completely ready for the paying public by mid-June (as promised on the day by CoD’s President Greg Hawkins) is a mystery to us. The bit to be known as The Boulevard, and due to include shops for some of the world’s leading luxury brands, was represented on the day by four models each standing on a podium. There wasn’t a shop front or a till in sight.
AGI suspects phase one of CoD will be a work in progress behind the scenes even after the doors open. MPEL has good reason though to deliver on its ‘first half of 2009′ promise, given its less than spectacular project management over CoD’s sister property Crown Macau. The latter opened seven months late and massively over budget in May 2007
The cost of Crown Macau was originally budgeted at USD192 million in 2005, but the final bill came to USD583 million—nearly double that of Sands Macao, which came in at US$285 million, although Crown Macau sits on a fraction of Sands’ plot size.
What made matters worse in Crown Macau’s case was that only months after being launched as a self-proclaimed six-star hotel and casino, the venue was effectively relaunched and re-marketed as a VIP-only venue. That process culminated with the decision of the MPEL management to set up a deal with the junket consolidator Amax to offer a record-breaking 1.35 percent commission to junket operators on the money ‘rolled’ in the form of non-cashable chips by VIP gamblers. Oh and the deal offered daily settlement of commission accounts for good measure. Not surprisingly, junket operators loved the place and brought their clients in droves, so that Crown quickly grabbed nearly one fifth of Macau’s VIP gross gaming revenue in a matter of months.
In early April, Amax Entertainment Holdings Ltd announced that rolling chip volume generated at Crown Macau by AMA International Limited (in which Amax has an indirect 80% effective interest on profit sharing) totalled HKD58.9 billion for the three months to 31st March.
CoD will reportedly be a quite different animal from Crown Macau because its gaming facilities are aimed more at the mass market. Where have we heard that one before? For year after year even after 2005 when the supply of venues and games started to balloon, a whopping 65 percent plus of Macau’s gross on games of fortune has come from VIP baccarat. Operators neglect the VIP segment and the junket agent system at their peril. From what AGI has seen, CoD looks resolutely upmarket (aside from The Bubble, the coach-party friendly interactive entertainment theatre). That emphasis on the high yield VIP customer in phase one is revealed by the fact that the more middle market Grand Hyatt Macau offering the bulk of the resort’s 2,200 hotel rooms, won’t be opening until phase two, due before the end of this year.
How many mass-market players from China for example will want to eat European-style food from a food and beverage operation directed by a Swedish chef? Not many, if the experience of Las Vegas Sands and Wynn is anything to go by.
Bring on the congee and noodles we at AGI say.
On the topic of CoD’s mass-market appeal, Mr Hawkins mentioned its public tables will take minimum bets of HKD200. Given the mathematics of running a baccarat table in Macau (only locals can be employed as dealers and they tend to be paid more than migrant workers) that entry price is pretty much standard.
A test for CoD may well be how it handles its VIP business without cannibalising the high roller trade at Crown Macau. The accommodation standards at both properties are equally high, and so, reportedly, will be the standard of the food, although Crown Towers does have some bigger suites than Crown Macau thanks to its bigger site footprint.
The media wasn’t given access to the VIP gaming facilities during the CoD tour. Whether that means they aren’t ready, or that MPEL wants to keep LVS, the opposition across the road at the Four Seasons VIP suites, guessing is anyone’s guess.
In any case, if you’re a high roller, whether an existing MPEL customer or new to the Macau market, and your friends are already playing at Crown Macau, what’s the incentive to go to CoD other than maybe a bigger bedroom? Industry sources tell us that VIPs in Macau generally don’t like having to rub shoulders with the day trippers.
But say you were a VIP player who already likes the Crown Macau. So if you’re a VIP player why would you want to go to City of Dreams rather than Crown Macau? Well there have been rumours for some months that Crown Macau will actually be rebranded. Some talk even suggests the Crown Macau property may be sold off. The former scenario might allow MPEL to target its VIP offer more precisely to different market segments. The latter scenario would certainly raise some welcome cash for MPEL, but unless Crown Macau has reached operational break even, the price would need to be discounted even before general economic conditions are factored in. If Crown Macau were sold off, what would happen to its junket consolidation deal with Amax? Would that up sticks too? Would there be a non-competition clause in terms of MPEL’s existing VIP players currently served by Crown Macau? And who has the money to spare right now even to consider buying a property such as Crown Macau? Well some people do, as Colony Capital’s recent (though inconclusive) talks with MGM MIRAGE over CityCenter in Las Vegas has proven. It doesn’t sound likely to us here at AGI, but stranger things have happened.
On the topic of money, on Easter Monday, a day before the CoD preview tour, Nasdaq-listed MPEL announced via the US Securities and Exchange commission that it is seeking to raise an additional USD400 million. The company plans to do it by selling American Depositary Shares (ADS). MPEL said in its filing that one unit of ADS would be worth three shares of its common stock. An extraordinary general meeting of MPEL shareholder to discuss the issuing of fresh stock will be held at Crown Macau on 19th May according to another SEC filing on Wednesday.
MPEL didn’t say in the filings what it intended to do with the money. MPEL says the development costs of City of Dreams are fully funded, but some cash for operational expenses until the resort gains some ‘traction’ (the current financial buzz word) in the Macau market certainly wouldn’t go amiss.
