Melco Crown Entertainment recently opened its $3.2 billion Studio City casino resort in Macau and was forced to make a number of changes to its operation strategy due to the decline in Macau’s gambling revenues. The casino was forced to downgrade its hotel from a 5 star property to a 4 star property and change its player acquisition strategy from targeting VIP gamblers from Mainland China to focusing on mass market gamers.
The fact that Studio City did not allocate any special space to junket rooms makes a strong statement because Macau’s casinos derived more than 50% of their gambling revenue from VIP gamblers who were brought in by junket operators. Junket operators in Macau have found it difficult to bring in regular VIP customers due to the anti-corruption crackdown imposed by Beijing and many of these junket operators are winding up operations in Macau and moving to other countries.
Lawrence Ho, the co-chairman and chief executive of Melco Crown Entertainment Ltd has played a key role in making these critical decisions to forgo the VIP market and focus on mass market gamers. Ho believes that the VIP market in Macau may recover in the coming months but will never really return to its glory days like before.
In a statement, Ho said “I think we’ve seen the worst in Macau but it’s really a matter of when does the real recovery starts. I think it’s a bit early to really speculate but I would say at this point in time, next year VIP will have some challenges … looking at the high base of the beginning part of this year. I think mass has stabilized and should see some reasonable growth hopefully.”
Based on information released by Macau’s government, the gross gaming revenue (GGR) for the VIP market in Macau dropped to $3.63 billion, which was a 38 percent decline when compared to the same period in 2014. China’s central government’s liaison office recently stated that they would be looking into their policies with an effort to encourage tourism in Macau and boost the casino industry. Ho stated that such initiatives are important as it sent the message to gamblers in Mainland China that Macau was safe for them to visit.
Industry analysts believe that the decline in Macau’s gambling market will continue well into 2016 and the VIP market will recover at a slower pace when compared to other market segments. These analysts directly link the decline in VIP gambling to political decisions and believe that significant change in the VIP market will occur only when there is a change of government in Beijing.