Melco bets on high-end advantage

PUBLISHED : Tuesday, 02 August, 2005, 12:00am
UPDATED : Tuesday, 02 August, 2005, 12:00am

Local gaming knowhow and the pull of international hotel and luxury brands will give Melco International Development an edge in the increasingly competitive Macau market, according to managing director Lawrence Ho.

Melco plans to rely on Sociedade de Jogos de Macau (SJM) to arrange the gambling junkets that will ensure a steady stream of high rollers at its six-star, $1.45 billion Park Hyatt hotel project.

The firm is also expected to announce partnerships with three international hotel chains to manage some 2,000 rooms at its $8 billion mass-market City of Dreams resort on the Cotai Strip that will feature the world's first underwater casino when it opens in 2008.

Mr Ho, the son of Macau casino magnate and SJM owner Stanley Ho Hung-sun, declined to name the hotel operators, but said talks had reached an advanced stage and were 'very close to finalising'.

The City of Dreams project will be financed in part by the pre-sale of two additional towers featuring timeshare serviced apartments. Melco is also in discussions to attach a luxury brand name to those projects, similar to the arrangement at Australia's Palazzo Versace or the Armani Dubai hotel.

'Asians and Chinese in particular are very brand-conscious,' Mr Ho said. 'We hope to put as many brands in there as possible.'

Melco's two Macau casino resorts are being built by its 60 per cent controlled joint venture with PBL, the gaming flagship of Australian billionaire Kerry Packer.

Under the terms of the agreement, gambling licence holder SJM will operate the casinos at both properties and share the gaming revenue with the Melco joint venture.

When it opens late next year, the casino at the Park Hyatt will target high rollers and SJM will also take responsibility for managing the gaming junkets attached to the facility, according to Mr Ho.

'The JV could work with [its own] junkets,' Mr Ho said. 'But since there's a partnership with SJM, we will do things with SJM for the casino portion and the table games - that's where the junkets come in anyway.'

Junkets are an integral part of the local gaming industry. Last year, VIP baccarat accounted for 72 per cent of Macau's 40.2 billion patacas in casino revenues.

The bulk of that came from mainland high rollers brought in on gaming junkets which traditionally extended credit, collected gambling debts and provided clients with amenities such as hotel accommodation and female companionship.

Macau officials are working to break the gaming junkets' traditional reputation for links to money laundering, loan sharking and organised crime. Last year, authorities passed a law regulating the extension of credit to gamblers, both by junkets and casinos. They are also working on anti-money-laundering legislation.

Gaming regulators are now in the process of issuing formal licences to junkets in Macau and, as a result, are expected to deny accreditation to operators that fail to meet the new standards.

'Licensing is a step in the right direction,' said Mr Ho. 'It weeds out the bad junkets from the good junkets. I think it's foolish to believe all the junkets are good people.'

Melco is betting Macau's growth will come from the influx of middle-class independent travellers from China. In addition to the huge investment in the City of Dreams, Melco's subsidiary Mocha Slot plans to install thousands of slot machines across the enclave.

'Today, the VIP market by far dominates everything else. I think that will change,' Mr Ho said. 'The trend is that the mass market is growing twice as fast as the high-roller end. We think this trend will continue.'

'Look at how China is opening. At the end of the day, Macau is China's domestic market.'