It’s all about ‘premium’ mass market, as Melco CEO Lawrence Ho gets ready to unveil new hotel Morpheus

Company to ditch junket operators, a staple of Macau’s casino industry, as importance of high rollers wanes

PUBLISHED : Wednesday, 16 May, 2018, 6:47pm
UPDATED : Wednesday, 16 May, 2018, 10:24pm

For Macau gaming mogul Lawrence Ho, the chief executive and chairman of Melco Resorts, winning is all about grabbing the “premium” mass market – instead of relying on the high rollers. The segment comprises big spenders that are not focused solely on gambling.

This idea was reinforced when the 42-year-old said he was not going to use junket operators for his new hotel, Morpheus, a move that has surprised many industry insiders.

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“We have always been either the least, or the second least, reliant on junkets,” Ho said during an interview with the South China Morning Post in Macau. “Some of our competitors are just very happy to solely rely on junket operators. But what sets us apart is, by not doing so, we can build our own customer database and build direct relationships with customers,” he said.

Andrew Lo, the executive director of Suncity, which controls about half of Macau’s junket business was, however, not convinced by Ho’s idea of not having any junket operators.

“I don’t think Macau’s casinos could survive without junkets,” he said. “My monthly active accounts can amount to 8,000 [customers], which means there is that large a number of marketing people working for me [to get VIP clients] every month. How many marketing people can one casino operator get?” Lo said on the sidelines of the Global Gaming Expo Asia 2018 in Macau.

Using junket operators – companies that work as middlemen, bringing in the high rollers to casinos, extending and collecting credit, as well as marketing casino trips to them – is a long-standing practice among Macau casino operators. The industry welcomes junket operators as it relies heavily on the VIP segment, which accounts for more than half of the city’s gaming revenue.

The Macau government has, however, stepped up the monitoring and regulation of junket operators, prompting an industry-wide consolidation over the past two years, following concerns in Beijing over capital outflows. China views the former Portuguese colony as a major exit point, used by affluent Chinese and corrupt officials alike to transfer money overseas.

Macau was hit hard by a sweeping crackdown on corruption ordered by the Chinese president, Xi Jinping, starting in 2014 that saw high rollers from the mainland staying away from the city’s casinos for fear of being targeted by Beijing. Things started to pick up in 2016, when more family visitors started flocking to the city, the only place in China where gambling is legal.

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A number of casinos, including MGM China, which is co-chaired by Ho’s sister, Pansy Ho, are wooing premium mass customers, with their new projects featuring more family-friendly facilities.

Some of our competitors are just very happy to solely rely on junket operators. But what sets us apart is, by not doing so, we can build … direct relationships with customers
Lawrence Ho, CEO and chairman, Melco Resorts

It is, therefore, not surprising that Ho’s confidence derives partly from a long-standing effort to transform his company into a more entertainment and hospitality-focused group. Melco has three casinos in Macau that also feature theatres and nightclubs, in line with an official directive to develop more non-gaming amenities.

He said less than 5 per cent of the company’s earnings before interest, taxes, depreciation and amortisation now come from the VIP segment of its gaming division. “For us, the VIP segment is just not that interesting,” said Ho.

With about 800 suites and rooms, Morpheus is the latest effort by Melco, one of Macau’s six major casino operators, to attract the premium mass market.

“We were not required to invest this much on this project, as some of our competitors spent less than US$200 million on similar projects. But it is really a love letter to China and Macau, to say that we are very grateful and thankful for the opportunity, and we are going to continue to invest,” said Ho.

The Morpheus is expected to open in mid-June, and is likely to have a “rather significant” impact on the company’s revenue going into the second half of the year, said Ho.