MGM's Solution to Trouble in Macau: Treat the Masses Like VIPs

  • High-roller parlors operated by junkets shrink in new hotel
  • $3 billion property, MGM's second in market, opens in 2016

Faced with a slump that’s shaved almost $14 billion in revenue from the world’s largest gambling market, MGM Resorts International is making its second casino in Macau a lot friendlier to the average tourist and casual gambler.

The $3 billion MGM Cotai, scheduled to open in the fourth quarter of 2016, will feature smaller rooms for VIPs, the high-rollers whose absence from Macau’s casinos has led to the plunge in gambling, Chairman and Chief Executive Officer Jim Murren said in an interview. The property, being built by MGM China Holdings Ltd., will devote more space than the existing MGM Macau to mass-market gamblers, Murren said in an interview Monday.

Artist illustration of MGM Cotai casino resort
Artist illustration of MGM Cotai casino resort
Source: MGM Macau

MGM and other resort owners in Macau are coming to grips with a changing market and more challenging economic climate, even as they prepare to open posh new properties on the area’s Cotai Strip. For years, the casinos relied on junket operators who brought in big-spending clients from mainland China and lent them money to play baccarat in private VIP areas. While junkets played a critical role in Macau’s gambling boom, their importance has waned as high-rollers cut back. The company is looking to bring in more big-money gamblers on its own, Murren said.

“The junkets held such tremendous influence, those older junket rooms were very large and you’d go in and see a bunch of empty tables because they demanded them,” said Murren, who is co-chairman of the 51 percent-owned MGM China unit. “The junket rooms will be smaller. It allows you to use tables more productively.”

While the VIP rooms in MGM Cotai may be smaller, the property is 1 million square feet larger than the MGM Macau. Taking cues from Chinese government officials looking to diversify Macau’s tourism revenue, MGM Cotai will have a theater that can be converted quickly into a nightclub, concert or ballroom space, and a mall lined with restaurants, landscaping and video effects, Murren said.

“It’ll be an indoor space that will feel very outdoor,” he said.

Casino betting in Macau has fallen for 16 months, amid a government crackdown on corruption and a slowing Chinese economy. Results released Thursday showed casino revenue declined 33 percent to 17.1 billion patacas ($2.2 billion) in September. Investors, who have driven down shares of U.S. casino companies operating in Macau, were relieved it wasn’t worse.

The Macau numbers, and a report China may move to support the city’s economy further, boosted casino stocks. MGM Resorts advanced 6 percent to $19.79 at the close Friday in New York. Las Vegas Sands rose 11 percent to $40.87, while Wynn Resorts Ltd. surged 23 percent to $63.47.

Their Hong Kong-listed units jumped as well. MGM China was up 6.1 percent to HK$9.52 on Friday. Sands China Ltd. climbed 6.2 percent to HK$24.75, and Wynn Macau Ltd. gained 7.4 percent to HK$9.43.

Meanwhile, a $27 billion surge in property openings has begun. Galaxy Entertainment Group Ltd. unveiled the first of the new hotel-casinos in May, including an area modeled after New York’s Broadway theater district. Melco Crown Entertainment Ltd. plans to open its next resort later this month, complete with Asia’s tallest Ferris wheel. In addition to MGM, Sands China Ltd. follows next year with a property featuring a half-size replica of the Eiffel Tower.

MGM Cotai casino resort construction
MGM Cotai casino resort construction
Photographer: Lam Yik Fei/Bloomberg

Gambling still is the big money maker, and Murren said he isn’t sure how many betting tables MGM Cotai or rivals building new projects such as Wynn Resorts Ltd. will be allocated by the government. The MGM project was originally slated to feature 500 tables. Galaxy received permission for 150 at its Galaxy Macau Phase 2 property that opened in May.

Murren said he remained confident in the future of the business there.

“Is there any reason why the central government would desire Macau not to grow longer term?” he asked. “I can come up with none.”

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