MGM Opens for Macau Holiday Players as China Challenge Looms
(Bloomberg) -- MGM Resorts International’s debut of its $3.4 billion property Tuesday is the latest bet on the world’s biggest casino hub, as licensing bids and China’s proposal to allow gambling on a nearby island cast uncertainties over Macau’s future.
MGM is among the last of the operators to develop on the family-friendly Cotai strip, following Wynn Resorts Ltd.’s Wynn Palace and Las Vegas Sands Corp.’s Parisian. The resort’s opening this week capitalizes on the booming tourism demand during the Chinese New Year holiday that’s seen rooms at major hotels fully booked with increased rates.
The splashy addition, which includes a 2,000-seat theater, comes as Macau faces competition from new destinations across Asia, including a plan by the Chinese government that paves the way for casino gambling on the island of Hainan. Sexual misconduct allegations against magnate Steve Wynn have also cast a shadow over the industry even as regulators are setting out license bidding rules.
“It will be difficult for MGM to beat other competitors’ new resorts ramp-up,” said Margaret Huang, an analyst at Bloomberg Intelligence. “Macau will always face regulatory risk from any changes from China. Operators will also face greater pressure from more new resorts and additional Asian gambling destinations.”
MGM’s second property in Macau is part of the industry’s efforts to transform the stretch of reclaimed land into a family-friendly zone. As the operators in Macau push to develop the Cotai Strip, other destinations from Australia to the Philippines are gearing up to vie for visitors from China’s mainland. Closer to home, China is proposing to allow gambling in Hainan, which could open the door to physical casinos over the long term.
“We live in a world with many business distractions. Any business needs to have the resilience and capacity,” Grant Bowie, CEO of MGM China Holdings Ltd., said in an interview with Bloomberg TV on Tuesday. The Macau market can “overcome any of these challenges that present themselves.”
MGM China shares fell 0.5 percent to $33.02 on open in New York trading Tuesday. The stock climbed 14 percent in the past 12 months through Monday’s close.
Casino operators are also awaiting Macau regulators to outline the process for casino-license bidding later this year, with permits starting to expire from 2020. For now, analysts are confident that Macau’s growth trend will continue, and additions to Cotai will help draw more crowds to the hub.
MGM Cotai’s 1,400 hotel rooms will help drive gambling revenue growth in the city, Praveen K. Choudhary, an analyst at Morgan Stanley, said in notes to clients. Macau’s hotel occupancy rate at its top hotels has topped 90 percent the past year as wealthy Chinese tourists and casual gamblers flock to Macau.
“It’s a perfect time to open right at the eve of the year of the dog,” MGM Chief Executive Officer James Murren said in an interview in Tokyo last week, referring to the Chinese zodiac animal that marks this year. “I believe we have created a resort that exactly targets the market that’s the fastest growing today -- the upper-end mass market.”
Most high-end hotels, including the Wynn properties, MGM Macau and those operated by Galaxy Entertainment Group, are fully booked during the 11-day holiday period that begins Feb. 15. Room rates have also jumped significantly, with average rates at Las Vegas Sands’s Four Seasons Hotel doubling to HK$5,228 ($670) compared with last year, according to Morgan Stanley surveys.
The city’s largest junket operator Suncity Group, which provides credit to its big gamblers, also expects betting volume to rise 20 percent in the first quarter from last year, boosted by the New Year, said Andrew Lo, executive director of the group’s listed vehicle, Suncity Group Holdings Ltd.
“I’m not hearing anything to suggest that Chinese New Year will be anything but strong,” said Grant Govertsen, an analyst with Macau-based Union Gaming Securities Asia Ltd., who expects low double-digit gaming revenue growth for the first two months.
Analysts will be watching to see if Macau fares better this holiday than the Golden Week holiday in October, when the enclave reported disappointing visitor number and weaker-than-expected gaming revenue. Operators are optimistic about this holiday season.
“We are more than full,” Allan Zeman, chairman of Wynn Macau Ltd., said Monday in a Bloomberg TV interview. “I wish we had another hotel right now.”
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