Last month, a top Melco Crown exec let it slip that Studio City was considering ending its self-imposed ban on VIP gambling. The property famously opened last October without any junket-led VIP rooms – the first Macau casino to do so – but Studio City’s performance has so far failed to meet boss Lawrence Ho’s expectations.
On Tuesday, Bloomberg reported that Melco Crown was talking with prominent junkets Suncity Group and Tak Chun Group to launch as many as three VIP rooms at Studio City “as early as this quarter.” On Wednesday, a Suncity spokesperson confirmed to GGRAsia that it would be operating a VIP room at Studio City but declined to offer further details.
In response, Melco Crown issued a statement saying Studio City “retains its mass and premium mass market positioning” but wouldn’t rule out the possibility of adding VIP operations “if we believe that it will result in an improved and more diversified product offering for our customers.”
JUNKETS FALLING FASTER THAN DIRECT VIP
Recent stats from Macau’s Office of the Secretary for Economy and Finance showed VIP revenue in the first half of 2016 was down 17.3% from the same period last year, while mass market gaming was down a mere 3.6%.
The VIP woes were even worse in H1 stats released by junket investor Iao Kun Group Holding Co Ltd (IKGH), which has a stake in five Macau VIP rooms. IKGH says VIP turnover fell 47% in H1 to $2.06b, while June’s monthly figure was down 58% to $230m, despite a higher than average 3.24% win rate.
With VIP pickings so slim, some Macau casino operators bypass junkets entirely by engaging in so-called ‘direct’ VIP gaming. Eliminating the junket middleman means the casinos bear the risk of the VIP defaulting on his gambling debts – as exemplified by Genting Singapore’s cautionary tale – but the profit they earn doesn’t have to be shared with any partner.
Sanford C Bernstein analysts issued a note this week saying direct VIP turnover had fallen by one-third over the past two years of Macau’s decline but that this was a lower rate than junket VIP. The analysts suggested that despite direct VIP resulting in higher provisions for bad debts, casino operators “appear to be managing the risks prudently.”
Of the six Macau casino concessionaires, the analysts suggested Wynn Resorts, MGM China and SJM Holdings were least inclined to engage in direct VIP, while Galaxy and Melco Crown were the most exposed to rising bad debt provisions stemming from their direct VIP lending.