Slowdown in China means the super-rich there may pull back short term from Macau, but MGM Resorts says it is in for long haul.
MGM Resorts International’schief executive said he remains bullish on Macau despite reports of slowing growth in the gambling enclave of China.
Jim Murren told Reuters he expects the Macau government will soon approve MGM’s plan to spend $2.5 billion to build a new casino in the Cotai district of Macau, a former Portuguese colony and the only place in China where casino gambling is legal.
“I would expect we will be in the ground starting this year and keeping to our timetable to open this resort in late 2015,” he said in an interview on Tuesday following the release of MGM Resorts’ quarterly results.
Gambling revenue in Macau, now the world’s largest gambling market by revenue, inched up 1.5 percent in July to $3.08 billion from a year earlier, according to Macau government data. That marked the slowest growth since 2009 as a tropical storm reduced visitor numbers, compounding subdued demand from Chinese gamblers.
The specially administered territory has boomed since its 1999 handover by Portugal, helped largely by gaming revenue, which has reached $33.5 billion – more than five times that of Las Vegas. It has also attracted heavy investment Las Vegas casino operators including Las Vegas Sands CorpCEO Sheldon Adelson and Wynn Resorts LtdCEO Steve Wynn, who have set up glitzy casino hotels, restaurants and luxury shopping outlets.
But industry analysts are now citing concerns about growth in Macau and falling demand by key customers like super-rich VIP gamblers amid a cooling Chinese economy.
Macau relies on the big-money VIP market for more than 70 percent of gambling revenue. Fitch Ratings in recent weeks revised its 2012 Macau industry revenue growth forecast to 10-12 percent from 15 percent, in its second downward revision over the last couple of months.
By contrast, Macau market revenue grew 42 percent in 2011 and 58 percent in 2010.
Despite this, MGM’s Murren said the area still represents enormous potential.
“The summary point is that the Macau market is certainly unique to the world. It’s the only jurisdiction that permits gambling in China,” he said. “The infrastructure that is being employed in Macau is epic from a global perspective. No one predicted Macau to grow as quickly as it has and no can predict (what will happen) going forward.
“But logic would say that given the vast amount of wealth and the huge population in China and the fact that there are a limited number of operators there, it’s unique for investment,” he added.
MGM says the Cotai project will consist of 500 gambling tables, 2,500 slot machines and 1,600 guest rooms.
On Tuesday, MGM Resorts exceeded estimates by posting a smaller-than-expected quarterly loss, helped by improved results in its Macau subsidiary, MGM China Holdings Ltd.
MGM performed better than rivals like Las Vegas Sands, which posted worse-than-expected earnings on lower profit at casinos in Asia, such as its new Macau casino that opened in April, the Sands Cotai Central.
MGM made a deal last year in conjunction with an initial public offering of its Macau joint venture, MGM China Holdings Ltd, which has helped shore up its earnings.
The deal gave MGM 51 percent of the venture, up from 50 percent, giving MGM more control and allowing MGM to consolidate the Macau earnings into its balance sheet.
MGM China’s operating income was $90 million for the second quarter, with adjusted property earnings before interest taxes depreciation and amortization of $187 million, which exceeded analysts’ estimates of $165 million.
Bill Lerner, analyst with Union Gaming Corp, said MGM outperformed others in the sector, particularly in Macau, but noted that MGM’s presence in Macau is smaller than rivals like Sands at this point.
Sands faces other challenges as well, including investigations by U.S. regulators and the Macau government stemming from a former Sands executive’s wrongful termination lawsuit. The executive, Steven Jacobs, claims he was wrongfully dismissed after clashing with Sands CEO Adelson over what he alleged was illegal conduct including approving prostitution at its Macau property. Adelson has denied the allegations.
Murren said Sands’ troubles were not affecting MGM’s relationships with regulators in Macau.
“Our relationship with regulators has not changed,” he said. “It’s constructive. We are acutely aware of the regulatory framework by which we operate everywhere and pride ourself with taking a leadership role.”
Editing by Ronald Grover and Matthew Lewis.
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