Melco Resorts and Entertainment Ltd Woes in Macau

One of the largest casinos in Macau, Melco Resorts and Entertainment Ltd is forecasting economic hardship ahead for the region. With large investments in several pieces of prime real estate throughout the city, the casino operator is likely feeling the pressure of its exposure to the period of localized economic contraction.

Macau nighttime skyline.

The fireworks in Macau’s gambling industry have well and truly been put on hold, as one of its biggest players Melco Resorts and Entertainment Ltd issues profit warnings and warns of harsh times ahead. ©ImageDragon/Pixabay

Melco Resorts and Entertainment Ltd is technically a joint venture, resulting from the partnership between Melco and Crown, an Australian operator. Under the branded name aforementioned, the company has quickly established itself as a monopolist of luxury gambling entertainment, owning several integrated resorts across the region.

The joint-venture company has conducted a series of powerful dealings in recent years, acquiring large stakes in luxury and coastal venues. With a 60% stake in one of the most expensive pieces of property in the city, the investment in Studio City Macau demonstrates the growth ambition and future prospects of this company.

In Japan, following legislation that legalized the creation of integrated resorts, Melco Resorts and Entertainment Ltd had submitted an application to open an integrated resort in Osaka, but following a change of policy by the local government in that region, the casino operator has set their target to Yokohama.

Macau Facing Difficult Future

Whilst the troubles brewing at one of Asia’s largest gambling conglomerates, Melco Resorts, and Entertainment Ltd are worsening, they are certainly not limited to this company. The fallout from Coronavirus is causing seismic economic waves across the entire industry, and indeed the global economy is taking a significant hit.

The Macau casino industry has been effectively shut down as of three weeks, and with international tourism practically non-existent right now, the whole industry is reeling to get back to business as usual. With cash-flow becoming a serious problem around the world, the vulnerability of casinos to this global pandemic is being slowly realized.

The Chief Executive Officer and Chairman of Melco Resorts and Entertainment Ltd, Lawrence Ho recently discussed at a televised press conference the woes facing the industry currently, he said:

It could take between four to six months for the Macau gaming sector to recover front the impact of the Coronavirus.Lawrence Ho, CEO and Chairman , Melco Resorts and Entertainment Ltd

Despite the majority of their business being focused in Macau, Melco Resorts and Entertainment Ltd also own and manage property in the Philippines. The City of Dreams venue in the heart of Manila is a wonderful addition to the impressive portfolio of real estate already on the company’s balance sheet.

With the Macau gambling sector likely to remain very quiet compared to seasonal trend averages for the foreseeable future, investors are scrambling to diversify their investments in the region – and looking to the less badly hit regions in the Philippines and Singapore.

Lawrence Ho Pins Rebound on the VIP Sector

Lawrence Ho is an ambitious businessman, and like all optimistic investors, believes all economic catastrophe is followed by an epic rebound. At the very core of this projection is the conjecture of a booming VIP gambling market. They will surely need this to happen, as current accounting statements put Melco Resorts and Entertainment Ltd daily expenses in the region of $2.5m – despite vast cost-cutting efforts in the wake of the government enforced shutdown.

In terms of figures, the company posted a significant drop in earnings of 4%, reaching a total amount before amortization, depreciation, tax, and interest of $410m. The following quarter will need to see a series of clever innovations from the firm to protect their revenues, and the optimization of their VIP gambling client service is one of the many ideas being touted currently.

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