Melco Set To Optimize Profit Per Table By Ending Studio City VIP: Bernstein

The decision by Melco Resorts and Entertainment to end VIP operations at Studio City is aimed at improving the profitability of each VIP table by relocating them to a more suitable property, according to analysts from brokerage Sanford C Bernstein.

Melco made the surprise announcement on Tuesday that it would cease VIP play at Macau’s Studio City from 15 January 2020, barely three years after introducing the segment to what was originally a mass market-focused IR.

In a note, Bernstein said that Melco was likely putting an end to Studio City’s lease agreement in order to better utilise the 46 tables in question.

“In 2020 the key will be for Melco to put the 46 tables to better use – generate higher economic return on these tables at City of Dreams (and potentially Altira),” analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu said.

“From Melco’s perspective, the recovery of the tables will allow the company to optimize profit per table to Melco for these tables. The profit generated per table (factoring in Melco’s 54% ownership in Studio City) is greater at City of Dreams (in both VIP and Mass) and even at Alitra.

“So theoretically, the tables can be put to better use elsewhere in Melco’s portfolio. This may take some time as the newly installed tables will need to ramp up – but at City of Dreams, the Morpheus property will help hasten ramp up.”

Studio City currently pays around US$7 million per quarter for lease of the 46 tables, equal to around 9% of the property’s VIP GGR.

Although their removal will represent a cost saving, Bernstein said that the overall impact will be negative with Studio City standing to lose 10% of its EBITDA from 2020.

Melco has struggled to find the right mix for its Macau properties in recent years, having replaced Gabe Hunterton as Property President of City of Dreams 12 months ago with former Studio City boss David Sisk. Sisk’s position at Studio City was subsequently filled by Geoff Andres.

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