Wednesday, August 17, 2022

Melco to add Asian flavor to Cyprus melting pot


Asian operators have been slow to venture into European markets, but that may be about to change, with a consortium made up of Melco International Development and Hard Rock International eyeing a project on the island of Cyprus.

Last month, the consortium was notified their proposal for an integrated resort casino in the Republic of Cyprus has been approved and the group was formally invited to apply for the gaming license.  Exact details on what the resort will look like remain unclear while the tender process rumbles towards completion, but the government has previously stated plans must include at least 500 luxury hotel rooms, 1,000 gaming machines and 100 tables.

Constantinos Petrides, deputy minister to the country’s president, has been cited in local media as saying the size of the investment is about 500 million euros.

It’s a sizeable development and one that shows Melco is confident in the opportunities Europe offers them. But what does the operator have to gain, and why has it targeted Cyprus? The location offers a stable and regulated market, together with the chance to capture the growing number of Asian tourists travelling to Europe on vacation. But differences in player demographic, culture, and the challenge of building brand equity among new players may prove difficult.

Total tourism arrivals numbered 2.66 million in 2015, up from 2.44 million the prior year, but only a fraction of those --193,466 -- came from Asia, the market demographic Melco is most familiar with. The total visitors from China in that year were just 2,508. In the period up to the end of September this year, total arrivals from all destinations are up 12 percent.

Melco undeterred

Melco and its consortium – which also includes Cyprus Phasouri Ltd – remain undeterred, and are buoyed by what the market has to offer. Asian rivals Bloomberry Resorts and NagaCorp had also been in the running.

“With over 375 million people within a two-hour flight of Cyprus and connectivity to key markets such as Russia and the Middle East, we view this project as an opportunity to establish a new standard for integrated casino resorts not only in Europe, but worldwide,” the consortium said. “The project presents the opportunity to introduce the Melco brand to Europe for the first time while enhancing Hard Rock’s position as the premier music and entertainment based hospitality company.

“Our studies and analysis indicate that Cyprus’ location and its proximity to important markets such as Israel and the Middle East is ideal for the project,” it adds.  

A different ball game

However, Cyrus presents some unique hurdles to clear. The island already has a thriving gambling industry, with around 30 casinos located in the non-government controlled areas (not regulated by the government). This is the first casino license that will be issued by the Republic of Cyprus aiming to attract new tourists to the island and combat seasonality.

Locals are not allowed to gamble apart from at Christmas and certain public holidays, so the bulk of the revenue comes from tourists and foreign visitors. Roulette, blackjack and poker are popular, but slots games are the real driver of revenues.

Marcus Liu, an analyst for CLSA, says there are other pitfalls to consider.

“The market is different and more challenging than compared to Asia, but the lessons they have learned there are transferable. Regulatory and political challenges are expected when expanding into Europe, but working with local governments and creating opportunities for the community can help operators overcome these hurdles. There are also other challenges in terms of culture and principals; Melco is seeking to blend Asian and European cultures in the IR project,” he adds.

Indeed, this melting pot of cultures and demographics is what really stands between the success and failure of the project; meaning Melco-Hard Rock are going to have dial in on exactly who it is they want to attract to their IR, and how those players will gamble and socialize side by side.

“The advantage is that they (Melco) have a proven track record of strong operations and growth in competitive markets, such as Macau,” says Michael Zhu, VP of operations planning and analysis at The Innovation Group. “Taking that experience and deploying it in a new market such as Cyprus should lend itself to positive results,” he adds.

 

The consortium will have to take into account how people from the United Arab Emirates wager alongside Israelis, given the vast differences in their gaming preferences. They will also have to consider the sorts of entertainment options each group favours; Russians demand different amenities to the Brits, who in turn have different expectations to the Greeks. The food required by each is different, and the style and layout of the hotel rooms they prefer is different too.

Attracting the masses

The consensus is they should be going after the mass and premium mass players from each target country. This group will make up the majority of gaming and non-gaming revenues, and will offer stability and sustainability. “The European market will rely more on mass and premium mass players,” says Zhu. “Additionally, as the Chinese and other Asian source markets continue to travel further abroad, there will be a strong tourism segment to tap into. The familiarity with brand and product will allow for ease of access to this segment.”

But Harmen Brenninkmeijer, managing partner at Dynamic Partners, argues that Melco should also be able to draw VIP players to its Cyprus property. “Asian operators are well-placed to bring influential VIP play. These players can make or break a smaller casino, but with the size and experience that Melco has, they can develop a substantial niche market. Today, this market is non-existent and the few markets that attract VIP players are far more expensive and can’t justify the junket payments,” he adds.

The next wave

As for the benefit to Cyprus itself, Umit Or, managing director of Kaya Holdings, says it will be a boon for the island. “The market is almost ready for this kind of property. The resort will bring quality to the island’s casino industry, and the existing casinos should look to upgrade their products and services to capitalize on the potential it will bring. The project will hopefully bring additional investment, with new investors less concerned about risk. These new and modern casinos will also be looking for employees, providing a major boost to the overall economy.”

Although this will be Melco’s first major foray into Europe, it’s unlikely to be its last. The company is also bidding for a casino license in Barcelona, Spain.

 

 

 

 

 

 

 

 

 

 

 

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