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Melco Crown Can Only Hope for Growth Like This

While Beijing’s crackdown on corruption and excess has been identified as one of the primary reasons why gaming revenues on China’s island oasis of Macau have fallen for more than two years straight, the growth of nearby centers for gambling may also be a culprit. From Australia and Singapore to Malaysia and the Philippines, there are now plenty of opportunities in the Far East for high-stakes gamblers to wager without undergoing the enhanced scrutiny China has imposed on them in Macau.

Saipan is be one of the newest places gamblers can flock to, and unlike other resort locales, it has the benefit of operating under the laws and protections of the United States, giving VIPs a sense of security they can’t find elsewhere. It could be why the lone casino operator on the western Pacific island — the largest in the U.S. Commonwealth of the Northern Mariana Islands — has already reported 2016 profits that surpass those of Melco Crown Entertainment (NASDAQ: MPEL), which operates four casinos in Macau.

Imperial Pacific International reported half-year net profits of $108 million from its Best Sunshine Live casino on Saipan, even though the island is scrambling to find lodging for the high rollers until the $550 million Grand Mariana Casino Hotel opens in January. Instead, it is using private villas and even yachts to house the VIPs, a solution that has turned out to be a big draw.

According to Imperial, the combination of gambling and other entertainment activities, including snorkeling, scuba diving, and sky diving, has worked well at luring the high rollers. Although nearly 96% of the casino operator’s total revenues came from VIP gambling, the company says it’s the amenities it offers, such as private jets and chefs that are available 24 hours a day, that tend to draw them in.

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Gambling on Saipan works a little differently than in Macau since it’s illegal under U.S. gaming laws for junket operators to do there what they do in China and Macau. There, the junkets fly in the VIPs, provide them with all sorts of amenities, put them up in hotels, and even loan them money to gamble with, in return for which the casinos pay them a percentage of the money the gamblers drop at the tables.

In the U.S., casinos are required to “know their customers,” which means they have to know the source of a gambler’s funds, a system that was implemented to prevent money laundering through casinos. So on Saipan it’s the casino itself that extends credit. While they may offer VIPs credit through a junket operator, that person must have been vetted by the casino and the island’s gaming commission.

Melco Crown, Las Vegas Sands and Wynn Resorts are diversifying away from relying upon VIPs for the majority of their revenues. Melco’s Studio City, which opened last year, features a Batman-themed roller coaster and other mass-appeal entertainment, while Wynn’s Palace casino, which just opened Monday, also seeks a broader audience. Sands will be opening its Parisian next month.

Imperial Pacific International, however, may already have figured out a way to beat Macau at its own game.

Rich Duprey has no position in any stocks mentioned.

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