French Revelation
With Parisian Macao as bookend to its Venetian Macao, Sands China has created a compelling tale of two cities at Cotai’s core. Yet, for Sands China and for Macau, Parisian’s 13 September launch was the best of times, it was the worst of times. With its half-scale Eiffel Tower, The Parisian gives a French twist to Macau’s government-driven transition from a predominantly gaming to a leisure and tourism destination at a time of depressed revenue amid President Xi Jinping’s anti-corruption campaign and mainland China’s slowing economic growth. The Parisian completes the string of integrated resorts on Cotai’s main north-south boulevard, filling the final lot granted to Sands China – the trailblazer for development of the once desolate landfill and in diversifying Macau’s appeal beyond gambling. The recent revolution has seen the percentage of non-gaming revenue rise into the high teens at some Sands Cotai resorts as gaming revenue has fallen.
Ahead of the US$2.9 billion Parisian’s debut, Macau’s gaming revenue grew in August for the first time in 27 months, but the gain was just 1.1% – perhaps more an indicator of house luck than a harbinger of recovery. That rise followed the opening of Wynn Palace, developed by Wynn Macau and headed by Steve Wynn, the longtime rival of Sands China (and Las Vegas Sands) Chairman and CEO Sheldon Adelson.
After Macau’s first two Cotai openings since 2012 – Galaxy Phase 2 and Studio City – failed to reverse the revenue slump, the uptick was a reminder that new supply once drove Macau’s growth. The flip side is that Cotai has added 8,269 hotels room in the last 16 months – 6,700 rooms in just 11 months – increasing the district’s key count by 61% and Macau’s overall supply by 30% in uncertain times. While Mr Wynn contends his Cotai creation is a far, far better product than he has ever produced before, Sands China’s tale of two cities promises a greater impact on Macau, its recovery and its revolution.
“Venetian and Parisian will be a dynamic force that will bring more people to Macau,” Mr Adelson said on opening day. “On social media in China, people are most interested in Venetian; Parisian is now number two.”
A pre-opening social media campaign, plus the completed Eiffel Tower creating buzz for 11 months before the resort’s debut, produced big crowds for the opening and solid hotel bookings for the integrated resort’s early weeks. That said, Parisian offers way more than hype.
THREE RIGHTS
“Simply put, we think Parisian is the right product targeting the right market segments at the right time,” Union Gaming Head of Asia Equity Research Grant Govertsen says. “The property has generally exceeded our expectations and most importantly seems to hit the sweet spot of what a typical mainland mass market visitor generally responds well to: sense of grandeur, massive scale, European highlights.”
Parisian draws inspiration from more than a dozen City of Lights landmarks. A 30 meter tall Arc de Triomphe provides the base for a 12 meter video board. Behind the 38 story Eiffel Tower, the Palais Garnier opera house inspires Parisian’s hotel block façade, the porte cochere reminiscent of railway station Gard du Nord and the Grand Palais. The main lobby rotunda boasts a replica of the Fontaine des Mers with sea-themed sculptures beneath a dome of murals and marble modeled after L’Hotel National des Invalides. Vermillion walls and huge oil painting reproductions in gold frames around the front desk evoke Versailles. The retail mall features a reproduction of Place Vendome’s column beneath an electronic sky that morphs into a sound and light show.
The Eiffel Tower replica with 6,600 LED bulbs erupts into a nightly concert of light. The 162 meter tall model of the Paris original, built with more than 2,800 metric tons (6.2 million pounds) of Shanghaiforged steel, has observation decks on its 7th and 37th floors, open 10:00 to 22:00 and accessed via the mall. Tickets to the top, reached in a 40 second elevator ascent, cost MOP$168 (US$21) for adults and MOP$138 for children during the week, up to MOP$188 and MOP$158 on weekends. But the real power of the tower seems to be as a backdrop for photos.
“No one has believed more or invested more in Macau’s future as a leisure and business destination,” Mr Adelson said at Parisian’s song, dance and fireworks laden opening ceremony. “We never wavered in our development plans, or our desire to serve as a model for the type of development which would help diversify Macau’s economy through the introduction and growth of important nongaming attractions.”
TABLE GAMES
Gaming still accounts for more than two-thirds of Sands China’s profits, according to its second quarter earnings presentation. Macau authorities, limiting annual live table growth to 3% since 2012, granted Parisian 150 mass market gaming tables, with just 100 immediately plus 25 more on 1 January 2107 and 2018. It’s the same number given to Wynn Palace, which has notably less of the non-gaming amenities authorities claim it considers when making table grants.
“We understand the Macau government’s position and respect its policy decision,” Sands China President Wilfred Wong told Inside Asian Gaming. “If the cap is lifted, we hope they will consider our situation.”
The Parisian table grant led JP Morgan to suggest allocations “might be driven more by the timing of opening and the industry’s then-operating environment.” The bank notes that table grants per property have declined since 2012 and that properties opened in the same year have received the same number of tables. Morningstar calls the 100+25+25 allocation the “new normal.” Morgan Stanley says The Parisian grant “reduced uncertainty” for MGM and SJM as they build their Cotai projects. However, receiving 100 new tables for a resort built for hundreds more tables matters less to SJM, with about 1,800 tables currently under its control, than to MGM with just 427 tables.
As for Sands China, receiving 100 tables had “no fundamental impact,” according to JP Morgan. Sands has a total of more than 1,500 tables and moved 310 of them to Parisian, giving the resort 410 tables at its opening. In the third floor Paiza area, overflowing on opening night, VIP promoters Suncity, Guangdong/Neptune and Tak Chun have a combined 30 tables, all with betting minimums from HK$10,000 (US$1,285). At least one junket grades its Parisian room superior to its Wynn Palace digs. Sands has about 20 direct VIP tables in Paiza plus 20 premium mass tables.
Sanford Bernstein analysts Vitaly Umansky and Yang Xie observe that Sands China “continues to reduce its reliance on junket VIP,” estimating that half of Sands’ VIP business is now direct, delivering EBITDA margins around 12% compared to mid to high single digits with junkets – albeit with greater credit risk. Parisian’s main level has 30 premium mass tables in the high limit area and adjacent Ruby Room, where croupiers claim a Macau exclusive on baccarat variant Punto Banco, featuring cards delivered by paddle and bets by special plaques starting at HK$3,000. To accommodate high rollers, Parisian has 500 suites, measuring 72 square meters (770 square feet) with premium bedding.
MASS PASSION
However, the real story of Parisian is mass market.
“We’ve always built for the mass. We didn’t start in the VIP market,” Mr Adelson says. Citing growing competition for high rollers from destinations from Manila to Saipan, he adds, “The mass market will always be there.”
The Parisian’s main casino floor has 310 tables plus well over 1,000 electronic gaming machine positions, more than 350 in a stadium area with six live tables. Baccarat squeeze games – where players handle the cards – start from HK$200. The casino floor is meant to evoke Versailles Palace, though its dominant gold tones may bring to mind Marina Bay Sands.
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Mr Wong says The Parisian represents “affordable luxury” for China’s evolving middle class, a mantra that echoes throughout the property. “Travelers’ patterns have changed in China, from package tour to more leisure seeking. The middle class wants luxury that’s affordable,” he says. “We have products for the middle market, for MICE, for families. There’s no point in looking at the number of stars.”
Buckingham Group Director of Equity Research Christopher Jones writes, “While officially rated a three-star property, there is little that is three stars about The Parisian, rivaling many four and five-star properties in its overall presentation.”
Rates start from HK$1,298 for a comfortable 33 square meter room with Paris street map wallpaper. The selection includes 47 square meter Famille rooms with bunk beds for the kids and a toy box (bring your own toys).
The casino floor Chinese restaurants have just two dishes priced above MOP$100. Signature restaurant La Chine, located on the sixth level of the Eiffel Tower base with girders and windows designed to remind of the original, is reasonably priced for its positioning. Other F&B options include brasserie, buffet, Chinese and Japanese. Further eating and shopping choices will become more easily accessible when a bridge to Four Seasons opens by year’s end, linking Parisian to the rest of Sands’ Cotai properties.
Sands management tells Bernstein that Shoppes at Parisian, with 170 outlets over 28,000 square meters on two levels, features “more affordable, more approachable” brands. Morningstar’s Chelsey Tam sees it a bit differently: “The Parisian’s retail area is intended to have more fashion forward brands with a premium mass positioning, different from Venetian’s more affordable positioning and Four Seasons’ high-end positioning. We saw many brands in The Parisian that do not already have a store in other Sands China properties – for example, McQ Alexander McQueen, Maje, Sandro, and J. Lindeberg. Thus, it should be able to offer tourists a somewhat differentiated shopping experience.”
STAGING CHINA
The 1,200 seat Parisian Theatre furthers Mr Adelson’s goal of making Cotai “the center of entertainment in Asia for Asians.” Management tells Bernstein it mainly plans to book Chinese acts to drive visitor traffic, especially on weekends. However, Parisian’s first show is Thriller Live, a Michael Jackson tribute musical from London’s West End.
Reinforcing that Paris theme, the property’s streetmosphere performers include mimes, French themed living statues, late 19th century costumed characters, can-can dancers, opera and popular singers, musicians and even caricaturists to sketch you in charcoal on a folding easel. Performances take place throughout the resort, centered on the retail area.
The Parisian has family entertainment elements practically de rigueur for Cotai resorts, here with French accents. Open to hotel guests and visitors, Qube Kingdom has indoor and outdoor play areas with a carousel for all ages copied from Paris’ Luxembourg Gardens. Aqua World water park, oSpen April through November, pays homage to a pair of French icons. Its Marie Antoinette Tower recreates the French queen’s lakefront retreat at Chateau Versailles, adding a pair of giant tunnel slides. The Jules Verne Airship combines the balloon from the French science fiction pioneer’s Around the World in Eighty Days and the Albatross from Robur the Conqueror. Both attractions are on the level six podium, alongside the hotel pool with a windmill recalling the Moulin de la Galette in Montmartre, famously painted by van Gogh, Toulouse-Lautrec and Renoir. The entire podium presents excellent views of Macau’s Eiffel Tower.
“The Parisian symbolizes a perfect casino resort: a grind mass focused thematic destination like The Venetian, playing on Chinese love for Paris/Europe, with 3,000 relatively cheap rooms to lure overnighters,” Morgan Stanley writes. But even perfection isn’t what it used to be. Morgan Stanley adds, “We believe that The Parisian’s strengths are not enough to drive more than 10% [year on year] growth in the mass segment [in the second half of 2016 through 2017], in view of falling spending per capita.”
Recovery in the global gaming capital will be written as a tale of two cities. The cities aren’t Venice and Paris, but Macau and Beijing.
