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Crowned Prince

Lawrence Ho’s failed bid for Crown Resorts reveals ties to Stanley Ho, raising doubts about Melco's leadership.

Crowned Prince

Throughout his 15 years as chairman and CEO of Melco International Development, Lawrence Ho has claimed his father, longtime Macau casino kingpin Stanley Ho, had no involvement with the company. Melco’s failed attempt to buy 19.99 percent of Australia’s Crown Resorts highlights that Lawrence Ho wasn’t telling the whole truth.

Every Melco International annual report from 2006 through 2019 shows Stanley Ho had a financial interest in Melco International, the Hong Kong-listed holding company that controls Melco’s operating arms, Nasdaq-listed Melco Resorts and Entertainment and NYSE-listed Studio City International. Until his death in May last year, Stanley Ho was a beneficiary of family trust Great Respect, owning 312.7 million shares, 20.6 percent of Melco International, according to its most recent Hong Kong Stock Exchange filing.

Great Respect is also among 59 entities that New South Wales bans from “new business activities or transactions of a material nature” with Crown as part of the 2014 gaming license granted for Crown Sydney, a prohibition regulators put in place specifically for “prevention of associations with Stanley Ho.” Authorities in the U.S. and reportedly in Australia and Canada deemed Ho unsuitable due to alleged criminal associations, claims Stanley Ho long denied, emphasizing he had never been formally charged with a crime, let alone convicted.

Despite New South Wales’ explicit prohibition against Stanley Ho associates, including Great Respect, Melco announced in May 2019 it would acquire 19.99 percent of Crown in two equal tranches for $1.22 billion through Melco Resorts. Lawrence Ho declared Melco would seek a full takeover of Crown and that winning regulatory approval in Australia would help its “whatever-it-takes” effort to win a casino license in Japan.

Self-Made Myth

Lawrence Ho’s claim that he’s a self-made mogul—even though his father chaired Melco International and its gaming activities ran under the elder Ho’s SJM Holdings concession until 2006 when the younger Ho took over as chairman and CEO at age 29—runs so deep within Melco that former high-ranking executives were shocked to learn Stanley Ho retained Melco ownership. Constant repetition may have led Lawrence Ho himself to believe it.

In August 2019, New South Wales’ Independent Liquor and Gaming Authority (ILGA) announced a probe into Melco’s proposed acquisition under former Supreme Court Chief Judge Patricia Bergin. Melco, Crown and ILGA have all chosen not to answer questions for this article.

Crown has been devastated in the aftermath of the Bergin Inquiry, which veered into an examination of Crown’s relationship with its former chairman James Packer and Chinese high rollers following July 2019 media exposes.

Inquiry findings, released in February, compelled Crown top executives and five board members to resign, led New South Wales to suspend the gaming license for new $1.7 billion Crown Sydney, prompted license reviews for Crown’s flagship Melbourne and Perth casinos, and left Packer’s reputation in tatters. Crown has announced it will no longer do business with junket promoters, cutting it off from a major chunk of Asia’s VIP business.

Melco, despite triggering the Bergin Inquiry, has paid little price. Melco shareholders lost $235 million, virtually erasing 2019 company profits, on the 9.99 percent of Crown bought in June 2019 at A$13 (then $9.04) a share and sold in April 2020 at A$8.15. Melco International shares were the worst performers among Macau’s six casino concessionaires in 2020. Nevertheless, the company has raised $1.5 billion from capital markets since the ill-fated bid and faced no known questions about the deal from market or gaming regulators outside Australia. Lawrence Ho, who controls 59 percent of Melco International shares, received a $19 million performance bonus after engineering a deal that raises questions about Melco leadership’s credibility and judgment.

Memory Lapse

Stanley Ho was the father of Macau gaming, but his involvement in gaming outside of Macau was often questioned because of alleged ties to the criminal triads in the SAR

“It might actually be possible that everyone simply forgot that Stanley Ho was involved in Melco,” says former Australia regulator and the Agenda Group director Peter Cohen. Packer, for one, told the Bergin Inquiry he “forgot” about the New South Wales ban.

“I suspect the issue with Stanley Ho was more a misunderstanding than any party blatantly ignoring their obligations,” Cohen, based in Melbourne, adds.

Any amnesia appears short-lived. Within four weeks of the Crown acquisition, Lawrence Ho disposed his stake in Lanceford, another New South Wales banned entity, holding his portion of Stanley Ho’s fortune distributed following the 2010-11 family feud. Melco didn’t offload Great Respect but did try to conceal Stanley Ho’s stake to those that didn’t read annual report footnotes. Melco told Reuters in August 2019, Stanley Ho “does not exercise any influence on any financial and operating policies or other matters,” without acknowledging its link to Great Respect.

Melco management’s October 25, 2019 shareholder circular explaining the Crown deal, running more than 450 pages, never mentions Stanley Ho. The circular states: “Great Respect Limited is a company controlled by a discretionary family trust, the beneficiaries of which include Mr. (Lawrence) Ho and his immediate family members.”

By contrast, Melco International’s 2018 annual report released March 29, 2019 states: “Great Respect Limited is a company controlled by a discretionary family trust, the beneficiaries of which include Mr. Ho, Lawrence Yau Lung and his immediate family members (including his father, Dr. Ho Hung Sun, Stanley).” (Italics added.)

Annual reports from 2006 name Lawrence Ho, his wife Sharen Lo and Stanley Ho as Great Respect beneficiaries, and the particular language above began in the 2012 annual report, running through the 2019 report, released April 27, 2020, two days before Melco announced its Crown share sale and four weeks before Stanley Ho died at age 98.

Bergin Inquiry opening statements in January 2020 indicated it would probe Melco’s ties to Great Respect. Before public scrutiny began in earnest, Melco declared it would not pursue Crown ownership beyond its 9.99 percent holding and sold its Crown holding. Melco claimed Covid-19-induced austerity led to abandoning its Crown ambitions, without reference to Stanley Ho, and its stonewalling has kept the association largely under wraps outside Australia, where the Packer connection made it major news.

Analysis Paralysis

The friendship between former Crown Chairman James Packer and Melco’s Lawrence Ho turned out to be costly for Melco

On Melco Resorts’ October 30, 2019 third-quarter earnings call, not one of seven stock analysts representing top global investment banks covering Melco questioned the shareholder circular discrepancy or broader Stanley Ho links. On subsequent calls, none questioned the decision to initiate a deal forbidden by regulations, or Lawrence Ho’s $19 million performance bonus following that decision.

“Analysts are as conflicted as anyone,” independent director and activist investor Michael Levin says. “These days they need access to company leadership, so seeing as Lawrence Ho doesn’t want to talk about his dad, they certainly aren’t going to ask about it. Privately they likely know Lawrence Ho showed stunningly poor judgment, acted in bad faith, or both, but they certainly won’t put that in a research note to investor clients.”

Research reveals a rich history linking Melco, Crown, the Packers and the Hos. Melco began as Macau Electric Lighting Company in 1910 and listed on the Hong Kong stock market in 1927. By 1986, a dozen years after government-backed Companhia de Electricidade de Macau took over supplying the then-Portuguese territory’s power needs, Stanley Ho was chairman and controlling shareholder of Melco’s shell, a potential back door for publicly listing Ho’s Sociedade de Turismo e Diversoes de Macau (STDM) gaming holdings. (Hong Kong didn’t list a gaming stock until NagaCorp in 2006.) Melco’s board included key executives of STDM and Ho’s listed non-gaming company Shun Tak, notably Ho’s daughters Pansy and Daisy.

Stanley Ho’s efforts to diversify his gaming portfolio long included Australia. He was an investor in Australia’s first legal casino, Wrest Point, which opened in 1973 in Tasmania, and other casino projects with Lloyd Williams, who later founded Crown and ran it until 1999, when PBL, short for Publishing and Broadcasting Ltd. and controlled by legendary business tycoon and gambler Kerry Packer, James Packer’s father, bought it. In the early 1990s, Ho unsuccessfully sought a stake in Burswood casino, now Crown Perth. When New South Wales legalized casinos in 1992, Ho bid for a license. Sources say he balked at probity checks and a secret investigation deemed Ho unsuitable.

Family Affair

Back in the Pearl River Delta, in 2001, 24-year-old Lawrence Ho engineered a takeover of Melco with the cooperation of his father, Shun Tak and his mother, Stanley Ho’s second wife Lucina Laam. Their general offer valuing the company at $16.7 million lifted their stake to 60 percent—Lawrence Ho owned 30.2 percent, Stanley Ho controlled 29.8 percent, 8.3 percent personally and 21.5 percent through Shun Tak, while Laam held less than 1 percent—and Lawrence Ho became Melco’s managing director under his father. Back then, Melco assets consisted of Hong Kong’s Jumbo and Tai Pak floating restaurants, their parking facilities and a 12-unit Hong Kong residential block.

Father and son started Mocha Slots with two partners in 2003, and in March 2004 sold 80 percent of the upmarket gaming machine parlor chain to Melco, with Stanley Ho retaining 20 percent. After Sands Macao stunned the market that May with its runaway success, Stanley Ho struck back. He commissioned the Grand Lisboa adjacent to his flagship Casino Lisboa complex, sold SJM’s subconcession to a joint venture of MGM and Pansy Ho to build a casino hotel in the downtown casino hub near Lisboa, where Wynn Macau and Galaxy’s StarWorld were also under construction, and announced a Melco-SJM joint venture to develop a casino hotel between two SJM casinos in Taipa, the island south of peninsular Macau. Gaming for Mocha and the Taipa project was under SJM’s concession.

In November 2004, PBL, led by executive chairman James Packer, and Melco formed a joint venture to develop gaming ventures across Asia, excluding Australia and New Zealand, starting with the Taipa casino and Mocha Slots. Initially, the Melco PBL joint venture raised its share in Taipa from Melco’s original 50 percent to 70 percent. By March 2005, it agreed to buy SJM’s entire stake, though gaming would still operate under SJM’s concession.

Name’s the Claim

Australian regulators have suspended a license for Crown Sydney in light of a regulatory investigation that revealed money laundering and unethical actions by the company

Far from shunning Stanley Ho, Melco PBL embraced him to obtain prime Cotai land across from Venetian Macao through Great Respect. In a July 2005 circular to shareholders, Melco wrote: “Dr. Stanley Ho and Great Respect have been able to employ Dr. Stanley Ho’s strong and enduring links with Macau and its business community for the benefit of the company and to secure the opportunity for the group to obtain a long-term lease in respect of the land.”

For its assistance, Great Respect received a HK$1.175 billion ($151 million) convertible loan note equivalent to a 49.2 percent stake in the land, envisioned to represent about 10 percent of Melco PBL upon conversion. (Adjustments to the terms raised the stake above 20 percent.) No obscure footnote to far-flung Ho family holdings, Great Respect was integral to creating Melco PBL’s signature property.

Stanley Ho looming large, Australian gaming regulators withheld approval of PBL’s Melco joint venture. In March 2006, Melco PBL purchased Macau’s last subconcession from Wynn Resorts for $900 million, enabling it to operate gaming independently. (The 2002 standoff between erstwhile partners Las Vegas Sands and Galaxy Entertainment resulted in Macau granting each gaming concession a subconcession.)

Within days, Melco announced Stanley Ho would resign as chairman, replaced by Lawrence Ho. In June, Melco PBL bought out his Mocha stake. In August 2006, gaming authorities in Victoria and Western Australia declared they had no objections to the Melco PBL relationship.

Cohen, then Victorian Commission for Gaming Regulation executive commissioner, noting Stanley Ho’s exit and Melco PBL’s subconcession, observed, “This leaves Dr. Ho with no role in the joint venture.”

The regulator did not approve Stanley Ho, only his operational absence. Over the next few years, Stanley Ho disposed his remaining stake in Melco, except for Great Respect.

Melco PBL, soon Melco Crown, listed on Nasdaq in December 2006, built Altira—the Taipa property that opened as Crown Macau—then City of Dreams and Studio City bookending LVS properties on the Cotai Strip, plus Philippine integrated resort City of Dreams Manila. Lawrence Ho and Packer also pursued separate gaming ambitions, including Crown Sydney, approved in 2014, grandfathering in Melco Crown but barring “new” Stanley Ho associations.

Crown Slips

From 2016, Crown began to sell down its joint venture interest to Melco. China’s arrests of 19 Crown employees in October 2016 highlighted a two-year plunge for the company and Packer that saw him resign as Crown chairman over mental health issues, another Las Vegas casino deal expensively fizzle, his engagement to Mariah Carey end and Crown’s Australian market leadership erode with VIP-oriented Crown Sydney looming as a white elephant without a China marketing presence or partner. Wynn Resorts’ $10 billion offer for Crown in April 2019 was a welcome lifeline, withdrawn when it became public.

So Lawrence Ho stepped in to help old friend Packer, who owned 46 percent of Crown shares, Melco agreeing to buy 19.99 percent of the company directly from him. Ho told Australian Financial Review, “Both Crown and I have always stressed that my business dealings are independent of my father’s interests. We have already been in partnership with Crown for 12 years and have passed probity screens from regulators without an issue.”

“New South Wales was a different situation” from the Melco Crown partnership, former South Australia regulator David Green explains. “Outbound (with Melco Crown operating outside Australia), the only concern with Crown was ensuring that Melco itself was a suitable associate for Crown. Inbound, the issue revolved around Dr. Ho having any association with Crown.”

“I believe that the strength of the relationship and his willingness to help out James blinded Lawrence to the regulatory issue,” Sydney-based gaming consultant Peter Klugsberger says.

“Melco should have known that Stanley Ho was a red flag. I suspect they thought they could overcome that red flag, since the Hos and Packers of the world think they can overcome anything and think regulators are just another nuisance in life,” Levin says. “Melco saw a good deal in Crown, and no need to let what it saw as stupid regulators in New South Wales get in the way.”

Country of Dreams

Lawrence Ho, with Ako Shiraogawa, president of the Melco Japan office

Lawrence Ho has pledged to spend “whatever it takes” to win a gaming license in Japan, which shares Australia’s concern over underworld involvement in casinos. “It is vital to the Japanese central government that IR operators are free of ties to organized crime,” Spectrum Gaming Group Senior Vice President For Investigations Paul Bromberg says. Unlike Australia, events may work to Melco’s advantage in Japan.

Japanese authorities’ decision to delay local government integrated resort submissions by nine months to April 28, 2022 should let Melco’s Crown issues recede further, along with the January 2020 police raid—Melco prefers “visit”—at its Tokyo office, investigating allegations China lottery operator bribed a legislator. Stanley Ho’s death largely moots concerns about his influence.

“First and foremost, there is very little understanding in Japan at this point about the business and personal backgrounds of gaming operators. This is something that will be deeply looked into once actual submissions are made by local governments and their IR development partners,” Bay City Ventures Managing Director Joji Kokuryo says.

“I believe Melco has done a good job with Macau development, but Japan is not Macau,” National Council on Gaming Legislation Chairman Toru Mihara says.

“This is a sophisticated country and environment. I am not sure whether Lawrence Ho is fully advised and understands the risks involved here,” Mihara, a visiting business professor at Toyo University Graduate School in Tokyo, explains. “This is not the Philippines or Cyprus (where Melco is developing City of Dreams Mediterranean) or Australia. He must understand that the regulatory environment is possibly as tight as the U.S., and he must face this challenge. Lip service will not work here.”

Crown Of Gold… Or Thorns?

There’s no consensus about whether Melco’s proposed acquisition of Crown Resorts would have paid off.

“There is a view that the loss was a good loss (for Melco),” Newpage Consulting principal David Green says. “It severed the association with Crown before shareholder value was entirely eroded by the course of the Bergin Inquiry.”

Melco sold out at A$8.15 (then $5.33) a share in April last year after Crown shares had dipped below A$6. Despite Bergin’s damning report and Crown Sydney’s license suspension, Crown shares have since traded higher, with Blackstone Group making a takeover offer at A$11.85 in March 2021.

Melco’s acquisition “was a good idea, pre-Covid,” former equity analyst and gaming executive Aaron Fischer says. “Crown has great quality assets in Australia. There are not that many attractive markets globally that have decent long-term growth with a robust regulatory environment.”

“In the short run, Melco was lucky not to be burdened with having to deal with Crown’s liabilities in the midst of a debilitating pandemic and huge dark clouds over Crown’s probity,” GamePlan Consultants founder and CEO Sudhir Kale says. “Despite the fact that they sold their shares at a loss, the sale provides Melco with a cleaner balance sheet with which to pursue other international opportunities when the time is right.

“Over the long term, however, provided Crown can overcome its regulatory challenges, investment in Crown would have helped Melco enter into a new, stable market where Crown has dominance,” Kale, based in Australia’s Gold Coast, explains. “Other overseas companies, mostly from the U.S., have periodically shown interest in acquiring Crown. If Melco had invested in Crown, and if Crown were to be acquired, it would have provided a very attractive ROI for Melco.”

There’s little question Melco would have been good for Crown. “Having working operations in China, Melco’s customer funnel was a lot healthier than Crown’s,” Ovion Partners Managing Director Peter Klugsberger says.

“Melco is seen as a young, open and ambitious company, and Lawrence Ho as a representation of the next generation of Chinese gaming leader who embraces Western management style,” University of Macau professor of integrated resort and tourism management Desmond Lam says. “Melco has brought something different to Macau and is an admirable company for many young graduates, who see its corporate culture as young, dynamic and adventurous.”

Former U.S. diplomat Muhammad Cohen has been covering the casino industry in Asia since 2006, currently as a contributor to Forbes and Inside Asian Gaming. He’s the author of Hong Kong On Air, a novel set during the 1997 handover about TV news, love, betrayal, high finance and cheap lingerie.