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Winning With Steve Wynn

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Legendary Vegas icon Steve Wynn, chairman and CEO of Wynn Resorts (Nasdaq: WYNN  ) , had a must-watch interview with CNBC on May 28. Every investor can gain valuable insight from the specific thoughts behind many of his long-term and near-term strategic moves. Even if your Vegas investment portfolio is limited to nickel slots, the interview's a worthwhile look at the way Wynn thinks -- a process you should emulate when evaluating any business.

Wynn criticized the Obama administration, but not out of partisan political rage. After 40 years of investing in Vegas, Wynn has seen it all -- and he now believes that every business in America is frightened at what Washington will do next. His concerns have prompted Wynn to increase the amount of time he's spending with his assets in Macau where, he says, the government is far more stable and predictable.

The signal to Wynn investors: Expect Wynn to deploy more assets and capital to maximize Macau's contributions to revenue, while Vegas continues to struggle.

The interviewer asked about the new beach club Wynn opened in his Encore resort. Why do so, especially in a struggling economy? Isn't that like hitting on 19 in blackjack? According to Wynn, trends are changing; not content to sit and watch, people in the 22-40 age range want to be immersed in an experience. The design of the new Encore beach club reflects this shift.

According to Wynn, visitors in this demographic are more likely to have no mortgages, no kids -- and plenty of disposable income. The beach club's revamp also targets men aged 50-70, who Wynn believes will avoid growing old at any price. They want to be around this youthful energy, and they will pay for it. Wynn also said that he automatically revamps all his properties' rooms every five years, just to keep them current and fresh.

The takeaway from these observations: A recession doesn't change Wynn's need to react to changing trends. He's clearly hoping that this new addition will boost interest in the property, even during hard times.

Of course, you can't make any such changes without a solid capital structure. At Wynn's company, management is always prepared for a recession. Wynn reminded viewers that when his IPO failed to provide him with the $1 billion he wanted in equity, he and his partner put in the difference, so that the hotel would be less than 60% leveraged. Why? To be able make improvements Wynn knew would be inevitable, and to survive the equally inevitable bust cycle. That far-sighted strategy stands in sharp contrast to the overleveraging nightmare that now faces MGM Mirage (NYSE: MGM  ) .

At present, Wynn said, Las Vegas is not a profitable city. It will be again, but not right now. Wynn argued that investors shouldn't listen to companies reporting EBITDA, because it distracts from the truth -- that everyone pays interest, taxes, and amortization. Those are real costs.

Look at Wynn's financials compared to competitors Las Vegas Sands (NYSE: LVS  ) and MGM Mirage.





2009 net income

$21 million

($540 million)

($1.3 billion)

MRQ net income

$27 million

($29 million)

($97 million)

2009 FCF

$53 million

($1.45 billion)

$451 million

Current long-term debt

$3.28 billion

$10.2 billion

$12.70 billion

Current cash

$1.76 billion

$4.05 billion

$0.44 billion

Net debt

$1.52 billion

$6.15 billion

$12.26 billion

2009 interest expense

$211 million

$322 million

$775 million

Source: Yahoo! Finance.

Anybody want to argue with me over capital structure? Anyone? Bueller?

All in all, the interview paints a portrait of Wynn as a man who knows what he's doing, and possibly knows his own business better than just about any other CEO. That makes sense, since Wynn and his wife own 20% of the company's stock, and other insiders hold 18% more. Analysts say the company will earn $1.10 this year and $1.70 next year -- an impressive feat, considering the much lower expectations for Las Vegas Sands and MGM.

I had a huge stack of chips in front of me, I couldn't imagine making a better bet than going all in on Steve Wynn. He's always been a winner, and as Fools know, you let your winners run.

Rick Steier does not own shares in any stock mentioned. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 07, 2010, at 1:35 PM, spokanimal wrote:

    Dear Mr. Steier,

    Of course, your analysis is "topical" in nature and is void of the "depth" that is necessary to properly guage these companies.

    Take Wynn VS Las Vegas Sands, for instance. The financial metrics that you illustrated glaringly omit the value of physical assets and their earning "potential". They reflect to $5.7 billion Sands just invested in Singapore's Marina Bay resort but bear no reflection of the immense profits it has only begun to realize.

    Similarly, Sand's $1.8 billion investment to date in Cotai sites 5 & 6 are fully reflected in your numbers but a discounted cash-flow projection of it's future EBITDA (as well as it's propensity to add to full utilization of Venetian Macau ancillary assets) is completely missing from your portrayal.

    Sands is EVERYWHERE Wynn wishes he could be... they're in Singapore and Wynn is not, they dominate Cotai while Wynn struggles to get a gaming table allocation by 2014 there. In all liklihood, Sands will demonstrate their "action oriented" business model to Japan's decision makers as well with examples like Venetian and Marina Bay Sands and snatch a license away from Wynn there as well.

    So yes, your analogy provides your readers with 8 to 10% of what real investors in these companies need to know but....

    .... it's the other 90% of what needs to be known about these companies that will determine their success as investors.


  • Report this Comment On June 07, 2010, at 8:42 PM, bionicbanker wrote:

    Spokanimal's comments reflect those of a trader, not an investor and if he/she s nimble/liquid enough in today's high frequency and hot money dominated market; that is fine. The fast money crowd has taken over LVS and driven the price beyond any normal expectations. At various times it trades at about 50x projected earnings--2 years out. Emphasis on projected. Management has an arrogant attitude toward customers and even if they didn't; a projection is just a guess. Both Wynn and LVS are overpriced in the short run. If I had to bet, no pun intended, on one of the two, I would go with the stronger balance sheet.

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