Wynn Resorts Are Ready for More in Macau

Casino giant Wynn Resorts (Nasdaq: WYNN  ) recently received government approval to build its resort-casino in the hot market of Macau, adding to the gambling destinations in the much-in-demand Cotai Strip. Here's how it'll go down.

The deal
Wynn Macau, a subsidiary of Wynn Resorts, will pay $193.43 million to the Chinese government for the use of land to develop the resort. This 51-acre development will include entertainment and retail properties, such as casinos, resorts, stores, and spas. The company will pay $1 million annually in rent for this land, and the project is expected to be completed by late 2015. This deal is valid for 25 years, with the right to renew on expiry.

Asian deck
Over the past year, shares of Wynn Resorts have soared 67%, mostly owing to its Asian business -- a larger contributor to the company's revenue. Wynn, which already operates two casino resorts in Macau, will be adding 500 game tables and 1,500 rooms along with other amenities in this new one.

This will enable the company to grow further in the expanding Macau market. However, Wynn is not the only player digging in this gold mine. Las Vegas Sands (NYSE: LVS  ) is opening a new casino in the Cotai Strip next year, and Melco Crown Entertainment (Nasdaq: MPEL  ) plans to start developing its Cotai property soon as well.

Labor challenges
Despite the lucrative looks of this new development, I'm worried. -- not just about the competition in the Cotai casino market, but also about the labor problems Wynn might face. The company will soon start land development in the already crowded labor market, with competitors doing the same. This growing labor demand could cause an increase in labor prices, and perhaps even a labor shortage.

So will the company go slow with its construction in light of a possible labor shortage, or will it pay higher labor prices to complete its project and start operating its casino as soon as possible? In this case, either Wynn enters the market late and loses a part of its potential market share, or it pays higher labor prices to start operating as early as possible.

With $1 billion in cash on its books, it seems more likely that Wynn will manage to cope with the issues. Wynn also has a slight edge over competitors MGM Resorts International (NYSE: MGM  ) and SJM Holdings, as they await government approval for property development.

The Foolish bottom line
Overall, the future of the gambling industry looks quite bright. Wynn seems to be making good progress in Asia. Even though the company might face competition, it seems well-positioned to make profits from this vast market. Fools, keep a close eye on this stock.

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Navjot Kaur does not own shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 20, 2011, at 11:42 AM, spokanimal wrote:

    There's already a labor shortage, Navjot.

    During the construction of the Galaxy Cotai resort, Sands NEVER WAS able to get the labor they needed. Sands was barely able to get 5,000 workers when they needed 11,000 during the Galaxy build and even now that Galaxy is open, Sands is still several thousand short of 11k and is having to open it's new Cotai Central in phases over the course of a year beginning next March.

    Cotai Central will be sopping up every bit of labor they can get over the next year and a half leaving very little available for Wynn. Wynn will be fortunate to complete it's new resort by the end of 2016 unless the Macau govt. relaxes it's rules restricting imported labor, which is unlikely given the unrest it has caused in the past.

    Thus, between now and 2016, as gaming growth expands at a torrid year-over-year rate of 40 to 50%, only one resort will be built to exploit that growth, and that the massive, 6,400-room Cotai Central resort Sands is building... a resort that will feed extensive patronage over the strip VIA sky bridge to it's equally massive Venetian resort complex and substantially improve it's capacity utilization. Clearly, the growth is on Cotai and Sands will dominate there with multiple, mega-resorts that are all "on strip" (Wynn's approval is for an off-strip parcel behind Cotai Central).

    Spokanimal

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