Rendering of Wynn Palace in Macau. Source: Wynn Resorts.
There's a lot of uncertainty in the gambling enclave of Macau and one of the best ways to find out what's going on there is to hear directly from operators what conditions are like. During a recent conference call with investors, Steve Wynn gave a little insight into what he did -- and didn't -- know about the future of Macau and Wynn Resorts Limited's (WYNN -1.78%) operations. Here were the five biggest things I took from the call (each starting with a quote from CEO Steve Wynn).
1. Uncertainty is the norm in Macau
"Macau continues to be more of a question than a certainty as we head through 2015 and toward our opening on March 25 of Wynn Palace in 2016."
This was almost the first thing he said to investors and in one sentence it said a lot about where the company is. He doesn't know when Macau will improve or if it will in the near future, but the company is focused on completing Wynn Palace, which will open on March 25 of next year.
That gave investors a definitive date for the opening and the first quarter of 2016 is earlier than previous comments had predicted, in part because Wynn got its full allocation of construction workers.
2. Wynn Palace is a drag on current results
"Our construction and our staffing is on schedule. We've made some adjustments in the staffing until we have a clearer picture of the game total that will be allocated to us by the government. But in the meantime, we're finishing this building."
Table games have become a big question mark in Macau because there are six new resorts or expansions opening in the next two years and the government doesn't want to flood the industry with new table games. So, Wynn is managing what it has and not overhiring because it may not get as many games as desired. But the allocation is something for investors to watch as the opening moves closer.
3. Why expenses are higher than usual
"We're packing a lot of people in Macau Peninsula operation in anticipation of Macau. So that is one place where our expenses are artificially inflated as we warehouse people that we're planning to take next door."
This was one comment in a long discussion about Wynn's short-term operations in preparation for opening Wynn Palace. The company is keeping more staff than normal because workers are being trained so some can be promoted to open Wynn Palace efficiently.
Additional staff will have a short-term drag on results because of higher operating costs but it should lead to a smoother opening and we should see lower operating costs once both properties are operational.
4. How an opening looks at Wynn Resorts
"The hotel will be a campus in February, and if anything interferes with our ability to use March as a campus to practice, then of course I wouldn't hesitate to postpone the opening by a week or two."
Wynn doesn't like to do soft openings or test operations on the public; it tests systems in private with employees who will be working there and opens when the resort is ready. That process will begin in February and if the resort's operations aren't up for it, he would push back the opening.
These might be blunt comments to some investors but Steve Wynn has shown that he's uncompromising when it comes to the operations of his resorts. The added operational costs mentioned above will go into creating a smooth opening for Wynn Palace and a big part of that is the property becoming a campus for workers in February and March.
Long term, this focus on detail is what keeps Wynn atop the gaming industry in every location it's in. For investors, that could mean more than $1 billion in EBITDA from Day 1 at Wynn Palace, which could send the stock soaring as well.
5. Las Vegas is humming along
"In Las Vegas, we're enjoying a comfortable business, I think is the right word for it. It's not an aggressive growth by any means, but we are enjoying non-casino revenue that is acceptable. Our slot machine and table games are growing with one exception. ... our baccarat table business has suffered, mainly because of the absence of a number of Asian players."
The interesting trend in Las Vegas is that non-gaming revenue is fairly strong while baccarat play from Asian gamblers, which is actually the biggest game in town by revenue, is getting weaker. This is a spillover from the issues plaguing Macau but it's worth investors understanding.
Long term, I also see this as a sign that Wynn has built properties correctly to attract high room rates and other non-gaming revenue. As young people gamble less, these sources of revenue will become even more important.
Wynn Palace is the key for Wynn Resorts
There was a lot of focus on Wynn Palace on this call and for good reason. The property could double the company's revenue and EBITDA when it opens and it could steal significant market share from competitors. That's why opening on time and at full speed will be important. The short-term costs Wynn is taking to do that should pay off in spades in the long run.
