Quarterly earnings calls can sometimes be a bit dull, even if there's a lot of great information buried deep inside them. But a conference call with Steve Wynn of Wynn Resorts (WYNN -1.77%) is anything but dull, and the third quarter call was no exception.
There were dogs barking in the background and confusion regarding Macau, but here are five comments from founder and CEO, Steve Wynn, that investors should know.
Macau is in rough shape
We don't see any major change or new development in Macau concerning our existing operations other than all of the comments we've made in the past about the confusion, the ambiguity about what we face in terms of tables in the upcoming months as we we're about 170 days before the opening of the Palace.
This was like the warmup from Wynn. He basically acknowledged that they don't know where the bottom of the gaming market is, and they have seen no signs of relief, especially from the VIP segment. Mass gaming was "flat-ish" but that's about the best comment he made about Macau in general.
Ironically, that region is still where Wynn's most profitable resort is and Wynn Palace, the newest property, will likely be his most profitable ever, despite the slowdown. What he's really frustrated with is unknowns in areas where the government could be providing more clarity.
Who gets tables when?
The confusion and the rather mystical policies that are governing the assignment of equipment in these new hotels which are tremendous diversifications away from pure gaming into all other forms of non-gaming, the confusion about the tables and the government's position in this regard has made it very difficult to plan for employees and other aspects of the facility.
The upcomig Wynn Palace. Source Wynn Resorts
The Macau government decides how many table games and slot machines each resort can have, and that process has always been rather ambiguous. But it has become a big deal lately as the allocation of tables has fallen short of what developers expected and come later than they would like. Wynn doesn't currently know how many table games Wynn Palace will enjoy, and as he plans staffing and other preparations for the $4 billion resort, that becomes a challenge.
And that's when he got truly riled up.
Wynn gets heated
The notion that a person who spent $2.5 billion, I'm talking about Melco now, would not know how many tables they are going to have three weeks before they open is preposterous. It's worthy of comment. And how in the world do we underwrite the job security of the local workforce in Macau, keep the promise of promotions and better opportunity under these circumstances? I'm at a loss to answer that question.
Wynn is referring to Melco Crown's Studio City where authorities allocated just 200 tables to the new resort only three weeks before it opened. Not only was that less than half what the company was aiming for, it was so last minute that planning for the casino operator was extremely difficult.
Wynn is worried that his own resort will suffer from similar challenges as staffing is already up in anticipation of the opening. He also mentions this in context of the Macau government's desire to provide jobs and advancement opportunities for its people and non-gaming diversification of its economy. Wynn feels that he's doing both with a resort like Wynn Palace and the fact that he would spend that much money and not know if he has enough table games to make the resort profitable is hard to fathom.
Beyond Macau
In Las Vegas, we are in this market, the principal beneficiary of international business and we have been since we opened in 2005. So, if a segment of the international market is affected for extraneous reasons or external reasons like a change in government policy or whatever in China, then we would be the principal victims or we would suffer the most and that's exactly what happened.
One thing that most people don't realize about Wynn Las Vegas is that its results are driven by international travelers, primarily from China. Those private rooms at the back of the casino are where millions of dollars of gaming revenue is generated.
As a result, when China struggles or the Latin American economy weakens, so does Wynn Las Vegas. Off the gaming floor, the resort is doing well but VIP customers aren't visiting in the numbers they once did, and that has been another drag for the company.
Wynn Everett is coming along
The Massachusetts project which we think is a very exciting thing will be on its way and hopefully open in 2018.
If you've read any headlines about Wynn in Boston, you know that the fight over the resort in Everett, Massachusetts has been a mess. The mayor of Boston has been fighting against its development, and the battle had grown personal for Steve Wynn.
That appears to be resolved, and Wynn is moving forward with the project, although it is behind schedule. Look for this to be a small amount of capital spending in the next year or two with a big ramp up in 2017 when construction is in full swing. When complete, this will help diversify the portfolio slightly and potentially provide a high earnings casino in the heart of one of America's oldest cities.
