The last thing Las Vegas needs is another gaming establishment, which is why when Wynn Resorts (NASDAQ:WYNN) announced in 2016 that it would be digging up its famed 18-hole golf course to build a broad entertainment park a casino wasn't going to be front and center.
Paradise Park would be built behind the Wynn Las Vegas resort and Encore hotel, and would feature a 20-acre lagoon where guests could water-ski, paddleboard, and parasail during the day and enjoy massive fireworks displays from a man-made island in the middle at night. There would also be white sand beaches, a boardwalk, a 1,000-room hotel tower, a convention center, and restaurants. Okay, there was also going to be a small casino, but the development project wasn't about gaming.
As then-CEO Steve Wynn declared, "I don't give a damn if they put a nickel in a slot machine. I want them to pay my admission. I want them to stay in my rooms. I want them to drink my booze and eat our food."
Still an entertainment complex
Fast-forward two years, and things have changed somewhat. Paradise Park is still being built, and the focus still isn't on gaming, but that whole "ocean in the middle of the desert" thing is gone. Wynn Resorts is scrapping the lagoon in favor of reinstalling the golf course. Turns out, golf generates a lot of money.
During Wynn's third-quarter earnings conference call with analysts last week, CEO Matthew Maddox said the situation in Las Vegas is different today following the casino operator's buying 38 acres of land across the street from its resort last year.
The planned convention center is being built -- it should be ready by January 2020 -- because that's still needed at the north end of the Strip and could add four to six points of occupancy to the Encore hotel. It will also allow Wynn to drive rates during peak times and enable occupancy rates to be in the low- to mid-90% range throughout the year.
Instead of the 9-hole course originally imagined, the golf course will once again be an 18-hole course, and Wynn brought in the original designer to map it out. Maddox says it should be up and running by this time next year.
A change of fortunes
There's good reason for the change of heart. In the time since the golf course was taken out of action, Wynn realized it lost 16,000 rounds of golf, which at $350 to $500 per round translates into some $6.8 million at the midpoint, 70% of which would have been in cash. It also lost an additional $10 million to $15 million worth of domestic casino business because Maddox said people were coming in to Vegas for golf trips and, without the Wynn golf course available, were choosing to go elsewhere.
It's clear the two executives had different visions for the world-class casino operator. Steve Wynn, having at the time come off a successful launch of its Wynn Palace resort in Macau, China, was flush with cash. The resort opened in August 2016 and was solely responsible for the $353 million increase in Wynn revenues in the fourth quarter that year. That had Wynn thinking big. "We want to take our noncasino revenue to enormously high levels," he told analysts.
Maddox, on the other hand, is confronted with a slowing market in Macau, a malaise he expects to see extend for at least several quarters. He's not expecting to lose market share there, but the high-end market is weakening.
Las Vegas is slowing too, which is why Wynn Resorts needs the golf course. If it can drive significant incremental revenue to its casinos and the other amenities it offers, it can prop up operations longer.
Wynn Golf Club was always regarded as a lavish course and now the resort operator realizes just how lucrative it was. With gaming markets tightening, Wynn Resorts needs to generate the highest possible return on every investment, and a few rounds on the links will pay off better than having guests jet-ski or parasail on a man-made lagoon.