The clouds of doubt hanging over Wynn Resorts (NASDAQ:WYNN) regarding allegations of sexual misconduct against the casino operator's founder and former chairman Steve Wynn may soon be breaking, and none to soon.
Wynn Resorts reached a settlement with Nevada gaming regulators that has it admitting guilt for failing to act on the allegations even though executives and the board were aware of the misconduct.
While a serious admission, Wynn will not need to make more changes than it already has, and its gaming license in the state will no longer be in jeopardy. It still must pay an undetermined fine, but the resort will be able to move forward.
The risk is less, but not gone
Because a similar threat remains in Massachusetts, where Wynn seeks to open the Encore Boston Harbor resort, the clouds have not fully cleared. But Massachusetts regulators seem highly likely to follow the lead of Nevada.
The alleged misconduct didn't happen in Massachusetts and occurred well before Wynn Resorts applied for a license in the state. While those could be mitigating factors in the state's decision, many of the actors accused of covering up the misconduct were present during the application process, meaning regulators could still find culpability and deny Wynn's license.
Analysts, though, are doubtful that will happen. Steve Wynn has completely separated himself from the casino, and the resort fired everyone who was mentioned in the complaints as being aware of the allegations but doing nothing. With a new composition to management and the board, Wynn Resorts is expected to escape more serious sanctions.
That will allow Wynn to expand its U.S. operations. And that will come just in time, as Macau casinos recently reported their first monthly drop in gaming revenues in over two years.
Macau on a slide
The Chinese enclave, where Wynn operates the Wynn Macau and Wynn Palace resorts, has slowly been edging toward decline. In January, gaming revenue dipped 5% to 24.9 billion patacas, the local currency, or about $3 billion at current exchange rates.
Wynn just reported fourth-quarter earnings that surprised analysts with the strength of its Macau resorts. Although adjusted earnings per share of $1.06 badly missed Wall Street's expectation of $1.33, revenue came in above forecasts at $1.69 billion, a 4% gain over the year-ago figure.
China's economy is slowing, which is leaving less cash to spend at casinos, and Macau instituted a new smoking ban, which took effect on Jan. 1. Greater scrutiny on money flowing into and out of the enclave is also putting a damper on VIP gamblers, Wynn's primary target, along with the premium mass market. Both the older Wynn Macau and the new Wynn Palace in Cotai were designed to exploit those markets with luxury shopping opportunities and high-roller baccarat tables.
A new bridge that opened last October linking Macau and Hong Kong to China helped boost visits to the peninsula. Yet after criticism from locals about the influx of tourists, authorities are trying to tamp down the excitement by imposing travel fees, which seem to be having the desired effect as the number of visitors is starting to ease up.
Looking for support close to home
Analysts think the Macau downturn may be short-lived, though the combined regulatory actions could extend the weakness. Since Wynn Resorts derives most of its money from its China division, it is particularly vulnerable to any declines, but getting its domestic problems cleared up could help pave the way for its stateside resorts to make up some of the shortfall.