Last Thursday's earnings conference call from Wynn Resorts (NASDAQ:WYNN) was one of the more entertaining I've heard from a public company. There wasn't just the normal discussion of Wynn's operations and what exactly is going wrong in Macau. There were dogs barking in the background and Steve Wynn finally lost his cool and told us what he really thought about Macau's government.
The call was so bad that Macau's secretary for economy and finance, Lionel Leong, summoned gaming executives on Sunday to get everyone in line. What's so interesting is why Wynn was irate in the first place and how the tune of gaming executives has changed in Macau.
Wynn's gripe with Macau
To give some background, Macau is a highly regulated gaming region, where just six concessionaires are allowed to operate casinos. Within those casinos, they're limited in the number of table games they're allowed to install. That's where things get complicated. When Macau approves a new casino to be built, like Wynn Palace or Las Vegas Sands' (NYSE:LVS) The Parisian or Melco Crown's (NASDAQ:MLCO) Studio City, it does so with an informal (wink, wink) agreement on how many table games the property will be allowed. In the case of all three resorts I mentioned, they planned for 400-500 table games at each property.
The number of table games has a huge role in both the economics of making money at a property as well as planning the staffing levels. So, when Melco Crown's Studio City was reportedly allotted around 200 tables just three weeks before opening, it added to the confusion around other resorts under construction. This is not only well below the 400 its debt covenants required, but gives management very little time to adjust and plan for opening the new resort. That's what made Wynn lose his cool over the opening of the $4 billion Wynn Palace in six months, saying this:
We cannot train people and maintain service levels in the non-casino and casino areas, when we don't have the time to train our people. So the notion of finding out that how many tables you're going to get three weeks before you're opening is outrageous and ridiculous. Ridiculous is the word for it. We've never operated a business this way.
The rising tide is no longer lifting all boats
This discussion may not be a big deal if Macau's gaming revenue was still growing, but it isn't and that has everyone concerned. VIP players, who used to dominate Wynn's business, have dried up and gaming revenue has fallen 33% so far this year.
If there are fewer customers, it means that there's less money to be made at the casino, but it also means that casinos are now putting their effort into mass-market players. These are players who play lower limits but generate higher margins for the casino. The problem is, they need more tables to generate the same amount of revenue as a small number of VIP players. So, gaming companies are very concerned about table allocation.
Is this the death of Macau as we know it?
There are a lot of overreactions to what's going on in Macau today. But this table game drama is something we've seen before when Las Vegas Sands opened Sands Cotai Central. It wasn't given as many tables as it wanted when it opened in 2012, but was given another 200 table games in 2013. That could happen with new resorts being built today.
That may make for an uncomfortable year as Wynn prepares to open a $4 billion resort, but long term I doubt the Macau government will leave new casinos with too few tables. That would be bad for drawing visitors to the region and would keep those visitors from enjoying the non-gaming activities these companies have spent billion building on Cotai. That's what Macau really wants and the table game allocation is just a temporary ploy they're using to keep gaming operators from thinking they have too much control over the region.