Breaking News: Steve Wynn Will Not Be Moving To Macau

You may remember a couple of years back when Steve Wynn said he was considering a move to Macau. Mr. Wynn was highly annoyed at the government here; he said he just might pick up and move to Macau because the Chinese government was so much easier to deal with. Who could blame him? Since Macau was opened up to non-Chinese gaming operators in 2002, the revenues have grown from $6 billion a year to $40 billion in 2013.  And the Chinese government was easy to get along with, that is until it wasn’t. Steve has probably changed his mind about the Chinese government and it is highly unlikely that he is still considering a move to Macau. The situation has altered a great deal since Wynn made that threat.

August was the fifteenth month of falling revenues, down 37 percent to just over two billion dollars. That is a lot of money, but before the current crisis revenues were approaching four billion dollars a month and increasing. Fifteen months is enough time for anyone who is interested or invested in any way in Macau to adjust their thinking about China, Macau and American casino operators in Macau. Recently, a friend of mine asked my opinion on the future of Wynn Resorts, Wynn Macau and Steve Wynn in general. I said that Wynn Macau is challenged in both the short and long term. On a broader scale, Wynn Resorts has some issues. A casino near Boston, Massachusetts may be very successful, but the path is going to be rocky. Wynn Resorts has too many eggs in one basket for my taste. And the lack of Chinese VIP gamblers is affecting Wynn in Las Vegas also. Certainly this is not a great time to buy Wynn and the stock market agrees with me. In March, 2014, before the current crisis, Wynn Resorts hit $246.66 a share; in August, 2015 it was trading in the $70 range.

Understanding the situation in Macau is difficult to say the least. Wells Fargo is working hard to get a handle on it. Wells sent a couple of analysts to Las Vegas to interview some of the major stakeholders. Of the four major foreign casino operators in Macau, three, MGM Resorts, Las Vegas Sands and Wynn Resorts, are headquartered on the Strip in Vegas. The companies had common concerns about table allocations, the political environment and foreign currency. The analysts could not find an optimistic person to speak to and drew a very dismal conclusion: “We came away increasingly convinced there will be no V-shaped recovery in Macau,” Mr. McKnight said. “A few operators even suggested that VIP play in Macau may never fully come back, citing a junket liquidity crunch and tighter policy toward Macau from the mainland [China government],” he noted.

Like Wells Fargo, Yahoo Finance is striving to make sense of the situation in Macau. Yahoo developed a new matrix to analyze the trends; Yahoo used revenue per person to compare this year over last. As one might suspect, the amount each person has wagered has declined as dramatically as the revenue. It is not complicated, there are fewer high-rollers and they are spending less. Hotel occupancy is 70 percent, down from 90 percent.

On a year-over-year basis, revenue per visitor continues to fall. It fell by 31% in June 2015, 38% in May 2015, 37% in April 2015, and 30% in March 2015. Ally Schmidt, Yahoo Finance, 9-7-15

Regardless of the way you approach the subject, the symptoms of the problem are clear, fewer high-rollers and dropping revenues. For the last 15 months, everyone has been blaming the Chinese government and its crackdown on corrupt officials. But that may be too simplistic. There are other factors which are probably contributing to Macau’s woes. The Chinese stock market has fallen off a cliff, taking trillions of dollars of net worth with it. The Chinese economy is no longer growing at a double digit rate. The Chinese people are traveling more, but spending less and they are going to many other places besides Macau. All in all, it is not a bright picture.

However, the crisis has lasted long enough for people to begin to develop new strategies. The most significant is the diversification strategy. All the casinos are spending a lot of money to add amenities to attract a broader audience. It will be a long slow shift, if it works. The VIP gamblers have not been abandoned, but the casinos are putting most of their money and focus on the mass market gambler and even slot players. Slot revenue is only 5.7 percent of the total revenue, but both mass market and slot revenue is gaining market share.

Besides diversifying their product offering in Macau, the gaming operators are diversifying their revenue streams by expanding into new jurisdictions. They are looking in Vietnam, Cambodia, Laos, the Philippines, Japan, Korea, the Marianas, Monaco and Russia. For example, Lawrence Ho and James Packer are spreading out to the Philippines, Russia and the Las Vegas Strip. In the long run, diversifying away from Macau is the best solution for all of the operators. A revenue stream that is not dependent on one place, one market segment or one government is always a safer strategy. Steve Wynn does not move easily into new jurisdictions, but he is expanding in Massachusetts and that will place him in three very different jurisdictions, the Las Vegas Strip, Boston, Massachusetts and Macau. So, while I don’t think his stock is very attractive at the moment, I would be a fool to bet against him. And now that it is clear that Macau is not the perfect basket for anyone to put all of their eggs or corporate headquarters for that matter, Steve will be thinking much more about other opportunities. Maybe that $70 stock is a bargain, what do you think?

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