Steve Wynn Is Very, Very Frustrated

Another quarter’s earnings season is upon us. Wynn Resorts was the first major gaming company to report. The industry is not expecting much good news from Wynn, Sands, MGM or Melco; but the analysts were eager to see what Wynn had to say because of the implications for the others. Wynn reported sharp declines in profit and revenue, primarily due to the revenue in declines that all the casinos in Macau are experiencing.

Wynn said its net income for the three months to September was $73.8 million, compared with $191.4 million a year earlier. BBC News, 10-16-15

Wynn Resorts Ltd. posted profit of 86 cents a share, excluding items, down from $1.95 a share a year ago…Revenue fell 27 percent to $996.3 million . Christopher Palmeri, Bloomberg, 10-16-15

The company’s adjusted property earnings before interest, tax, depreciation and amortization decreased by 50 percent to $162.8 million. Macau Business, 10-16-15

Declining revenues are just half of the problem for Wynn; revenue has fallen, but expenses have not fallen at the same rate. That is not sustainable, and the most obvious place to cut expenses is payroll. It is the single largest controllable expense in casino operations. But, that is not an area in which Wynn wants to make cutbacks; exceptional customer service is one of the keystones of Wynn’s business philosophy. He has always taken pride in his employee policies, proudly saying that he has never in 45 years operating casinos cut employee hours or used layoffs to control expenses. But for the first time, he worries that with no end to revenue crises in sight, he might be forced to change that policy in Macau.

“Otherwise, the workforce gets cut back and you have layoffs and all these things that have never happened in my career. 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?” Stephanie Wong, Bloomberg, 10-16-15

The quarter’s results were indeed ugly, but Mr. Wynn’s primary concern is the future, not the past. The company’s $4 billion resort, Wynn Palace, resort is set to open in the spring and management does not know how many table games will be allowed. No one knows, but the common wisdom puts the number at 250. Melco Crown’s Studio City has been allotted 250 tables for its $3.2 billion resort opening October 27th.

The chairman and CEO of Wynn Resorts Ltd., expressed frustration that he does not yet know how many table games the Macau government will allocate the $4 billion Wynn Palace, which is expected open on March 25. Howard Stutz, Las Vegas Review-Journal, 10-16-15

Steve Wynn is so frustrated with the Macau government that he told analysts on the call — five times — he’s never seen anything like this during his 45 years in the casino business. “Here we are spending billions of dollars creating non-gaming facilities, and then arbitrarily someone says, ‘well you should only have this many tables.’ No jurisdiction ever has imposed such – that kind of logic on us.” Stephanie Wong, Bloomberg, 10-16-15

Wynn says that he cannot hope for a return on the $4billion investment with less than 400 tables and he would prefer 500. He says that 200 tables cannot generate the cash necessary to operate a mega-resort. Wynn said the government wanted casinos to diversify and add more amenities. In response the industry invested $10 billion in mega resorts filled with non-gaming amenities to accomplish the government’s goal. But the investments were based on a 500-table game proforma, not 200. In fact, upon learning it would receive only 250 tables, Melco began immediate negotiations with its lenders. One of the covenants of the $1.4 billion loan requires Studio City to be operating 400 tables in October 2016.

Lenders to the newest Macau casino of Melco Crown Entertainment Ltd. face debt renegotiation…The company’s $1.4 billion in secured loans require it to have 400 operating tables by October 2016, according to Standard & Poor’s Ratings. Christopher Langner/ David Yong, Bloomberg, 10-21-15

Anyone who listened to Wynn’s October 15th earnings call might think that Steve Wynn’s love affair with the Chinese government is over. Five years ago he told CNBC: “Macau has been steady. The shocking, unexpected government is the one in Washington.” Even last year, Wynn was still enthusiastic about the way China was governed and leery of our domestic government: “I’m more scared about the United States than I am about China,” he repeated in 2014. In one interview he even said that regulation in Macau was not burdensome, it was “infinitesimal” compared to American regulation.

Apparently, he is rethinking his position. On the conference call, Wynn unburdened himself. He said afterwards that it was an unusual call, but it was brutally honest. He called the table game allocation policies “outrageous and ridiculous” and a bad policy that makes planning for the casino’s opening a “mystical process.”

“Understand that the reason that these extraordinary nongaming attractions exist is because the damn casino is the cash register.” Stephanie Wong, Bloomberg, 10-16-15

“Here we are spending billions of dollars creating non-gaming facilities, and then arbitrarily someone says, ‘well you should only have this many tables.’ No jurisdiction ever has imposed such – that kind of logic on us.” Stephanie Wong, Bloomberg, 10-16-15

“The table cap is the single most counter intuitive and irrational decision that was ever made.”
The reason these extraordinary non gaming attractions exist is because the damn casino is the cash register,” Wynn said with marked exasperation.

“Here in America, we would never have a Las Vegas of the diversity we’ve had, if the city had told us how many tables we could spread. The table cap is the single most counter intuitive and irrational decision that was ever made,” he said. CNBC, 10-16-15

The government in Macau is as disillusioned with the love affair as Wynn. The day after the call, authorities summoned Wynn officials to a meeting. The spokesperson told casino representatives that Wynn had overstepped the proper boundaries; they said “Some things we do not discuss in public.” After the meeting the government issued a statement declaring that all casinos would be held to the rules and regulations and no exceptions would be granted. There was no mention of Wynn. The following day, the Macau officially granted Studio City 250 tables, 200 upon opening and another 50 next year. Melco spokesman, Lawrence Ho thanked the government for considering its petition favorably. Ho took no of offending anyone; he bowed correctly and humbly to throne, even though he knew he would be forced to renegotiate the loan. Humber has never been Steve Wynn’s style.

Macau has “no plan to make any changes lightly” and demands “clear understanding and full compliance” from the industry, the government said. Daniela Wei, Bloomberg, 10-19-15

A “brief” meeting requested by Secretary for Economy and Finance was held in the morning. It took half an hour to make it clear that “some matters should not be [aired] in public”, we were told. Macau Business Daily, 10-19-15

“We thank the Macau Government for its consideration of our application and approval of gaming tables and machines for Studio City,” said co-chairman and CEO Lawrence Ho. Asia Gaming Brief, 10-20-15

Steve Wynn has been very successful in the casino gaming business for 45 years. From his first investment in the Golden Nugget in downtown Las Vegas to Atlantic City and back to Las Vegas and his fabulously successful Strip properties and finally to Macau. Everywhere Steve went, he built something unique, special and profitable. His properties were models for others to copy both in their design and in the profits. Everything he touched turned to gold; even in Macau he was a tremendous success until the government began its crackdown on graft and corruption. When the crackdown came, Wynn was in the midst of building his next generation casino and spending four billion dollars in the process. Now, for the first time in his career Steve Wynn cannot wave his magic wand and create a world to fit his vision. He is a charmer and a magician, but charm is unlikely to affect Chinese policy and Wynn is understandably frustrated.


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