Steve Wynn in Uncharted Territory


Steve Wynn is in unfamiliar territory; his Wynn Palace Macau is not an instant success.* Steve has a reputation for “getting it right” and he is very certain of his ability.  Whenever he discusses a new property he is confident and secure in his concept. Steve has always understood his market and his casinos fit perfectly and profitably into it.  Wynn Palace has only been open since August 22nd, but it is not wowing the analysts with its results.  It is too early to predict its long-term possibilities.  But it has been long enough for critics to jump in and declare it a failure.  To be fair, it has generated significant revenues, but failed to meet analysts’ expectations.

 

The Palace opened into a market that had been on a 26-month decline.  However, since Wynn and Adelson’s Parisian joined Studio City in the Cotai Strip, the gaming revenues have increased.  It may be a coincidence, but it is possible that the Parisian and Wynn Palace have grown the market.  Of course, that is one of the things Wynn hoped. He wanted to build something so special, so beautiful that people from all over the world, not just China, would want to see it, stay in one of luxurious rooms, taste the culinary delicacies, shop for the best and most expensive luxury goods available in the world and place a wager in the casino.  Wynn Palace was designed to generate eighty percent of its revenue from non-casino sources and only twenty percent from gambling and to cater to the upper crust of gambling travelers.

Still, the casino has not met Wynn’s expectations.  To correct that, the casino floor is being redesigned.  It seems there is too much “white” space and the casino lacks the energy associated with busy casinos.**  It is a strange place for Wynn to be as he invented with the Mirage, the casino floor designed to create excitement. The Mirage opened in late 1989 and was an instant success.  Of course part of the reason was the hype, the luxury and the over-the-top cost for the times.  But there was more to the story; Wynn moved the Strip away from fake castles and cities meant to attract a family audience to a pure resort built around a casino.  It raised the bar on luxury, but it also made very effective use of its space.  There were just twenty-five square feet of casino space for each hotel room.  It is a critical ratio since those rooms provide the majority of the customers for the casino.  At the time casinos in Las Vegas ranged from nine square feet per room to one hundred.  Nine was not enough and the casino was too crowded for players to be able to play or move from slot machine to slot machine, while at a hundred square feet for each room the casino was a vast empty cavern.  But Steve’s ratio was nearly perfect.   His casino was always busy and full of that energy that drives casino gambling, but rarely so full that people could not gamble or even negotiate the casino in comfort.

In the wake of Wynn’s successful Mirage, every new casino approximated his ratios.  Intuitively Wynn understood all of the elements; others simply followed his lead.  And that brings me back to Macau.  Did Steve forget his own lesson?  I think not.  But when his Palace was planned in 2009-10, he could not have imagined the drastic decline in VIP gamblers.  Nor could he have anticipated the delays, the limits placed on the number of table games, the incomplete public transportation system and the disruption caused by MGM construction. However, except for the loss of many of the high rollers from China, those issues will be resolved in time.

In the meantime, according to press reports, Steve is pushing the walls a little closer together.  When things get better the walls can be moved back and the space opened up again.  And then I suspect Steve Wynn will be on familiar ground once again – as the owner of the most profitable casino in the market.  In fact even today Wynn’s is out-performing Adelson’s Parisian.***  The Palace wins thirty percent more per table and gets almost twice as much for a room as the Parisian; not bad for an “underperforming” property.  That is Steve’s plan, he designs and builds for people who expect more and are willing to pay for it.  If Steve has taught us anything in his 40-year career, it is not to bet against him.

*Shares of Wynn Resorts fell more than 9 percent after the casino operator turned in a disappointing third-quarter performance at its Macau operations.  Wynn’s quarter was reported and revealed its Macau operation was hurt by weaker-than-expected results from its new Wynn Palace, a resort in the Chinese colony’s Cotai district that opened Aug. 22. Jeff Daniels, CNBC, 11-3-16

**Management at the Wynn Palace casino resort in Macau’s Cotai district has plans to revamp the main casino floor only months after the property opened, in order to create more “energy” for mass-market players, says investment research firm Morningstar Inc. GGRAsia, 11-22-16

***Wynn Palace’s VIP tables generated $12,489 in gaming win per day. These figures compare to Wynn Macau’s VIP table game win of $28,003 per day and mass-market win of $11,089 per day.  At The Parisian, the average table generated a gaming win of $8,289 per day. On the hotel room side, The Parisian had average revenue per available room of $121 compared to $203 at Wynn Palace. Motley Fool

 

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