Steve Wynn moves relatively slowly, but also very surely, in the Macau gaming marketSaturday, 15 May 2010
Despite a 70% year-on-year growth in Macau gross gaming revenues in April, the stock values of casino operators in that market continue to be at the mercy of external economic factors. Those factors range from regional issues such as China's domestic credit policies to global ones such as the potential for a sovereign debt crisis in the European Union.
In those circumstances, for a company's management to have the confidence of investors is almost as good as money in the bank.
It means the company is less likely to be heavily discounted in downward trends and more likely to be quickly marked up in rising ones. Steve Wynn seems to have achieved that level of confidence among analysts that follow his companies' stocks.
In that sense, the opening in late April of Encore at Wynn Macau—Mr Wynn's residential style property pitched at the cream of Macau's high rollers—is important for what it says about the quality of Wynn's execution on its China projects and how that reinforces investors' underlying confidence in Mr Wynn and his management team. The message that Encore at Wynn Macau delivers, therefore, is as significant as the high-end capacity it adds to the Macau gaming market.
The property's modest gaming inventory—approximately 37 VIP tables, 24 mass-market tables and 69 slot machines—is complemented by 410 suites and four villas, packaged together at a cost that may actually come in under the US$600 million budget originally announced. On 31st March, less than a month before Encore's opening, the company said it had spent US$500 million on development and construction. The week of the launch it said even with pre-opening expenses (recorded at US$1.93 million in the first quarter balance sheet of Wynn's local unit), it expected the total project costs to be US$575 million.
Such quality execution gives expression to the idea Mr Wynn knows exactly what he wants for Macau and from Macau. It follows on from the initial successful launch of his flagship Macau property, Wynn Macau, in 2006. In April this year, the US$1.2 billion Wynn Macau, with its (by Macau standards) modest footprint, had a 14% share of Macau gross gaming revenues—only 7% behind second place Las Vegas Sands Corp (LVS), which has spent and built vastly more infrastructure.
Karen Tang of Deutsche Bank, in comments to Dow Jones in Hong Kong, estimated Encore at Wynn Macau could contribute 7% of Wynn's 2010 EBITDA in the Macau market in the remaining eight months of the year. Ms Tang also noted Wynn Macau's property EBITDA was up 28% in the first quarter of 2010—reflective of the underlying surge in gross gaming revenues, but nonetheless ahead of market expectations.
By contrast, some of the foreign-owned rival operators in the Macau market occasionally give the impression of making up their Macau strategy as they go along, rebranding, renaming and relaunching properties willy-nilly as if that were a substitute for careful thought and a clear game plan.
Even the meticulous Mr Wynn nearly had his plans for the gala opening of Encore scuppered by unforeseen events. On the eve of the celebrations, the Chinese government announced it would hold a day of national mourning for the victims of the Qinghai earthquake on the same day as Encore's planned launch. Wynn's pragmatic solution was to open anyway on the day (since guests had suite reservations), but without ceremony and without fireworks—the pyrotechnics being postponed until the following day.
Given that Encore is the only new property opening in Macau this year, Mr Wynn took the opportunity not only to set out his stall for the future of his high roller offer in Macau, but also to talk about his much anticipated plans for further expansion in the market.
Mr Wynn said construction on a Cotai project would start in 2011, with a possible opening before the end of 2013. He added it would have only one hotel and a maximum of 450 gaming tables. That, in turn, could encourage Stanley Ho's casino operating company to make firm plans for a Cotai property. Dr Ambrose So, SJM Chief Executive, said last month he thought Cotai currently lacked sufficient "critical mass" to drive customers to the area and keep them there, and crucially to turn them into repeat visitors. But with ever greater numbers of visitors from the People's Republic arriving directly at Cotai by road via the Lotus Bridge crossing point, rather than by ferry at the Macau peninsula, no operator can afford to ignore the potential of this important and growing southerly outpost of Macau's casino infrastructure.
Karen Tang of DB suggests that in order for Wynn to go full steam ahead with its Cotai project, the company will need assurances that its existing gaming concession will be extended beyond its current 2022 expiry date.
"We believe the discussion is still in a preliminary stage," suggests Ms Tang.
Mr Wynn has previously been critical of his Nevada and Macau competitor, LVS, for building too much too quickly on Cotai and getting ahead of the underlying economic growth in China.
"In the past few years, Cotai players have built very ambitious projects, but they had little experience in gaming," Mr Wynn said on the eve of the Encore launch.
"We have 42 years; and we will land on Cotai and the competition with all of that experience."