Inside Asian Gaming

Oct 2007 | INSIDE ASIAN GAMING 17 does such one-upmanship really confer a commercial advantage? Last time anyone checked, investors weren’t giving prizes for artistic impression, or indeed impressionism. Investors want to know whether they will make money from these Macau adventures. It’s worth remembering though that de- spite the scientific, rational approach that analysts and the finance houses take re- garding gaming investment opportunities, the entrepreneurs who lead the industry understand that ultimately what is on sale is dreams. Dreams come with a price tag, how- ever, for the operators as well as patrons. The gaming licences issued in Macau are time-limited, unlike those in Las Vegas. Does it make sense therefore to build a very high spec property and risk a lower re- turn on investment (ROI) over the lifetime of the project? The Wynn Macau opened in September 2006, and in theory the com- pany’s gaming licence only runs until 2013 (although the 16-acre site itself is leased from the Macau government for 25 years). Current consensus in the gaming industry seems to be that a well-constructed casino property has a lifespan of about fifty years, with renovations needed once every sev- en years. This means Mr Wynn has spent around US$1.2 billion to build 600 hotel rooms, 110,000 sq. ft of gaming area and 26,000 sq. ft of retail space, with another 85,000 sq. ft of gaming and a theatre still to come in later phases. This is all for a building that could see only seven years of use. That’s a high-spec property. By contrast, Mr Adelson paid US$2.4 bil- lion to build 10.5 million sq. ft of The Vene- tian at Cotai—pro rata only a fraction per square foot of Mr Wynn’s spend. Mr Adelson has also leveraged his capital by monetising the Grand Canal Shoppes part of the project and hopes to do the same with apartment space if the Macau government will let him. Quantity and quality A contractor who worked on phase one of The Venetian Macau told Inside Asian Gaming: “I know from talking to colleagues in the industry that the per square foot spend on the fitting we were doing in The Venetian was only a third what Wynn Macau was paying. “It doesn’t mean Wynn’s front of house is three times better though. Scale allows Sands to do really good deals with suppliers. They buy in such quantities that they can get big discounts. “Sands has a very slick purchasing and supply system that’s known in the industry for being efficient. They really keep a tight control on raw material costs, sourcing and fitting costs. They make the money they spend go a long way.” Boutique versus mass market According to official figures release by both companies, The Venetian Macao re- ceives between 40,000 and 60,000 visitors per day, while Wynn Macau gets 22,000. Common sense suggests therefore that Mr Adelson’s business model will produce the greatest revenues and his lower per sq. ft spend the best ROI, repeating the success of the Sands Macao, which cost US$265 million when it opened in 2004, paid for itself in a year, and even following additional spend- ing on expansion and upgrades, is now pro- ducing in excess of 100% ROI every year. “Compared to The Venetian, we’re a boutique operator now,” says Ian Michael Coughlin, president of Wynn Macau.” “We’re seeing new players coming all the time, and we’ve become the venue of choice. We’re not about scale and volume right now. We are about luxury and quality.” The issue for investors though is whether Wynn’s premium positioning will have time to work. Even if the first wave of visitors to The Venetian does tire of hiking out to Co- tai, there are plenty more where they came from. And as more resorts open in Cotai, The Cotai Strip™ is likely to attract more rather than fewer visitors. Despite the opening of The Venetian dur- ing the period, Wynn Macau’s third quarter In Focus The lobby at Wynn Macau offers a clear view of the pool