Inside Asian Gaming

INSIDE ASIAN GAMING | November 2008 8 Wynn Results quality ones, especially during uncertain economic times. Although credit risk in the Macau market is mitigated by the use of VIP agents, it doesn’t look good if an agent crashes and burns in his establishment. “We don’t use credit as a marketing tool in this company.We give credit to people who really don’t need it when they ask for it,”he told the Q3 ’08 earnings call. “We don’t provoke playing by saying ‘here we will give you more money.’We have never done that in the whole 40 years.” In 2006, VIP play accounted for 64.9% of Macau’s gross. In 2007, it was 67.1%. As of the end of the third quarter this year, despite the impact of restrictions imposed by China on its citizens’ travel to Macau, VIP baccarat’s contribution to the gross for all games of fortune in Macau stood at 68.6%. Even more importantly, between 2006, when Wynn Macau opened, and the end of 2007, VIP baccarat revenue across Macau surged by 51.5%. Upbeat Wynn’s third quarter performance for 2008 in Macau’s VIP-centric market gives cause for cautious optimism despite the increasingly bearish sentiment in the regional economy. Wynn Macau’s table games’ turnover in the VIP segment increased 35.6% to US$13.3 billion for the period, compared to US$9.8 billion for the third quarter of 2007. VIP table games win as a percentage of turnover (calculated before discounts and commissions) was 3.10%. This was slightly above the expected range of 2.7% to 3.0% and higher than the 2.96% in the comparable period of 2007. Regular readers of Inside Asian Gaming will know by now that we have less faith in ‘win as a percentage of baccarat turnover’ as an indicator of business performance than do the gaming operators. Nonetheless,MrWynn’scautioningainingjustenoughexposure to the Macau market in terms of infrastructure to give it a credible presence, and then using cash flow from that infrastructure to help service the capital costs of a measured, incremental expansion of capacity, looks with the benefit of hindsight very sound indeed. Cash rich This theme of fiscal caution and incremental development was taken up by Matt Maddox, Wynn Resorts’ Chief Financial Officer and Treasurer, at the start of the company’s earnings call for the third quarter of 2008. “Wynn Resorts is in an enviable position not only in gaming but in any industry that is capital intensive,” said Mr Maddox. “We have US$1.7 billion of cash on hand. Plus we have US$500 million available on a revolving credit facility,meaning total liquidity right now is US$2.2 billion. We have approximately US$500 million left to spend on Encore at Wynn Las Vegas which will open in the next couple of months.We also have approximately US$500 million left to spend at Encore Wynn Macau. So we have roughly US$1 billion of capEx left to finish our two major projects, meaning we have over US$1.2 billion of excess cash on hand before any credit, for free cash flow. “What that means is we can pay off all our debt maturities over the next three years with the cash we have in the bank right now and still have hundreds of millions of dollars of excess cash flow. On a ratio basis we are also in a very good position.We have US$4.9 billion of debt. If you back stop that with excess cash of US$1.2 billion, that is US$3.7 billion of debt. The last twelve months’ EBITDA [earnings before interest, taxation, depreciation and amortisation] of US$800 million means our debt to EBITDA [i.e., pre-tax gearing] is running at four and a half times. That is fully funded debt before our projects open,” added Mr Maddox. Boating talk Mr Wynn’s Macau property, which his management likens to a luxury speedboat rather than a ponderous ocean liner, has also doubled as a bit of a lifeboat in supporting the Las Vegas operation and in maintaining shareholder confidence in the overall business. In current market conditions, this amounts to running in order just to stand still, rather like a pedestrian walking up a down escalator. It must have given MrWynn at least some comfort to see that Las Vegas Sands Corp’s down escalator was moving even faster, at least as far as