Inside Asian Gaming

INSIDE ASIAN GAMING | September 2012 10 delayed resort had been held back for years by a dispute between some of its former partners, whom Melco Crown bought out last June in exchange for a 60% stake. Plans call for 300-400 gaming tables and 1,200 gaming machines, although, critically, the casino portion of the resort has yet to be approved. The prevailing sentiment is that it will be. The company, in the meantime, has received approval to resume work on the site’s pilings and foundation. Melco Crown is also evaluating the next phase of its development plans at City of Dreams, including possibly a new hotel or luxury residences. Those plans will be aided by its improved liquidity and access to new capital following its secondary listing on the Hong Kong Stock Exchange in December. (The company has been listed on NASDAQ since 2006.) As for the localization of management, it marks a distinct turnaround from the early days of the joint venture between Mr Ho’s Melco and Australia’s Crown Ltd. Initially, a lot of the senior appointments were former Crown executives from the Australian side of the JV. This probably made sense at the time because of Crown’s extensive experience with running gaming operations in its home market. The early placements included Simon Dewhurst as CFO and Greg Hawkins as president of City of Dreams. Gradually, however, as Mr Ho found his stride and felt out the market, the Crown managers have been going back home, and senior management has become decidedly Chinese. The company has held largely steady as the expats have left, most recently with the departure in February of co- COO Nick Naples (formerly of Harrah’s Entertainment), leaving Ted Chan in control as sole COO. Although total second quarter revenue was down 2% year on year to US$939 million and adjusted EBITDA fell 6% to $204 million, the decline was largely the result of a poor performance at the VIP-focused Altira on Taipa, which suffers both from its relative isolation from the critical mass of properties on Cotai and the Macau peninsula as well as the overall weakness in the VIP market in the quarter. VIP gaming volumes at Altira were down 23% year on year in the second quarter, with property-level net revenues down 33% to $209 million. Meanwhile, property- level net revenues at the flagship City of Dreams rose 13% to $684 million. While Altira is likely to continue to be a drag on earnings, this would have happened regardless of localization, and the company’s bottom line will be boosted in coming quarters by continued strength in the mass market, especially as the action shifts inexorably to Cotai, benefiting City of Dreams. 5 Steve Wynn Chairman and CEO Wynn Resorts At 70, Steve Wynn is at the point where the thoughts of extraordinarily successful men tend to gravitate to their legacies, and the man behind The Mirage, Treasure Island, Bellagio, Wynn, Encore and Wynn Macau intends his resort on Cotai to be his magnum opus. He calls it “the single most important project in the company’s history”—and that’s not hype, not at the US$3.5 billion-$4 billion price tag it’s carrying. He has waited a long time to show what he can do at the booming entertainment district that will be China’s answer to the Las Vegas Strip he largely helped shape. He and his design team at parent Wynn Resorts have spent more than two years on the drawings, the result being a destination that “represents everything we’ve learned,” as he puts it, which is quite a lot, as we know. They’ve been two years well spent, to hear him tell it. “Even when we came to Macau, we resisted the temptation to build a quickie, smaller place, to get in on it fast,” he told the media that had gathered for the Cotai unveiling back in June. “We waited and we took our time. I think that that is exactly the way to go forward in China— very thoughtfully, very patiently, with great attention to detail.” Those were the attributes that preceded Mr Wynn to Macau in 2002, when such was his renown, his was the only non-Chinese company to win one of the new casino concessions. And they precisely describe what he has accomplished in the city to date. It was interesting to hear him at that press conference refer to Wynn Resorts, a company with an enterprise value exceeding US$13 billion, as a “niche” operator. Yet it’s an apt description for what he’s done over the last decade in this, his third publicly traded incarnation, which has been to boldly pursue the top end of the market on two continents, and he’s captured his share in both. He took four years and $1.2 billion to erect Macau’s only Mobil Five Star hotel (one of only five in Asia) and invest it with an elegance that still stands out in a marketplace that has seen no shortage of capital investment since. It’s a rare art in the casino space. Steve Wynn is an acknowledged master. It shows in the cocoa-colored replica of his iconic Strip hotel with its sweeping curves, in the choreographed drama of the water show that beckons you from the street, the circularinteriors,thelush,tropicalcourtyard, the objects d’art —ceramics, decorative metalwork and silks—highlighted by matching four-foot-tall Qing Dynasty vases. Wynn Macau exists to reassure its wealthy clientele of their discriminating taste and make the rest of us feel that we’re part of something special, too, and we do. It’s why the place generated US$186 million just from its shops last year and is on a pace to surpass that in a decidedly more challenging 2012. It’s why both average daily room rate, and occupancy rate, are higher through the first half of this year than last. Earnings were up a robust 82% in the second quarter, despite weakness on the gaming side. But then Mr Wynn has spent more than 40 years in Las Vegas and Atlantic City, the toughest markets in the world, honing an operating savvy that is as legendary as his eye for design. Asian Gaming 50 – 2012