Wynn Resorts Ltd chairman and chief executive Steve Wynn (pictured) criticised the Macau government’s table allocation policy, calling it “outrageous and ridiculous”. “The table cap is the single most counterintuitive and irrational decision that was ever made,” Mr Wynn said on a conference call on Thursday with analysts after the firm reporting its third-quarter results.
The executive – also chairman of Macau-based Wynn Macau Ltd – expressed frustration about the “ambiguity” that the company faces in terms of table allocation before the opening of the US$4.1-billion Wynn Palace on Cotai. The property is on track to open on March 25, 2016, with capacity for about 500 tables, Mr Wynn said.
“None of us are really clear on what our environment is going to be like going forward and [that] makes planning … almost a mystical process,” said the company’s CEO.
Mr Wynn said it was “preposterous” that casino operators in the Macau market would only know how many new-to-market tables they are allocated by the government a few weeks before opening new properties. He pointed out the case of Studio City – a US$3.2-billion casino resort developed by Melco Crown Entertainment Ltd – due to open on October 27. There is yet no official announcement by either the government or the firm on new table allocation for Studio City.
“You never operate a business this way,” Mr Wynn said on Thursday. “Here we are spending billions of [U.S.] dollars creating non-gaming facilities and then arbitrarily someone says ‘Well, you should only have these many tables’. No jurisdiction ever has imposed that kind of logic on us,” he added.
The Macau government has imposed a cap that seeks to limit the increase of live dealer table numbers to 3 percent compound annual expansion until the end of 2022, from a base of 5,485 tables recorded at the end of the fourth quarter in 2012.
The government has also stated that gaming table allocation at new casino resorts would be based on the non-gaming features they offered. It said that such a policy approach would help speed the process of diversifying the city’s tourism sector offering beyond gaming.
On Thursday’s conference call, Mr Wynn said Macau has already been transformed by the existing casino projects. “Everything from [local workforce job] promotions to the creation of facilities has already taken place, but understand that the reason that these extraordinary non-gaming attractions exist is because the damn casino is the cash register,” he stressed.
“We support this non-gaming diversification with the casino. That’s the irrevocable, undeniable, inexorable truth.”
Mr Wynn additionally said the uncertainty about table allocation is complicating decisions about hiring and training workers and could force Macau operators to terminate employees.
“How in the world do we underwrite the job security of the local workforce in Macau, keep the promise of promotions and better opportunity in these circumstances?” he asked. “If you wanted to undermine and scuttle the viability of that industry, you put in table caps,” Mr Wynn added.
Wynn Macau Ltd reported revenue of US$585.1 million for the third quarter, down 37.9 percent from the prior-year period. Adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) for the period was US$162.8 million, a 50-percent decline from US$325.5 million in the third quarter of 2014.
Net profit for the three months to September 30 fell 71.9 percent year-on-year to US$62.1 million, the Macau-based casino operator said in a filing to the Hong Kong Stock Exchange.
Table games turnover in the VIP segment was US$12.2 billion for the third quarter of 2015, a 51.3 percent decrease from a year earlier. Table drop in the mass-market segment was US$1.2 billion, down 13.7 percent from the 2014 third quarter.
“While mass showed signs of stabilisation, VIP and higher end portion of premium mass remains weak, with Wynn’s VIP business underperforming the Macau market. Mass experienced slightly lower than normal hold, slightly offset by better luck in VIP,” brokerage Sanford C. Bernstein Ltd said in a note on Friday.
The average number of VIP tables in the Macau operation decreased to 228 units in the third quarter of 2015 from 251 units in the prior year’s third quarter. The casino operator has taken some tables back from junket operators, putting an additional 23 tables in the mass-market segment.
“Right now we’re giving approximately 58 percent of our room inventory to mass… So what we’ve been losing out of the junkets, we’ve been trying to drive into mass,” Ian Coughlan, executive director of Wynn Macau Ltd, said on the conference call.
Mr Wynn said the slowdown in the VIP business in Macau “has caused us to review our credit policies and our attitudes towards junket operators”. “Some of them have gone out of business and I think others will go out of business, which means we have to focus very intensely on the policies that we employ with regard to credit,” he added.
The executive reiterated that the alleged fraud case at Macau junket operator Dore Entertainment Co Ltd – which operates VIP rooms in Wynn Macau casino resort – “had nothing to do” with the casino operator.
“I think all the junket operators took that as a signal to tightening up on their internal controls,” he added.
Group wide, net revenues for the third quarter of 2015 were approximately US$996.3 million, compared to US$1.4 billion in the third quarter of 2014.
“The decline was the result of a 37.9 percent net revenue decrease from our Macau operations and a 3.9 percent net revenue decrease from our Las Vegas operations,” Wynn Resorts said.
Adjusted property EBITDA for the period was US$279.9 million, down 39 percent from the prior-year period.
On a U.S. GAAP (generally accepted accounting principles) basis, net profit fell 61.4 percent year-on-year to US$73.8 million for the three months to September 30.
Mr Wynn said the fall-off in high-end baccarat play experienced in Macau is also affecting the company’s business in Las Vegas.
“We are in this market [Las Vegas] the principal beneficiaries of international business, so if a segment of the international market is impacted for extraneous reasons or external reasons – like a change in government policy … in China – then we would be the principal victims and we would suffer the most,” Mr Wynn said on the conference call.
“Any change in our earnings in Las Vegas is strictly reflection of the drop in Asian baccarat business. The rest of the sections are pretty good,” he added.
Wynn Resorts said it still plans to pay a cash dividend of US$0.50 per share to stockholders on November 24.
In addition, Wynn Macau’s parent company announced the appointment of Clark T. “Sandy” Randt, Jr. and Patricia Mulroy to its board of directors, effective October 15.
Mr Randt is a former U.S. ambassador to China. He was stationed in Beijing from 2001 to 2009 and is currently president of Randt and Co LLC, which advises firms with interests in China.
Ms Mulroy most recently served as a commissioner of the Nevada Gaming Commission, from which she resigned this week. Her appointment gives the company’s board a female member, after Wynn Resorts pledged to diversify its board following the proxy fight earlier this year with former board member Elaine Wynn.
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DS Kim, Amanda Cheng, and Livy Lyu
Analysts at JP Morgan Securities