WYNN Q1 2016 Conference Call Tidbits

Steve Wynn gave his quarterly earnings call last night, and as usual, there were a few interesting tidbits from the man who I believe is the best operator of luxury hotels in the world.

As usual, Wynn doesn’t bother with prepared remarks, he knows people have seen the numbers, and jumps right into Q&A:

Felicia Hendrix from Barclays asks a question about the proposed Paradise Park project in Las Vegas:

Wynn : “What we realize is that in order for this to have the critical mass that is irresistible to the public, it has to be a place that is irresistible to the public. And so therefore, what I didn’t show on Investor Day but — because I didn’t have the model ready, is that in the middle of this 1,300 by 2,000 foot piece of water is a mountain, an island, that is 8 to 10 stories tall, but it is an irregular topography.

It is a slope up to two twin peaks that are connected with a rope bridge. And built into the side are cabanas and other special effects platforms, some of which are going to be occupied in the daytime by people and very luxurious premium kinds of recreational spots. And then there is a beach bar with white sand. And then from our convention center on the north there are zip lines that take people to the bar and from the side of the mountain there are zip lines that take them back the other way.

There are ferries, little electric ferries that go out to the dock at the beach bar. That is to say this place is populated and at night the twin peaks are launching positions for our fireworks show and for other special effects that make up an entertainment moment at 9:00 to 9:30 or so at night. And the water ski show is in the afternoon at 3:00. So all of these elements make up this world behind here that we refer to as Paradise Park.”

“But this is not Epcot; we are not just building a body of water with a promenade around the edge. The American public has seen that before. When we do something here we do something that hasn’t been seen before and offers people a chance to enjoy it, explore it and hopefully they will find that irresistible.

Of course that is the developer speaking and you have to take me — the kinds of things I say with a grain of salt I guess. But we have been at it for 45 years and we have always managed to keep that promise.”

Shaun Kelly asks if Wynn wants to go for a balance between mass market appeal and luxury appeal.

Wynn: “Great question. Look, what do we do here now? We offer a more luxurious property with all kinds of choices in food, beverage and nightclubs for the young people, 5,000 people a night in excess and the beach club 5,000 people a day.

These are not casino customers, these are people who are in search of a different form of recreation and we satisfy their demand. And we benefit from that to the tune of $30 million or $35 million a year, for example if we are talking about nightclubs, in EBITDA.

So when we talk about Paradise Park, first of all, we put 1,000 rooms that are going to be the encore room with a 40 foot length room with a sitting area, they are petite suites, and we’re going to add a balcony on each room facing the lake in a 17 story structure.

Now that is probably going to be one of the most desirable hotel rooms in the country. I mean fireworks every night and all of this lunacy going on outside, staring at these remarkable scenes that we are going to build with activity going on. That certainly goes after a higher value customer.

And then we are adding these gorgeous meeting rooms both as an add-on of an 85,000 foot meeting room and 50,000 feet — I mean 85,000 ballroom and 50,000 feet of meeting rooms next to [La Fete] in the Wynn side. And then we’re adding a 25,000 and a 50,000 foot ballroom and I guess another 35,000 foot of meeting rooms on the new side, on the Paradise Park side.

All of these rooms and facilities have terraces and open areas, open onto this show that is in the middle. So to that extent we are playing, aren’t we, to a high price point. But on the other hand, I am going to charge every single person $20 to $30 to experience Paradise Park whether I do it as part of the room charge, as a resort fee per night or whether I do it for people coming in off the street, part of those 118,000 people a day that are visiting the town.

I’m going to charge for it and that is going to make this place accessible. It is $100 to go to Disneyland; we are going to charge $20. But you are talking about revenues of $300,000 or $400,000 a day if anybody shows up. And this is high-margin business.”

“But I made a point that is worth repeating incessantly. You cannot get dynamic with gaming equipment. It is only gaming equipment, it is always the same everywhere in the world, at the most humble regional box of slots to the fanciest place. The trick is how many people come through the casino and what is their average income, at what level in the economic scale are they? That is how we manage to increase and break the record in casino revenues at every place we have ever built since 1989.

Nothing really — conceptually in our planning nothing is really changing. Wynn Paradise Park is a further extension of the same mentality taking advantage of imagination and fantasy on property that we own for zero with water rights that we own for zero, and we are the only ones that have them at this size. And we are going to do it with solar power and we are going to use less water than a golf course. So we are going to be very green at the same time. I hope that responds to your question”

Robin Farley from UBS asks a question about if Wynn is concerned about Macau competition for their upcoming Palace project opening.

Wynn: “But the money in Macau is all based upon the better customer, both the cash customer with the regular chips and of course the people who play with the non-redeemable chips. But the money in Macau — when we say mass we are not talking about Circus Circus for example at one end of the Las Vegas spectrum versus Wynn or Bellagio. What really goes on in Macau is all the money is in the better category of player at every level.

Now the people that design these various new hotels, they make a bunch of decisions long before groundbreaking about what they are going to show the public, who they want their customer to be.

And they define these things by the size of their rooms, the width of the corridors, the quality and selection of restaurants, the entire treatment of the interior decor, the flow of the elements of the hotel, which incidentally place specific emphasis and priorities on certain elements versus others because as you create the flow in these places you demonstrate your priorities to the public.

This hotel, the Wynn Palace, was designed to appeal specifically to the heart and soul, the premium customer in Macau. The Studio City project was articulated by its developers as a place that was designed to appeal to the mass, the lower end. Parisian has a bulk of rooms, many of whom are much smaller than ours. The cost factors associated with these places, all of the decisions that are made by the developers define the product when it finally is launched.

We have seen the competition in Macau, we have studied them with respect and in some cases admiration for their execution. But I’m going to say it one more time. We are not in that ZIP Code. We are not in that area code.

When you see it, Robin, you will understand. This place has a different — a level than Bellagio, Wynn Macau, Wynn Las Vegas or Encore Las Vegas. This is a different place. So it is designed in every single element to appeal to that part of the market that goes from a 1,000 unit average bet of Hong Kong dollars to 1 million.”

Harry Curtis at Nomura asks a question about the Boston project.

Wynn: “Look, remember I said at the Investment Day that both the Palace in Asia and the Wynn in Boston — in the metropolitan area of Boston — both of them are not only great investments for this Company but they are case studies going forward for any other city that wants to try get in Asia, any other country or any other city in America that wants to have a grand hotel that employs people and is a credit to the community where gambling is subordinated but available, but that the resort and destination aspects of the building are unequivocal.

The Massachusetts project will be exactly that sort of case study. And we think that is an important part of our future. Instead of having to do the developer speak like I am today talking about Paradise Park, we can just keep quiet and say here, look at this. Here Seoul Korea, Taiwan, anyplace else, look at Wynn Palace, we have nothing else to say. We rest. We don’t have any body copy, we have no developer speak, just look at what we have done.

I know a lot of the guys in my business talk about how great their buildings are. Well, get ready. In the month of July there is a new girl in town and we are going to meet her face to face and all the boys and girls in Macau can come take a look. This is a game for adults.”

Joe Greff asks a question about the increased buyback authorization.

Wynn starts with an answer he’s given before, basically saying that they buy stock if it goes down too much (and sell stock if it goes up too much):

“Well, we never know what the Street is going to do with the funky trading. And we all feel that, both as individuals and as a Company, that we should be prepared to take advantage of real opportunity when it occurs. And my Board feels that way and so do I. So we just wanted to make sure that we are properly armed in case there was something strange that happened on Wall Street and the stock market dropped or our stock went to a level that we thought was grossly oversold we would jump on it.”

It sounds like he’s worried about flash-crashy type action, and wants to be able to buy stock back in that scenario, or in a more sustained market downturn.  Then:

“As long as the short players fool around for a buck or two that is fine. But when shorts — the exchanges really don’t enforce the rules of make it shorts. So it is an unconscionable manipulation of the stock that occurs. They open up every morning and the high-frequency traders and the shorts have a ball selling shares and then value buyers step in in the afternoon and they cover the shorts.”

This doesn’t really make sense:  how do shorts cover their shorts when value buyers step in? Anyway, he continues:

“So the stock market has got more volatile, more stupid as a gambling game than ever before. And I look at it that way to be honest with you. I have very little respect for the integrity of the trading on the exchange in most stocks. And I have particular disdain for the fact that the SEC has failed to deal with high-frequency traders who are doing nothing more than taking advantage of inside information, a buy or a sell order, because of technology advantages.

If you read Flash Boys it is all spelled out for you. And if I execute an order I will use the [IX] — I’ll use Brad Katsuyama if I was buying something so that I couldn’t be fronted by the high-frequency traders, but there is enough a lot of that going on.

The other day I was watching the stock open up and it went up on share volumes of a few thousand shares. I mean every trade was a tick up. That is not the way it should operate in an honestly or intelligently run exchange, but that is the thing.”

I have no idea what Steve Wynn is talking about with this last line here: he’s gone from complaining about short sellers, to complaining about the way his stock trades higher and higher  on the open one day.  We don’t know if that was the day they announced earnings, the day Macau numbers came out above expectations, or, going further back, the day after Wynn himself announced an open-market share purchase.  Regardless, the claim “every trade was a tick up. That is not the way it should operate in an honestly or intelligently run exchange” is utter nonsense!  Why isn’t that the way it should operate?  When buyers are more aggressive than sellers, that’s EXACTLY how it should and does operate: price increases.

I love Steve Wynn as a hotel and casino operator, and I don’t think this topic immediately above is a focus of his, but I do get a little nervous as a shareholder anytime my CEO whines about short sellers, especially when he’s spouting nonsense.

disclosure: I am long WYNN stock.

-KD