WYNN Earnings Call Tidbits: Q2 2015

Steve Wynn gave an in depth explanation of how they calculate drop/hold in Macau, which I wanted to preserve here.  There are also a few other longer tidbits.

From the transcript:

“But if you look at us historically, in calculating hold percentage, because we have so many buy-ins at the cage, which is completely atypical from the American experience, usually we know exactly what the drop or the handle is in a casino in Las Vegas. For those of you who may not be quite familiar with this term, when someone gambles at a table, at any table in the world, they have to buy chips. They come to the table, they give the money to the dealer and the dealer drops the money in the box and slides the chips out of the rack to the customer, and that’s the buy-in.

The other way that people get chips is with credit. And when they take a marker, if they’re approved by the supervisor in charge or the team leader, then the chips are slid across the table out of the rack just as if they had paid cash and a credit slip associated with a marker goes into the box in lieu of cash. Now, there are other pieces of paper in the box that represent changes to the inventory in the rack during the eight-hour shift. Fills, if there’s a need for more chips when the customers are winning or credit slips if the customers are losing and the rack gets overcrowded with the chips that are taken back, we return them to the cage. They don’t have anything to do with handle. What we measure is the cash and the credit slips associated with markers. That tells us the total amount of activity. We measure that against the changes in the opening and closing inventories of the shift and that tells us the performance of the table, or the win.

In China, and virtually no one buys chips at the cage in America, at least in our experience over the last 40-odd years, and then walks to a table and gambles. In China, they do, in fact, do exactly that. I don’t know whether it’s because they’re using their credit card or they’re cashing in whatever RMBs they have or whatever, but people go to the cage, buy chips, and then circulate around the casino and bring the gaming tokens to the table with them. That means that when we count the boxes, it’s not a measurement truly of the drop or activity in the casino. The handle, it’s referred to in the alternative.

So we’ve started now taking the buy-ins in the cage, at the cashier, and the money and credit slips in the box, although in the mass casino we don’t give credit at the table. But, we take the cash and the buy-ins at the cage and we try as close as we can to then re-create a comparable number that all of you would understand as handle or drop for the level of activity at the tables. I hope I’m being clear enough in this explanation. And based upon this, we’ve gone back and tried to give a comparison of the real hold compared to the theoretical hold of the mass table game activity in China.

And my experience, because of the dominance of baccarat, that that number should be between $22 million and $23 million. Matt thinks it should be $20 million, but at any rate it’s arbitrary. You can make an adjustment any way you’d like. If you look at us historically, it’s what I said, $22 million, $23 million. Matt is – the whole financial structure of this company is extremely conservative, as you know, so Matt decided to say, well, it’s $20 million. And I think that’s on the low side, but call it what you may. Go ahead, Matt.”

I also loved how Wynn started rattling off house edge in craps as he explained how he limited “odds” bets at the craps tables as a way of “raising the price” of the game.   This is standard stuff that any casino-jockey would know, although I’d be surprised if most CEO’s could rattle off the numbers the way Wynn does:

“We had more Chinese play last year than we did this year, and I mean a place like our own, we can make $60 million in a month in this hotel or $70 million. We can also make $25 million, and as I say, it evens out at the end. But when you look at it, short term, as we do every six or eight hours a day, I do at least, I’m in the casino every day and on the phone with my people. We’ve readjusted our floor on the Fourth of July and interestingly enough, many of the games in Las Vegas have become marginally profitable. Years ago down at Binion’s, they started at the crap table of giving ten times odds. If you bet $100 on the line, you could bet $1,000 on the free odds behind the line if you bet the pass line. I’m getting a little technical. But in the old days in dice, whatever you bet on the line you could bet the same amount behind the line, and that was a hold percentage of a little under 1%.

Then they started giving double odds compared to the amount of money you bet on the pass line, and that lowered the house percentage to 0.57%. Then there became a pattern on the strip of what’s called the three, four, five. Depending on what numbers you were betting on the crap table to come up before number seven came up, you could get three times odds, four times odds, or five times odds. There are pairs of numbers on a dice table. Four and ten have two to one odds, five and nine have a different set of odds, and six to eight or six to five.

Well, depending on what number you were trying to get, you could get three, four, or five times odds. That became a house advantage of 0.37%. With three dealers and a box man and a half of a floor man for every table, craps is not a really profitable game at that level.

So I changed the casino. In effect, I raised the price, and I went to double odds only except for extremely high play with $1,000 minimum bet. I also rearranged the floor in the casino to put our specialty games that are very popular with the public that have a higher margin and I put them in the 100% location and I moved my games with less of a margin to secondary locations. Those changes have worked out favorably to us in the past three weeks, and that kind of re-examination – our slot floor has been redone. We win more money with less games now. These are some of the reasons why we make more money than anybody else in Las Vegas.

Now some of the operators will copy us. We’re not allowed to talk to one another because of obvious legal implications of price-fixing, but we don’t really care what the other guys do. We run our own business the way we see we should, and we’re not in business to offer games that don’t make money, and I don’t mind saying that publicly.”

Wynn was asked about the potential for mergers and acquisitions in the gaming space, and for the company’s appetite to participate in it:

“Our approach to that issue is very simple to explain. Any time that a construction project, a change in operating procedure or an acquisition or a merger would result in a stronger company at the conclusion of such a transaction, we are very interested in it, we discuss it extensively and then follow through if it’s appropriate.

As we sit here today, we’ve never had such a opportunity presented to us that we thought was acceptable. That doesn’t mean that at some point in the future such a thing couldn’t happen, or that such an M&A, to use your term, a merger and acquisition, would make sense. But big for the sake of big is not a thing that I subscribe to, as you know, and I’ve said so before. We have a certain kind of a brand. It is flexible and adjustable for sure.

But on the other hand, I’m more interested about tomorrow’s newspaper than yesterday’s newspaper. And we do a certain thing very well. We build and develop projects that usually room for room, inch for inch, pound for pound outperform the neighbors. The best place to see that at the present time is Las Vegas. As far as Cotai goes and Macau, when we open Wynn Palace, we’re going to get a much more interesting comparison about the performance of the horses in the race. We’re about to enter the starting gate in Cotai in a few months and then we’re going to have a real interesting turn around the track.

But, as far as today, M&A is the kind of option that of course always exists. I mean for a price you can buy anything, I suppose, and some people find it in their mutual best interests to join up from time to time, because the net result is that two and two equals five. But really it has to be two and two equals five. If two and two equals four, it seems to me a lot of trouble for nothing. I’d rather build our own stuff.”

Wynn finished with some comments on the Massachusetts project, which I haven’t been following closely, but I’m guessing he’s facing some political grandstanding over:

“And then finally the citizens of Massachusetts in a plebiscite voted to support the legislation that invited a company like ours to Massachusetts. So, the table seem to be set for – the welcome mat seemed to be out. We just haven’t found the welcome mat yet, but I’m the internal optimist, and I hoping it’ll feel good when they stop hitting us. And I think that’s my last comment today.”

Wynn Transcript from Seeking Alpha

-KD