WYNN Q1 2011 Conference Call Tidbits

Steve Wynn’s quarterly conference calls are a free look into the mind of a gaming genius.  I strongly recommend that interested parties read through the transcripts and absorb Wynn’s honest, open, frank discussion of his businesses.  I’ve made a habit of going through the transcripts and pulling out quotes that I find most interesting, so here’s the Q1 2011 transcript highlights:

On “fair share”

“And of course, the most important number to remember in gaming, I’ve said this before, I’m going to — for those of you who really follow this, don’t look at market share per se, look at fair share. We use that term, you can call it what you want. But you basically take how many units of slot machines or tables does a given operator have compared to the total in the marketplace, and then take a look at the share of the money that the person — that the company has. If that ratio is better than 1:1, then you’re a net receiver of the customers and you’ve sort of made a donor out of your neighbor. If it’s less than 1:1, then you’re a donor to your neighbor, and that’s a negative fair share. We have been able to increase our fair share market penetration in the face of increased competition. It happened to us in Atlantic City years ago. We were the smallest place. But the more places came on, the more our premium over the average increased, and we’re enjoying that again in Macau. It’s a very important number, and it sort of tells you how good a job you are in delivering a good guest experience, a good customer experience that makes those people want to come back again and again and keep you as their favorite place.”

On organic growth, with a near-tangent into a classic Steve Wynn political rant:

“I don’t think we’ve ever really gotten titillated by an acquisition. Our experience has been that if we don’t build them ourselves, they’re not as good as they need to be in today’s marketplace. And I don’t mean in any way to be deprecating my former practice hotels, but we try and get better with each one and be more user-friendly with each one. And more importantly, make each hotel more convenient for the staff because at the end of the day, it’s our employees that touch the customers. It’s our employees that make the guest experience, not the people on this call. We create an environment where the employees can do it. And that’s one of the reasons why we’re politically concerned because if the living standard of our employees are dropping because of the fiscal policy of the government, we can’t keep up with salary increases to protect the people on fixed income from the damage that they’re suffering at the hands of this deficit. And so this and gas prices, they worry us going into the summer. The cost — the living standard in America is being rapidly and critically eroded, and we recognize that as a factor in our future as we look at our growth and our opportunity. Next question.”

On cost cutting:

“Well, once you get a business operating, in terms of its staffing and other controls, at a proper level, then you’ve leaned out that company, that enterprise, to the point where you are not wasting money. The next dollar that you cut after that, you are compromising the enterprise, delivery of its service and its long-term performance. Growth comes from money, from revenue. It doesn’t come from cost-cutting. Cost-cutting is only good for avoiding waste. But once we get to that number, the kind of businesses we run, we don’t go any further with that. That’s why capital structure is important. Again, I keep seem to be going back to those two words. But we don’t worry about seeing how much we could cut. That’s for people who run a different kind of business than us. This is not Wal-Mart here. This is a place where people expect more, they pay more and they get it. So our focus is on revenue. I’m done with what I had to say. Next question.”

On knowing your customer, with another almost political rant tangent:

“Yes, we’re like Louis Vuitton, for lack of a better metaphor. We’re the — I hope we’re the Louis Vuitton of our business and Armani and Chanel, those kinds of people. And you really have to know your customer and cater to that customer and build facilities and light the light for that customer and pick the texture for that customer. It’s a very meticulous process, which is why it takes us so long in design development, because every little thing really does matter. And at the end of the day, it’s 90% human resource engineering. It’s our employees that do it, which is why we get so concerned with anything that effects them negatively, like, gas prices that zoom up. Even Wal-Mart’s more expensive, clothing’s more expensive, school’s more expensive, shoes are more expensive. It’s all because the dollar is less expensive. You know our currency against troubled euro, a troubled pound, has gone backwards in the last nine months between 10% and 18%, depending whether you’re looking at the pound or the euro. It’s hitting us now, and my employees are complaining about it.”

On online poker:

“We’ve been approached over the past several years by most of the Internet players who wanted to combine with us and take advantage of our brand. And we finally became convinced, sort of hesitantly, about PokerStars, because it didn’t seem to be any interest in the government to enforce restrictions on the game of poker. They were enforcing restrictions on people who dealt to sports, but not to poker. So based upon that, we made a very tentative, conditional deal that said if the United States government makes poker legal and provides that anybody who’s been dealing poker recently is acceptable, and then if that legislation passes in Washington and then if you can get approved by Nevada or New Jersey or whoever is the licensing authority, then we’ll go in business and split it with you 50-50 and we’ll call it — put our name on it.

As you know, PokerStars, finally, the Justice Department decided that if you’ve been dealing even just poker since they passed the law about credit cards and all that sort of thing, that they’ve indicted PokerStars and other players. And so the Justice Department’s taken a very strong position that the UIGEA, that law that was passed in ’06, that law included poker even though in California they say it’s a game of skill and all that sort of thing. Now there are a number of companies that approach us that have not violated UIGEA and would like to go forward with Wynn as a partner. I think that there’s a very complicated agenda in Washington at the moment concerning the deficit, global economy and taxation and all kinds of things that are critical. Everybody knows about that. Whether the Congress, the House and the Senate, whether John Boehner and Senator Reid will consider this enough of a priority to take it up and deal with it, the subject of Internet poker seems to be screaming for regulation. There’s a huge business, and we’ve seen from these publicity that these companies offshore don’t care about dealing. They do it anyway.

This reminds me of the Volstead Act during prohibition that said you can’t drink beer. Well, people drank beer anyway. And poker is about as American as apple pie, and you can go on an Internet site called pokerscout.com and see the millions of people playing poker. They actually count it up. Half of them or a third of them are in the United States of America. It seems to me that almost every congressman and senator has, in his constituency, people who are breaking the law, technically. That’s not a very healthy thing. So the situation cries for regulation so that states can get money at a time when they need money and the federal government can get some money at a time when they could use the money. It seems like an intelligent thing to sit down and regulate it. But it isn’t for me to decide that. It’s for the senators and the representatives to do it. I’ve expressed my opinion, such as I just have now, to Senator Reid who, I think, agrees with it. I’ve talked to various members of Congress trying to find out what they thought of it, so that we could then have a program in our company that conformed to public policy.

But public policy up to now, which is no surprise to anybody, has been murky and arcane. Arcane is a good word from the SATs that means mysterious and unfathomable. Most everything in Washington is mysterious and unfathomable. But we’re trying to figure out what the hell the public policy is, and then we can have a corporate policy.”

On Baccarat:

“…This is not a game for children….”

Wynn actually goes into detail about having to write huge markers (loans to customers) for Baccarat, and how high their reserve for loss against those receivables is.  It’s well worth reading on the transcript page.

-KD

I have no positions in $WYNN or any of its competitors ($LVS, $MGM, $MPEL)

 

 

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