WYNN Q2 2012 Conference Call Tidbits

Here are what I found to be the most interest parts of $WYNN’s quarterly conference call; an hour or so of straight talk and clear explanations from the king of his craft: Steve Wynn.

Transcript via Seeking Alpha

First, related to the point I made in my prior post:  WYNN had bad luck in baccarat:

“And so, if you normalize everything, we would have had a better result than we did. Last year, we had a premium result because we had abnormally high hold percentages. But our business levels this year in Las Vegas are slightly better than last year, except for hold percentage.”

On being smart with promotions/credit/incentives:

“when you’re in a competitive market like Macau, and a hotel B or hotel C increases the incentive to the junket operators to get the — more business from them. They can do so by increasing the percentage of participation. They can also increase it by extending extra credits to them, using credit as a marketing technique. Now we know from 40-odd years of experience that, that is a very dangerous path. Using credit as a marketing tool is a big mistake in gaming and has proven to be so over the decades, which is not to say you shouldn’t give the right kind of people, the right kind of credit, but you can’t just try and buy business by extending credit. That ends up poorly.”

but they’ve actually been too conservative in terms of extending credit:

” We are very conservative about credit, I said that on these kinds of phone calls before. And we were so conservative that when the economies of Europe and the United States and China were being questioned, we were very tight in our reserves. It turns out that in the past 6 months and before, we’ve been too tight. Our collections have improved, I’m happy to say, beyond our expectations. And so we’ve made that adjustment this month in order to correct it and be more — and be a little less conservative than we have been.”

On not being first in Cotai:

“I want to remind everybody that it’s okay not to be first sometimes. If you recall, and I’ll use a little history as an example. When Bellagio opened, everybody thought that Mirage was the number that couldn’t be topped. And then we won $600 million — we won $600 million, $500 million, $600 million with the casino alone at Bellagio, which set a new a record. When we opened Wynn in 19 — in 2005, for the first time in Nevada history a casino once stepped $700 million, which was a Nevada historical mark. And then last year, in 2011, we broke our own record and did $774 million in casino revenue.

So if you build the right product and you have a concomitant parallel organizational professionalism, you can take the market up, and we’re hoping that our Cotai property will do that. Naturally, we have to wait until it’s finished, and everybody’s hard at work doing that now that we’ve been granted our land concession and we can proceed.”

Their loan for Cotai has pretty sweet terms:

“But generally, the expectation is that our revolver and our term loan will be $2.3 billion and the interest rate will be under 2%.”

On luck, and how very bad customer luck isn’t really something that he thinks helps his business:

“In April, for the first time in 45 years, I saw Baccarat go minus for a month. I never saw that before. But on the other hand, last year, I saw a 37% hold. If I was a customer, I might have asked for an investigation. But those are the kind of swings that can take place. I guess April this year was in answer to April last year, or June or July last year, where all we did was win. And actually, that makes me uncomfortable because I really don’t like the customers to bump into such terrible bad luck. After all, this business is about amusement, self-indulgence on a very special level. But basically, the people that come here and do these things, they are here because they like that more than they like the money. They like the game. It’s their hobby, so to speak, it’s an indulgence, like some people buy bottles of wine for $20,000. I mean, these are people that like to gamble. And what’s best for them is to have the normal ups and downs and normal swings. They don’t expect to win, but they like to get lucky once in a while and have fun with the house’s money. The last few months it’s been extreme in that regard. But last year was extreme in the other regard, in the first 6 months of the year. So I really don’t like it when we win too much money from the players. We get way ahead of the statistics. It has a stultifying effect on the psychology of our customers.”

On retail rent revenue they are getting in Macau:

“You know the Esplanada Café is right there in the lobby by the elevators. As a 24-hour restaurant, it’s a little bigger than we need. The path of it is the buffet and the windows and the tables along the pool. The front half is a square that’s 2,000 feet. The entrance is in the middle, between the front half and the back half. We decided that we didn’t need the front half, that we could handle the business with the back half. So I went to a couple of our famous retailers, and for the moment, I’m not going to mention the name. But I said to them, 2 of them in particular, we had a little tennis match going. I said, “Look, we think that the 2,000 feet’s going to do $40 million. I want 15%, or $6 million for the space. Would you take it or leave it?” Well, there was some bickering and some jockeying and offers and counter offers. At the end of the day, 1 of the 2 major international retailers paid us $6 million fixed for 2,000 feet. $1.5 million a quarter. $500,000 a month, fixed rent. Guaranteed for 2,000 feet.”

As usual, another free look into the mind of the best in the business, explained in words that anyone can understand.


Related:  WYNN Gets Unlucky In the Quarter


Disclosure: no positions in $WYNN $CZR $MGM $LVS $MPEL

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