WYNN Q3 2011 Earnings Call Tidbits

As has been my habit, I’m going to go through $WYNN ‘s quarterly conference call transcript (Q3 2011) and see what sort of gems Steve Wynn has for us this quarter.  Wynn’s frank, honest assessment of the business model in which he has unparalleled expertise is always free knowledge and a valuable insight into the mind of one of the masters of this business.  Let’s go:

Q: Carlo Santarelli – Deutsche Bank AG, Research Division

If you guys wouldn’t mind commenting, maybe, on some of the trends you’re seeing more recently in October both in Macau and Las Vegas, I think that would be helpful for everyone.

A: Stephen A. Wynn

Well, October is gangbusters. We always tell you about the month when we’re doing it. And where they 17 days down, Marc?”

Is Wynn Massachusetts imminent?

Wynn: “There are some very pregnant opportunities that are presenting themselves in Massachusetts and Florida. Neither our jurisdiction has made a final decision that we can measure quantitatively in order to make a determination for ourselves. But those are very interesting markets. And when we sit here in Las Vegas and look at these things, we ask a couple of questions. First of all, what is the deal that, that state has put on the table? How strong is the invitation? How serious are they are? Are they motivated strictly by tax revenues or by employment or a balance of the two? Do they want capital investment and long-term growth and job security for their employees? Or is this a quick down and dirty, how much can we grab? Those jurisdictions usually have a dim future. But I’m sensing that Florida, for example, and Massachusetts are acting in a more stable way. I remember once in Illinois, they had a meeting and changed tax rate overnight by 15% to 20%. That wouldn’t even happen in China. I mean, that is really rough, but they had 10 riverboats and they didn’t care. In Massachusetts and Florida, I’m sensing a much more serious and mature political approach and long-term economic growth approach to jobs, as well as the construction and all the rest. And so we’re looking at it. The second thing that we look at besides the invitation that the jurisdiction puts on the table is, does our brand fit? Can we really be value-added to the Massachusetts or Florida? And can we be value-added to our shareholders? Those are not always the same thing. It’s the reason why we’re not in the riverboat business. It’s not consistent with what we do best. I’m feeling very positive in a very preliminary way about Massachusetts and Florida. I think those jurisdictions have potentially a great deal of promise, and we will look at them seriously, as we have been for the last several months. And hopefully, there will be a business opportunity there, in which case we’ll step up and put our credentials on the table and try and satisfy the political leaders and other decision-makers there. I hope that answer is helpful.”

and then more on Miami:

“Well, that’s a very good question. Florida has always been one of the places in the world that was most perfectly suited, South Florida, Miami, to — and Miami Beach, to becoming a vastly expanded destination resort, not just for Latin America, but for Europeans, for Eastern Coast Americans and for people from Texas and all over the United States. Florida, its climate, its ancillary offerings of beaches and restaurants and shopping. Miami is a fabulous place, and if it were done right, in my opinion, Miami would take off and become one of the 2 or 3 greatest destination resort cities in the world. I remember, as a young man, going to college in Philadelphia and my parents moved to Miami Beach, and we lived on Pinetree Drive and my folks had a cabana at the Fontainebleau in the ’50s and early ’60s before my dad died. And everybody came to the Fontainebleau from all over the world. It wasn’t just New Yorkers, it was everybody. The hotel redefined destination luxury and fun, the greatest entertainers, the wealthiest people, the greatest shopping all took place between the Fontainebleau and Eden Rock and the Americana hotels. The destination was created because of the development, not in spite of it. Now I had a conversation with my neighbor, Sheldon Adelson, who was a little bit more conservative in his view, but I think both of us agree that Miami has the opportunity of becoming something quite extraordinary. It won’t happen with racinos, that doesn’t even get on the radar. It’s a false start, and it’s been a false start everywhere that they’ve tried it. It’s regressive, it’s homely, it may make a buck or two for the operators, but it does nothing, really, for the local economy jobs. If they solve the tax rate, it generates a few bucks for the government, the fiction that it helps the horsemen is exactly that, a complete fiction, and that’s been proven over and over again. But the existence of large employment-based destination resorts has the capacity to change the economies of the communities in which they exist on several levels, primarily by the huge payrolls of such places, they hit the economies like a freight train. And secondly, by the people that it brings from outside the region into the region. So I am on a macroeconomic level highly positive about the implementation of large destination resorts in Miami and Miami Beach. However, that comes down politically. It’s very, very important that the government decide to do it intelligently, and they have numerous case studies to examine. Mississippi, where the tax rate was low, to encourage big capital investment; Las Vegas; and Florida has everything going for it. Massachusetts has the population base. Both places would be great. On the other hand, in New York City, it was a racino at Aqueduct, altogether different story. In my view, it produces an entirely different result. So that’s the basis of — but the core question is, can they support 3 of them? If they’ve done well, if they’re positioned properly, if they’re managed intelligently, absolutely. It could become a $2 billion or $3 billion market”

Wynn then answers a question about construction – going into detail about the process of building hotel foundations. I’m not going to excerpt it here, because it’s long and boring, but I continue to be amazed at how much Steve Wynn knows about every aspect of his business.

There was an interesting exchange with analyst Dennis Forst from Keybanc, who was trying to get to the bottom of the low “hold” percentage in the quarter.  This means that the casino didn’t win as much as they “expected” to, and Dennis was trying to figure out if one big gambler came in and got lucky one night.  The exchange speaks for itself, especially Wynn’s comment that he is the right person to ask because he knows the answer:

Dennis I. Forst – KeyBanc Capital Markets Inc., Research Division

I don’t know whether Marilyn is the right person to ask or…

Stephen A. Wynn

I am. I am in this case because I do know the answer.

Dennis I. Forst – KeyBanc Capital Markets Inc., Research Division

Okay. The low hold in the quarter, was that associated with maybe one group or one month or one event? Or was that pretty much across the board?

Stephen A. Wynn

No, it was Baccarat.

Dennis I. Forst – KeyBanc Capital Markets Inc., Research Division

Obviously, Baccarat. But was is it one specific…

Stephen A. Wynn

No.

Dennis I. Forst – KeyBanc Capital Markets Inc., Research Division

Time period…

Stephen A. Wynn

No.

Dennis I. Forst – KeyBanc Capital Markets Inc., Research Division

Or kind of throughout the whole quarter?

Stephen A. Wynn

No. They come in and they come in groups outside with 6 and 3 and 4. And we have guys who win $7 million and $6 million. A casino that can win $200 million or $300 million at Baccarat can do that. Our Baccarat percentage overall is wonderful. It holds up to casino, but you do get these kinds of fluctuations. This month, it was off by 3% or 4%, if you take it the way we usually look at it. And that would’ve been about $15 million to $20 million in Las Vegas.

Dennis I. Forst – KeyBanc Capital Markets Inc., Research Division

Yes. But I guess [indiscernible] on the question. Was it all at one time?

Stephen A. Wynn

Everything was normal outside of Baccarat.

Dennis I. Forst – KeyBanc Capital Markets Inc., Research Division

Right. Was the Baccarat low hold over a short period of time or spread out?

Matt Maddox

Dennis, you’ve seen the August numbers for the entire city, so you clearly saw that, that was down in August and also in July. So it was each month, but it wasn’t one event that caused this quarter. We have too much volume for one group to come in and cause 5 points of swing. It was really throughout the entire quarter.”

Steve Wynn seems annoyed by Goldman’s Janet Lu:

Janet Lu – Goldman Sachs Group Inc., Research Division

Well, actually, in the first week, we noticed that there’s some pickup in the market share in Wynn Macau. So is that because of like win rate? Or is there any — or did you do any — more aggressive in marketing or…

Stephen A. Wynn

You’re paying too close attention. You’re too close to the sheet of paper. In a week, to look at a casino like Wynn Macau is a mistake. We have a lower hold percentage one week, a higher percentage the next week. I answered to you about the turn, about the level of activity, it’s up, but looking at the place week by week is a waste of your time, really. Don’t do that. Even though they publish the numbers you’re seeing, gross market shares. Gross market share means nothing, absolutely nothing. What good is gross market share when you have 4 hotels or 3 hotels or 2 hotels, and you have 3 sets of payroll, 3 sets of depreciation, extra interest expense. It’s a totally worthless number, and wasting time on this call is probably not effective.

Janet Lu – Goldman Sachs Group Inc., Research Division

Sorry. And my second question is regarding your Cotai project. Because the government has reiterated its intention not to increase the table cap until 2013 and keep the growth up 3%. So on your Cotai project, how are you going to allocate the tables of around like 500 tables for project?

Stephen A. Wynn

Your interpretation of the table cap is, that the current table cap is going to apply to future hotels that you misunderstood the government’s position. The current table cap has to do with the current tables.

Wynn then gets into one of his famous political rants while responding to a question about Occupy Wall Street.  It’s too long to excerpt here, but I’ll give you the finale:

“But I have to tell both of these men who were friends of mine, look, I can’t give you a reasonable projection of what this return on investment will be even if we spend $2 billion and create 10,000 direct jobs and another 30,000 indirect jobs for a total of 40,000 jobs. That’s how many jobs I could create if I broke ground on the Frontier property in the next 6 months or a year. And we would know how to do that. But I can’t tell the men who are willing to sacrifice any short-term benefit in exchange for a long-term opportunity because I cannot predict what healthcare costs are going to be, what regulatory load they’re going to heap on us, what new taxes or other burdens this insatiable governmental appetite for money from the citizens will take us to. Now that is simply a statement of fact. It isn’t a partisan political pitch. It’s simply a statement of fact from a businessman who has supported probably more Democrats than Republicans. But I say right now that the Democratic agenda of spend and bribe the public has bankrupt this country, and until it stops, the citizens of this country are in for more hard times. And fancy speeches aren’t going to change that, only a fundamental realization that citizens are going to have to take real sophisticated responsibility for how we allocate the resources of this country.”

The response to that speaks for itself:

Harry Curtis – Nomura Securities Co. Ltd., Research Division

Steve, we’ve got to get you on the  {political} slate.

Stephen A. Wynn

I’m not qualified, but I am qualified to say what I just said. I stand by it.”

-KD

disclosure: no positions in $WYNN

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