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Best of Benjamin Spillman

Gaming Guru

Benjamin Spillman
 

Wynn reports whale of year

28 February 2007

LAS VEGAS, Nevada -- Big-betting Asian gamblers and regular Chinese tourists helped push 2006 revenue for Wynn Resorts Ltd. beyond analysts' expectations, even as earnings per share were down in the fourth quarter.

Company Chairman Steve Wynn said the success was due partly to the casino's ability to squeeze more money than its competitors from gamblers and growth in the burgeoning Macau gaming market, home of Wynn Resorts' newest property.

Wynn Resorts' revenue for the year was $1.4 billion, up 98.5 percent from 2005. Earnings before interest, taxes, depreciation and amortization -- the company's cash flow -- went up nearly 86 percent from 2005 to $393.6 million.

In the fourth quarter of 2006, however, it lost $55.4 million, or 55 cents per share, because of a December special distribution to convertible debenture holders, from a prior-year loss of $9.9 million, or 10 cents per share.

Quarterly revenue more than doubled to $563.6 million from $269.4 million.

Fourth-quarter cash flow for Wynn Resorts was $159.7 million, well above final quarter 2005 cash flow of about $80.1 million. Cash flow at Wynn Macau, the new resort in China, was $58.5 million in the final quarter, above the $55 million analysts expected.

During an hour-long conference call to discuss the company's performance, Wynn talked about everything from the sleeping and betting patterns of Asian gamblers in Macau to the cost of Sheetrock and carpet in Nevada to local politics in Atlantic City.

He said the company beat some expectations partly because it was able to increase the amount of money it won, called the hold, by building a casino in Macau that captivated big bettors.

"Part of that is not luck," said Wynn, explaining that the gambling environment the company created in Macau and Las Vegas keeps wealthy gamblers betting for longer periods.

"People stay longer, they play longer," said Wynn. "Time is our friend."

The table game hold at Wynn Las Vegas was 26.3 percent in the fourth quarter, above the expected range of 20 percent to 23 percent. In Macau it was 17.5 percent, at the low end of the expected range.

But Wynn expects the hold in Macau to increase as employees and managers adjust to the patterns and preferences of the Chinese market. Wynn Macau opened Sept. 6.

"As people experience our hotels ... they begin to get very comfortable," Wynn said.

One example of a difference between the Las Vegas and Macau markets, Wynn said, was apparent in occupancy rates. The company reported an 80.6 percent occupancy rate for the year in Macau. In Las Vegas, the occupancy for the entire market was about 90 percent in 2006.

In Macau, Wynn said, gamblers who don't take advantage of available rooms have an effect on occupancy. For example, a casino may hold a room for preferred customer, but if the customer is so engrossed in playing that he or she doesn't use the room it isn't considered occupied, he said.

"They stay downstairs and they don't sleep," Wynn said. "It is one of the peculiarities of the market."

Wynn also spoke about the rising cost of construction in Las Vegas. He said the company locked in deals for Sheetrock, concrete and other products for its $2 billion Encore addition to Wynn Las Vegas, although inflation was still driving up costs, especially for labor.

"Las Vegas is the hottest construction place in the United States of America. There is a shortage of good help," Wynn said.

He also touched briefly on New Jersey politics while responding to a question about whether Wynn would return to the East Coast market where he once operated the Golden Nugget Atlantic City, one of the most elaborate casinos in the market at the time.

After complimenting New Jersey Gov. John Corzine, Wynn criticized local politicians.

"Political leadership in Atlantic City has been an elusive concept in the last 30 years. It has probably resulted in stunting the growth in that community," Wynn said. "Unless there is political leadership, Atlantic City is always going to be a place that creates a very big challenge for a developer."

Of more interest to investment analysts, however, was the company's prospects in China.

Deutsche Bank gaming analyst Bill Lerner said there is enough untapped potential in China for Wynn and other Las Vegas companies that are expanding operations in Macau.

"When they get their expansion open, they will start realizing the benefit of that latent demand," Lerner said.

Wynn Resorts stock fell $4.48, or 4.46 percent, Tuesday to close at $95.90 on the Nasdaq National Market.

Wynn reports whale of year is republished from Online.CasinoCity.com.