Wynn Resorts Profits Fall 72% in the 2nd Quarter of 2015, Due to Macau
Wynn Resorts profits fell 72% from where they were at the same time last year, after Q2 earnings were released to shareholders last week. Wynn’s net profits were $56.5 million in the three months ending June 30, which is off 72% from April, May, and June of 2014.
Most of the lost revenues came from Wynn’s Macau holdings, which have seen 14 months of decline at this point. The total revenue for Wynn Resorts in the 2nd Quarter was $1.045 billion, which represents a 23% decline in gross revenues. Macau’s gross revenues were $617 million for a 35.8% drop, while casinos in Las Vegas reported $423.5 million in gross revenues for a 6.2% drop from year-to-year.
Inside Macau’s Revenues
The VIP segement in the Wynn Casino in Macau fell 41% from 2014 Q2, while the mass market revenues fell 16% over the same period. The losses among both segments is cause for particular concern.
Most reports out of Macau focus on the drop in action from high rollers, but the mass market revenues might be more important in a recovery for Wynn’s Macau enterprises.
Currently, Wynn Resorts is building a $4.1 billion integrated casino on Macau’s Cotai Strip, a project which is called Wynn Palace. Such a huge investment during an economic downturn needs to be part of the solution and not the problem, so speculation was the Wynn Palace would focus on shops and amenities which would appeal to the Chinese middle class, which represents the vast bulk of the mass market numbers. If those numbers have softened, then the Wynn Palace could open to disappointing numbers.
Steve Wynn’s Comments
Steve Wynn did not appear overly concerned in discussing the numbers, while pointing out that the mass market is looking good for the company. Still, he told reporters that Macau “continues to be more of a question than a certainty“, which is a good way of saying no one knows what the future holds for the world’s largest gaming destination. He added that Wynn Resorts’s 2nd quarter numbers were “probably no surprise to anybody“, though any remaining shareholders no doubt understand what the company is facing at this point.
Refuting any concerns about Macau’s mass market numbers, Steve Wynn said his Chinese casino was doing well with the middle class gamblers. Citing that 51% of the gaming space in the Wynn Macau currently is used for the mass market gamblers, Steve Wynn said, his casino has “found a very rich stream of customers in the mid-tier, the business class of mass, and that continues to grow for us.”
Smoking Lounges Should Be Approved
Mr. Wynn suggested, when the Wynn Palace opens in March 2016, the operation should contain its smoking lounges. During the construction phase, expensive smoking lounges were built to accommodate gamblers who like to smoke cigarettes. The idea was to segregate smokers and non-smokers, but such a design would make no sense if the Macau government banned smoking in the Wynn Palace.
A smoking ban has been a concern since the Macau government announced a limited smoking ban for casinos in November 2014, then announced a more extensive ban in January and February of 2015. The ban hurt gaming numbers further, due to the large percentage of gamblers who prefer to light-up while they play. Steve Wynn praised Alexis Tam, Macau’s Secretary for Social Affairs and Culture, for his role in the current decision making–giving indication he has been told the smoking lounges will be approved.
Chinese Stock Market Implosion
Gamal Aziz, Wynn Macau’s president, said he thought the effect of the Chinese economy’s implosion would have a short term and limited effect on the VIP market in Macau. Mr. Aziz did say he thought junket operators would have a hard time having their debts repaid by cash-poor VIPs in the near future, as many of them have seen their investment portfolios taking a bath.
The Wynn Macau’s president discussed the effect the weakness of the Shanghai and Shenzen stock-exchanges have had on Macau’s gaming industry. 2015 has been a bad year for Shanghai and Shenzen, while the Hong Kong Stock Market has shown a similar implosion. The real estate market showed serious weakness in 2014, while the “Hanergy Thin Film Power” crash got a lot of attention in the international financial publications. In early June, more investors began pulling out their money from the stock exchanges in order to invest in property.
Bleak Outlook for Macau Gaming
The Shanghai Composite Index showed the most weakness, falling 29% over a three week period in June 2015. A survey conducted by the China Household Finance Survey showed that 31% of investors wanted to pull some or all of their money out of the Chinese stock exchanges.
All in all, the picture in Macau looks bleak. Not only is the Beijing government cracking down on junket operators and making it difficult for VIPs to reach the gaming destination, but the VIPs are losing significant portions of their fortunes on the stock exchanges.
Meanwhile, Wynn Resorts, MGM Resorts, and Las Vegas Sands are investing billions of dollars in casino projects on the Cotai Strip, while they are having trouble filling up the casinos which already exist. The result could look something like what Mohegan Sun faced when it lavished billions on an casino expansion just prior to the Global Recession of 2008. Luckily, Macau is likely to draw more tourists than Connecticut ever could–and that should be the saving grace for Steve Wynn and his fellow competitors.
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