Two Way Hard Three | Las Vegas Casino & Design Blog

I listen to every single call Wynn Resorts has and always will. Granted there are other, safer places to invest your money, especially in this type of economic problems, but if somebody wants to be invested in the casino industry for whatever reason, I cannot think of a single better company to invest in. Granted Wynn may not have the potential upside to the extent that some of his competitors do, as his stock has not fallen near as far, but if you want a safe and stable company, I just don't see how it gets much better than this. Their strong balance sheet, and lower debt, relative to their profits and cash flow, clearly makes this stock, the best of bread. I know they cannot predict the future, and they don't pretend too, but if want to bet on which company is sure to be left standing after this financial storm, one prevails, and that is Wynn Resorts. Their long term confidence, makes me confident as a place to have my gaming investment.

There is only one Steve Wynn, and he certainly is relishing his seemingly positive position in these tough times. The transcript of the Call is available, and it's interesting reading. I liked his comments on player credit and also the following two quotes:

"This is a high end, elite company. We cater to a very special part of the market and that is where we are staying."

"I am certainly concerned about the welfare of my fellow casino operators up and down the strip."

http://seekingalpha.com/article/103101-wynn-resorts-ltd-q3-2008-earnings-call-transcript?page=-1

Posted by mike_ch

I'm not going to gripe about that top comment because it's pretty clear that having a limited amount of product sold to a limited group of people is insulating Wynn from these tough times.

I just hope that when the pendulum swings the other way, he jumps at it instead of just sticking with the Condé Nast crowd.

Mike,

I seriously doubt he will because they see that as devaluing the brand.

They see exclusivity is a plus for Wynn Resorts, not a minus. The fact that not everyone can afford it is what makes it more desirable.

Just like Apple doesn't make cheap low-end laptops like all other PC makers, I don't see Wynn Resorts doing heavy discounting of rooms - it undercuts their message that their product is worth paying extra for.

Of course, if things got really really bad, I guess nothing is off the table but given their call, they have plenty of cash...

Liquid to the tune of $2.7 billion, they have $1B in obligations to finish both Encores... Then they are a free cash flow company with no maturities for a few years. Sounds like they could hold on through really bad times.

On the call Wynn was talking about using the fact they are filling new positions as a way to save on costs - maybe not hire as many people as they would in a better economy.

Posted by mike_ch

Actually, Apple and Wynn are kind of different images. Apple's image is computers everyone can use. That they've been largely not affordable by the everyman has always been a failing of their business model, not a success story. If they weren't trying to get everyone they wouldn't emphasize user interface, getting their computers in schools, etc.

The "we're a luxury brand" thing is some baloney Jobs came up with to hide the Achilles heel, but the point remains the same.

I wasn't calling for them to sell rooms cheap, I was saying that not every hotel has to be one of the world's most heavily appointed. Personally I'm hoping the market continues and they stay insulted with their niche. When casino businesses weren't making as much money, they were building New York New Yorks and Luxors and Stratospheres and Paris. When the money started flowing in faster than a lot of companies knew what to do with it, that's when we started getting the ultra-high stuff that's withering on the vine right now.

So honestly, I don't look forward to a "poor man's Wynn" anytime soon. I just mean that whether it's on the Strip or in another market like AC, it would be foolish to not let the average joe have a taste sometime when markets allow.

I know I was the one that brought it up and I don't want to get off-topic with this Apple stuff but I disagree.

Microsoft's stated vision is a computer on every desk and every home or whatever... Apple's mission has seemed closer to 'make the best computer experience possible' (if someone agrees with this or not is beside the point) and cost has just always been a secondary concern, along with other things that other PC makers focus on like raw performance.

I guess that drives us back around - is Wynn trying to say 'we want to make a product that's more expensive - that's our goal' or is he saying 'we want the best product possible, costs be damned'?

I think he's saying both. No question he wants to be the best, and wants to have the best product. But he also does not want to have to use low prices to fill his rooms. If you go to Vegas every July, and you know in July you'll get an offer, then you will not book, until you get an offer. They don't want people to wait to book a trip just because they got an offer. He does not want to have $69 rooms like Mirage, because if you get used to paying $69 for room at Wynn, then you won't want to pay $399 for a room at Wynn. So you won't book another room at $399, you'll wait until you see the $69 room.

On the other hand, if things get horrible, and I don't think they will, but you can't charge $299 for a room, when next door, is a nice hotel and they are charging $99. You can't have a price umbrella that large. Becuase even as much as I love Wynn, everyone has their price. Most people will pay somewhat more to stay at Wynn, but there are limits.

I’m really looking forward to Encore opening! I was afraid it would not open until after my upcoming Dec 23-29th trip. I’ll definitely be checking it out on the 23rd! From checking Encore’s site to see about reserving a Parlor Suite which seems to be the most comparable to the Bellagio Suite that I have reserved for my trip, it’s about 3X the cost of the Bellagio suite. Unfortunately, I can’t afford to pay what Encore is asking for opening week so I’ll have to settle for only visiting the public areas of Encore on this trip.

I struggle to wrap my brain around the chicken-and-egg question of how the Strip became so heavily weighted toward the high end. I'm not yet persuaded of the argument that you have to build premium-level resorts in order to justify the price of the land. One could make the counter-argument that by piling huge construction cost atop huge land-acquisition cost, you're compounding the difficulty of recouping your investment.

But ... as wealth became increasingly agglomerated among a smallish elite of the American populace during the last eight years, well, Las Vegas had to go where the money was. (One might call it the "Willie Sutton business model.") Now, that's the only market segment that's holding firm. The resort developers may have accelerated the process whereby middle- and lower-end customers got squeezed out but, as of three years ago, that's what the market would bear. And now, when the resort operators are willing to re-price downward, middle-class and budget travelers may no longer have the discretionary $$ with which to respond.

In any event, with 85% of the incoming hotel-room product aimed at the premium niche, Las Vegas now has to dance with the girl it brought. Whether there are enough affluent customers to support that concentration of premium product ... I guess we're going to find out the hard way, aren't we? The implications of an oversupplied luxury-market segment would be pretty dire for anybody else on the Strip unless their brand were of Wynn-like strength.

Posted by mike_ch

Sands went up 13% today. Anybody have any ideas why?

Brian: I think there's always room for "best" and I think Wynn has good enough nose to sniff out what's best and keep his hotels on top for the customer who wants the best thing in town. How much he can charge for it depends on how much everyone else is charging obviously.

I'm just saying that I like Wynn's product but he can't fill too many hotels with the highest rates in town. Wynn and Encore aren't too far apart for one to look superior to the other, but as time goes on, markets change, he starts looking at that golf course land, etc, something will budge.

Hunter: As someone who has been using Apples since, well, as long as I've been around; they've long been promoting their products for home, for grandma, for the kids, for school work, and so on. They've always been out of most people's price range, and the message and the hardware never matched up quite right. No doubt Jonathan Ive's designs have helped their products achieve a kind of status symbol look that they can ask a higher price for, but in the beige box/rainbow logo days (the ones I know best as a ][GS/SE/LC/Quadra user)there was a real discrepancy.

And, getting back to my real point here, even Apple still makes Nanos and Minis.

We're just not going to agree on Apple but I want to close out that discussion. This ain't the place to get into it. I've been an Apple guy since the Apple II and a Mac guy since 1984 so I doubt you have any years on me but we're just not seeing this one the same way but that's okay...

Let's get back to the Vegas...

Wynn Resorts has said several times that rates at Encore will basically always be 15% higher than Wynn Las Vegas and unlike other 'sister properties' like TI and The Mirage, they will not be competing with each other - they have the same management team and internally are viewed as the same property.

For instance, Encore's first few days, the rates hover around ~$300/night for Mondays and Tuesdays. It will be very interesting to see if they can keep the rates up at those levels.

Hunter - Actually, we should be careful in saying "they are internally viewed as the same"

Wynn sent me a great offer for December, I tried to book my Encore room together with my Wynn room, hoping to combine them, to take advantage of a dining credit offer. I was told that would not be possible, as they were two separate properties. I get what you're saying and agree, but I was a bit surprised they would not let me use the dining credit, if I was staying in the Encore side, they said I'd have to stay on the Wynn side to use it. Oh well, I'm not going to Encore for opening night, and staying at Wynn.

I mean in terms of gaming license, back of house and financials.

Not in terms of promotions and marketing, which is why they want to charge more for Encore. They are positioning it as Wynn++.

Posted by mike_ch

That's a smart idea but if they were going to do that they should have thought about the name. It's hard for "Encore at Wynn Las Vegas" to sound like anything other than an annex.

Oddly it's not the "at Wynn Las Vegas" that drags it down (helps place it on the map in customer's minds and can be dropped in a few years when it's established itself) but the name Encore itself suggests an addendum performance.

You may have a point - the name may be too clever by half... We'll see.

I agree with Brian Fey. I travel to town the same weekend every year and for the past couple years I've been able to get a heavily discounted room at Venetian while Wynn's price point hasn't wavered nearly as much.

If the discounts were closer in price I'd pay a decent amount over Venetian's price to stay at Wynn but the disparity is just to big a difference so I continually stay away from Wynn and at Venetian.

The differences for the time period I travel is usually $125-$150 per night for Venetian for the weekend vs $200-$225 for Wynn at both of their last minute most discounted price points.

It's just too big a difference for me to justify even while acknowledging that Wynn is a nicer property.

So the question that begs to be answered is which strategy is going to pay back in the end? The Venetian's fill the rooms at whatever the cost or Wynn's keep our brand exclusive at the expense of warm beds.

I would think that filling the hotel and hoping that guests will gamble and spend enough to compensate for the lower room rates makes more sense.

Mike takes the words right out of my mouth re "Encore." The term implicitly (but not pejoratively) connotes "more of the same." Considering that Wynn and Encore share the same external appearance, customers can be forgiven for mentally conflating the two.

As for why LVS went up 13% last week for no apparent reason, it takes me back to something that analyst Marvin Roffman said about 12 years ago: The gaming group tends to trade *as a group,* which is why we see these synchronous (or "herd mentality," if you prefer) shifts. Good news at MGM and Wynn pulls up Sands, even if there's no reason to get excited about Sands. Unfortunately, that means that when a stock like Sands tanks, it exerts a drag on the better stocks, too.

Posted by mike_ch

Well, I'm pretty sure Wynn has given away a room from time to time to keep the place hopping, because that's the only way I've ever stayed there.

I'm more interested in visitor demographics because the past few times I've gone to collect material on the StripWalk, the Strip has had a lot of people too young to gamble. I'm not simply saying at Excalibur, either. My last trip out I witness kids using Wynn/Encore's parking structure as a skateboarding platform when cars weren't ascending or descending.

If this is true, Encore was not originally going to have rooms available on the 22nd - Wynn got special treatment.

http://www.lasvegasweekly.com/blogs/luxe-life/2008/nov/06/breaking-news-wynn-now-taking-dec-22-reservations-/

Who knows if this is correct but interesting. Jives with what I was hearing from folks last week.

Posted by DavidF

Just got round to opening my American Express Departures Magazine - Wynn has a Five Page advert announcing Encore.

Nothing in the Ad that is new, just simple and elegant design - along the lines of the website design - with the Name/phone # and URL - but pretty spectacular to have that many pages in a publication like this, they are clearly taking the approach of "If you build it... they will come"

The ad David just mentioned:

http://magazine.elitetraveler.com/elitetraveler/20081112/?u1=texterity

Whoops, that link didn't work as planned. After you click on it, "turn" the "magazine" to "page" 53.