Wynn Palace, the newest luxury hotel and casino of founder and CEO of Wynn Resorts Limited Stephen Wynn, is set to open in Macau this evening.
The $4.1 billion project has been in development for six years, suffering delays and uncertainty about it’s profitability as the Chinese economic slowdown and Beijing’s crackdown on corruption weighed heavy on the gambling industry in Macau
Macau’s gambling industry is on a down-turn
Macau is the only place in China in which casinos are legal and has the world’s biggest gambling industry by revenue, which is around seven times bigger than Las Vegas. The small Chinese territory therefore relies on the booming casino industry and the tourism it generates for more than 80% of it’s GDP.
However, the Macau economic flagship suffered since 2014. The Chinese government decided to crack down on corruption, regulations on gambling where tightened and Macau banned smoking in casinos, causing gamblers from around the world to stay away. Gambling revenues thereafter dropped to a five-year low.
Macau has since decided to work on expanding its tourism industry in other directions than gambling. New policies incentivise resorts to offer a more diversified and family friendly entertainment program.
The Macau government is also limiting the growth of the gambling industry by cutting supply growth of gambling tables to 3% annual expansion. The vast cut back in permissions for new tables reduces dealer activity and game money inflow. This is likely to weigh heavily on gambling revenues.
Union Gaming analyst John DeCree stated: “It’s a pretty significant driver of revenue to have as many as tables as you can, especially during peak periods.”
While the casino industry does still generate revenues, revenue growth has been on a down turn for 26 straight months in July.
Other industry members refocus business strategies
The new barriers, curbing gambling revenue, have caused some businesses, such as Melco Crown Entertainment Ltd. and Sheldon Adelson’s Sands China Ltd., to design new Macau projects to be more family friendly. New entertainment options are set to attract so-called “mass-market recreational gamblers” and their families, as high rollers’ interest to spend their millions in Macau has been on the decline.
Wynn is betting large on the return of the high-rollers
However, Wynn, known for being a major influencer in creating the booming international gambling industry on the Las Vegas strip in the 1990s, is betting large on a recovery of the Macau high rolling gambling business.
Wynn Palace is the developer’s most expensive and luxurious project yet.
Guests will arrive in the resort by crossing an eight-acre artificial lake in an air-conditioned gondola. The resort, set in a floral theme, features extensive floral displays, including a 6.8 metre Ferris wheel decorated with 103,000 flowers by floral designer Preston Bailey. The extensive art collection further includes a US$33.7 million, 3-ton stainless steel sculpture created by artist Jeff Koons. Many of the over 1,700 rooms also feature luxurious designs in crystal.
Wynn stated: “We’ve spent a 100 million dollars on artwork, sculptures, ceramics, 18th-century vases and screens of very high and rare quality.”
Guests will be able to enjoy treatments in Macau’s largest spa which include facials using crushed diamond and gold-leaf. They can further choose from around a dozen Michelin-starred dining options.
The new casino planned to allocate 60 of 400 planned tables to the high-rollers, set to be attracted by the luxurious and exclusive offering.
Wynn is aware of the risks ahead
While Wynn has taken a huge leap of faith on the recovery of the high-end gambling industry in Macau, he is not at all disillusioned about the risks entailed.
Wynn said in an interview with Bloomberg: “The last two places that opened did not cause the market to grow, did they? No. Will this one? Good question. We’ll get an answer to that in September or October. I’m anxious to see it myself.”
The Macau government has approved only 100 tables for the new casino’s debut. 50 more tables will be allocated throughout the next two years.
Wynn said: “We thought 100 was the minimum, and we planned accordingly and we hired accordingly,”. According to him, the lower than hoped for table allocation will not change profit projections.
Wynn Resorts is planning to shift some 250 tables from the already existing operation in Macau, Wynn Macau, to Wynn Palace, to make up the difference. However, shares of the company’s Macau operations still dropped in the aftermath of the lower than expected table allocation.
Wynn Resorts Limited is performing well this year
Wynn Resorts traded 50% higher on the New York stock exchange over the year. Adjusted earnings per share of Wynn Resort beat estimates of 91 cents per share in the June quarter, generating $1.07 per share, according to Thompson Reuters.
The Macau operations also exceeded estimates by $49.1 million, generating revenue of $639.3 million in the quarter finishing June and could report on a 38% rise in share prices in Hong Kong trading this year.
With no clear consensus about how the Macau government will proceed with its policy measures to reinvent its tourism industry, it remains to be seen if Wynn’s gamble on the Macau high-rollers will pay off.
Katharina Fleiner 22/08/2016