永利渡假村 (WYNN) 2009 Q2 法說會逐字稿

Good morning, and welcome to the Wynn Resorts Ltd.

second-quarter 2009 earnings conference call.

Joining the call on behalf of the Company today are Steve Wynn; [Matt Schorr]; John Strzemp; Matt Maddox; Andrew Pascal, President of the Wynn Las Vegas; and on the phone, Ian Coughlan, president of Wynn Macau.

Now I would like to turn the call over to Mr.

Maddox.

Please go ahead, sir.

Thank you and good morning, everyone.

I just want to remind everybody we will be making forward-looking statements under the Safe Harbor federal securities laws, and those may or may not come true.

So with that, I'm going to go ahead and turn it over to Steve Wynn for some opening remarks.

Hello, everybody.

To our shareholders that are onboard, I think it was satisfying that things seem to be stabilizing in Las Vegas and China.

In spite of the sales figures in Las Vegas, we in our hotel are feeling -- since the end of the last quarter, since March, we did feel a change in our controls and -- the things that we put in to save money, which we do very slowly and very carefully because of our attention to our employees, they took effect as well.

And those things contributed to the performance of the Company, which although not star-studded, is better than most people thought.

And we are feeling a little optimistic.

We are very happy about China, and feeling good about that too.

We are even seeing our Asian business in Las Vegas still popping over here and doing nicely.

So all in all, we are satisfied, as you can be in a time when the world is still uncertain, consumer confidence is weak.

The Administration is more of a problem than they are of a help usually, if you read the headlines.

Everyone is frightened to death about runaway inflation if these deficits are allowed to take place.

The good news is the Senate seems to be slowing it down.

But we can't see where it's good for business to have that debt as a percentage of GDP go from 30% to 60% or 70%.

That sort of makes us an emerging country.

But maybe wiser heads will prevail and some of the things that are on the table, these amazing misunderstandings of how the system works, will get slowed down in Washington.

Right now, we are more afraid of Washington that we are the economy.

We've got people on our backs saying don't go to Las Vegas, which is preposterous.

And people are beginning to ignore this kind of bombastic rhetoric from the White House and from the Administration, and that is encouraging.

I must say that midweek, small business meetings are still very slow in coming.

Sales tax revenues were off, as you would expect, in Las Vegas.

But we do cater to a well-to-do customer in both China and the United States.

And we are benefiting somewhat from that.

And I think on that -- and one other point, I guess, with regards to Encore in Macau.

It's on schedule.

It's on budget.

It's being built out of revenue.

It will open up this spring.

And it's the best thing that we have ever done in our lives.

It is the most beautiful building that we have ever built, at least in my 40-year career.

10 rooms a floor, a completely integrated 415 all-suite and -villa hotel with its own spa, casinos, and other things right smack in the middle of Macau, across from the front door of the Arc de Triomphe Hotel and MGM.

So we are in a 100% location with -- I think is the best offering that we have ever managed to execute.

And the building is all topped off.

And the skin is on.

And we are taking our time, because we did want to build it out of revenue.

And it had this disparate parts.

It had a brand new -- it had two or three restaurants.

It had retail.

It had private gaming, public gaming, all the rest.

And we wanted to open everything at once and make a big fuss out of it.

And that is exactly what we intend to do in the spring.

So our development energies are focused on that at the moment.

And I think that is pretty much the state of what is going on here the last week of July.

We are all excited.

Tonight is the opening of Beyonce.

She is spending the weekend here, making videos.

She has been here for three days rehearsing.

She is a very hard-working woman.

I can understand why she is such a powerful and accomplished performer.

She has been rehearsing for 10 hours a day because the show she is doing here is not her concert act; it's especially designed for Wynn and Encore.

And she is quite remarkable, and we are looking forward to enjoying her tonight and Friday and Saturday and Sunday.

And she is doing things in our nightclubs and she is making a video.

And I think all of this is going to be very nice for us, and we are having great fun with it.

And at the end of the day, that is what we are all about, having fun and making people feel good, even if times are tricky and confusing.

So with that, I think we will let the usual cast of suspects and characters take their crack at us if they have other questions.

It would be nice to hear from some new people, too, if we can -- besides our competitors, who never ask questions.

I know you are all on the call.

Hello, Sheldon; hello, Jim Murren.

How are you all?

I hope you're having a nice summer.

Go ahead, take the calls.

(Operator Instructions).

Joe Greff, JPMorgan.

Steve, it is good to hear you sound a little bit more optimistic than three months ago.

Most of my questions relate to Macau.

There were some news articles in Asia about our friend Stanley Ho talking about the Macau gaming tax rate, I guess, in an effort to hopefully convince people to think about lowering that.

Do you think there is much support in the government to consider lowering that tax rate in light of competition in Singapore?

And then along the same lines, with the VIP junket commission capped, do you think there is any benefit to you -- I know you have not been -- about that 1.35%, but is there an economic benefit for you that you think you can get in that environment, if you actually think it can be implemented?

First of all, with regard to the last part of the question first, we never went up there in that zone that destroys your bottom line.

And the fact that other people have finally come to terms with the idea that they have nothing to gain by going there is good for the market, because it allows them to preserve some bottom line and to take care of their employees, which makes a much happier town, a much more stable political environment, and all in all allows the people that live in Macau to feel a little bit more secure.

So stopping junket wars and other foolishness is very much in the interest of the community.

As far as ourselves go, we held ourselves -- we held our shares regardless.

We didn't go there because we know that it is a fruitless and pointless exercise.

The younger management, the ones with less experience, think they can buy business.

And we had already prior to them going up given all of the promotional allowances that were available.

That is assuming you are paying the taxes, as you should legally in Macau.

I suppose if you don't pay taxes you can give anything you want away, but we pay taxes.

We declare all our income.

And when we do, there is a maximum amount of promotional allowance that is available.

And there isn't one penny more to any anybody who is sophisticated and professional enough to be able to add.

So the caps are a good idea.

The question is, will the government enforce them or will they leave it to us?

That is yet to be determined.

But there is some sign among the operators that they have come to grips with reality.

With regard to the first part of your question about tax rates and Singapore and political issues -- it's one thing for Stanley Ho to make a statement.

He is a man with a great history there, and he certainly is a senior guy.

And he is part of an organization we have formed.

He is the new chairman.

And I have great respect for Stanley.

But we must distinguish between what Stanley says and what the government says.

They may or may not be in sync.

What is wonderful, and it's worth the people who are hearing my voice to take note -- think of where you live and your government.

Right now, we are watching the United States government deal with complex problems that clearly seem to be beyond their intellectual ability.

But the new chief executive officer, if the elections of September go as clearly they will, will be a man -- think about your government.

With the exception of the President himself, this man who will take over this SAR government did his undergraduate work in California, did his master's thesis at the University of Oklahoma in public health, and his doctoral thesis at the University of Oklahoma on SMOs in 1983 when they were first new.

He is a full-fledged doctor.

He is a Ph.D., with a long educational, distinguished educational history in the United States of America of understanding issues that affect people.

That is going to be the new chief executive officer.

His name is Fernando Chui -- if the election goes as most of the prognosticators consider that it will.

That gives you an idea -- in general, if that is possible in a 500,000 or 600,000 population, special administrative region of Macau, consider then the level of education and sophistication that permeates the Chinese -- the People's Republic of China government.

These are very smart people, very highly educated people, very thoughtful people.

My own feeling is the government of Macau will protect and so will the central government of Beijing and the regional government in Juhai at Guangdong province, at Guangzhou.

The government will do a very enlightened and thoughtful job of protecting the interest of the citizens and the business enterprises that support the health of those businesses.

In America, we have a government that has decided that anybody that creates jobs must be bad, that the job creators should have a target painted on their back.

What a remarkable misunderstanding of how the United States of America works.

I tell you that that is not the case in Macau, and it's not the case in the People's Republic of China.

And maybe we could all learn a lesson by watching what happens there.

I don't know what is going to happen with the taxes at the moment.

But I will bet you -- I will bet you that that government sees to it that that economy and that workforce is protected.

Rachael Rothman, Wedbush Morgan.

(technical difficulty) You guys did a great job on cost control this quarter.

And if you could kind of address may be what some of those initiatives were, what percentage of your costs you would characterize --

Could you speak a little louder, please?

Yes, I apologize.

Can you hear me better now?

Yes, ma'am.

Sorry.

Would you mind addressing following the cost cuts that you put through this quarter maybe what some of the key areas those were in, and how we should think about the breakdown of fixed versus variable costs at this point, and the potential for further cost reductions in Las Vegas, and then maybe kind of what lessons you have learned in Las Vegas, and can you put some of those cost initiatives through in Macau and maybe some of your learnings from the opening of Encore in Vegas and what you will put into practice at the opening of Encore in Macau?

Andrew Pascal will respond with regard to Las Vegas, since he was the architect of such things with his colleagues.

And Ian Coughlan -- is Ian back?

(multiple speakers) Ian is on the phone.

Are you in Ireland, Ian, with your [dad] --?

No, I'm in Macau.

Okay, good.

Well, go ahead, Andrew, you go, and then Ian will respond.

So I think what we saw in the second quarter was really all of our cost savings initiatives taking root.

I think the principle one really had to do with the way we are managing our staff.

FTEs were down about -- on average, per day 650 first quarter to second quarter.

And we were able to manage and get there without having to do wholesale layoffs.

We did it by going to our employee group and being clear about our problems and asking for additional time off and reduced workweeks and reduced salaries.

And so all the things that we talked about in previous calls, everybody here has embraced.

And that's allowed us on the payroll side to enjoy pretty significant savings -- about $65,000 a day in additional savings in the second quarter over and above what we already picked up in the first.

There were also literally hundreds of other initiatives to save money across all of the other line items, many of them related to just operating supplies and outside services and communications and promotional expenses.

And then of course, we went to work on all the kind of variable expenses that we could influence in terms of our cost of sales.

And so in total, our savings from the first quarter that we realized in the second were just over $140,000 a day.

I think that we are about where we are going to be.

I think the benefit that we have now is that we have been operating in this mode now for four months, four or five months.

And so we understand how to expand and contract, expand our workforce in order to address our high demand weekend business and then contract midweek in order to fit what are the business lines that we see midweek.

With one other remark about Las Vegas before Ian picks it up -- we are $35 million behind last year through tonight, yesterday -- I'm giving you a little bit of July -- for the whole year.

And which is not good news, because we added Encore.

But for the balance of this year, our comparisons become much easier because that is when the bottom sort of fell out in September in this market.

So I think that the net effect will look a little softer as we go forward.

But with regard to these cost savings, Andy is describing -- what, Andy, how many millions of dollars a year would you say we took off?

I think it's going to be close to $100 million.

Yes, $100 million.

That is an interesting thing to do, because it means that as the volumes improve, we will have much better operating margins.

So there is a silver lining to the cloud.

You learn how to run your business better, which is not only a good thing at any time, but is particularly important when you open a brand-new hotel.

We took the facility from 2,700 to 4,800 rooms.

So we are a much bigger operation now.

And we are going to get the benefit of that as the weeks go by.

But I want to add this.

Let's suppose that my group -- the people, those of us that are here, the family -- let's suppose we could jam another $15 million or $20 million out.

I have a very close relationship with the major shareholders of this company -- the institutional shareholders, along with myself and my partner that control over 80% of this company's shares.

There is a very real question here.

Is it intelligent to ruthlessly grind every last dime out of this place when it involves dislocating groups of your employees?

Oh, yes, the quarter looks better and you have one of these fancy phone calls.

But is that good business?

I think not.

At this point, I don't care about that last money if it means interfering with the employees and their lives, because that is our franchise.

That's our future.

And I am in the mode of protecting our assets now, which is, one, the over $1 billion in cash we've got; and number two, the biggest asset of all, my employees.

And so when it comes right down to it, I am not going to take the knife to the last buck when it comes to payroll.

That is the kind of company we are, and I think that I have the support of a few of the men with whom I have a closer long-term personal relationship that own large chunks of this company.

And I think it has to be said -- there comes a point in these companies in hard times when you make a decision -- is it the money, or is it the people?

Speaking for Wynn Resorts, and you can hear me loud and clear -- it is the people, not the damn money.

Next question.

Ian, do you want to address Macau?

Sure.

Along very similar lines to Andrew, we kicked off cost savings initiatives in Macau, and on a smaller scale because of the size of our property.

But in the second quarter we realized nearly $15 million US in cost savings.

Looking ahead, on an annualized basis, it can climb to as much as $66 million.

And it's ramping up as we go.

And what we have been doing is trying to protect our EBITDA margin.

In the second quarter, it was up 28.5%.

As Mr.

Wynn referenced, it is not at the expense of our employees, the maintenance of our assets and also development going forward.

So we have been very careful to protect that.

However, looking at FTEs year on year, we're 900 FTEs lower than we were at the same time last year.

So we have kept quality.

We are a [mobile five-star].

We continue to drive business, but we have become much more productive, and we have been containing costs very effectively.

Steve Kent, Goldman Sachs.

Could you just talk about, Steve, your strategy going into MGM City Center's opening in December or so -- if there will be any change -- in pricing, for sure, but it obviously sounds like you are not going to make any changes in quality of brand or experience.

But I did want to understand a little on the pricing side.

Steve, we can only make money in this building.

Here's what happens when a place like that opens up.

This is always the same.

You understand, I have been doing this 40 years, and I had Mirage, and, oh, here comes MGM.

I had Treasure Island and all the hotels, and here comes Luxor.

Here comes Mandalay Bay.

Here is the story.

Somebody does an awful lot of PR, beats the drum, uses a lot of hyperbole -- as they should -- and tells the world that the greatest thing since sliced bread is coming down your pike, greatest hotel of all time.

This has been said by all of us, including ourselves.

Now, the place opens up, and all the people who come to Las Vegas -- a very grooved, repetitious group -- they want to try it.

Now, the first group to try it are obviously the closest to -- the people that go to Bellagio, are close to the management.

So Bellagio and Treasure Island and Mirage customers are all shuttled over to this place, and so are some of the Wynn customers, who are very familiar with Bellagio, because that is where they used to be before that.

Before that, they were at Mirage.

Everybody says, oh, let's go check out ARIA.

Is it everything that they said?

Well, I am sure that the building is dramatic.

And people walk in and go ooh and ah, and look at this fancy shopping center, and look at these -- all the familiar brands like Louis Vuitton, Chanel and the rest.

Look at this lobby.

Look at these -- look at this pool.

And then, if they have been properly shepherded and led, they say, let's stay here.

Check into the hotel.

And the minute they do that, when they stop being lookie-loos, and they turn into a guest, then the rubber hits the road.

And then the ability of management to deliver a happy, joyful experience to the guest becomes the only factor that matters -- not price.

The hotel ARIA have to charge top prices, or they will be -- they will vanish financially.

They can't compete with Excalibur.

They have to charge what the -- Bellagio, Wynn, Caesars, Venetian kind of prices.

You know they are up there at the top end of the food chain.

Now, do they deliver the top end of the food chain service?

Have they got a workforce that feels good about themselves, that trusts management?

Had they had the time and the money to do the training and to deliver to the public in the face of a new building -- which is always a bit of a problem, because the systems sometimes are scratchy and not shaken down yet.

Does that enterprise have the ability to create a positive guest experience?

On these phone calls, I have said over and over again that the only thing that matters in our business is guest experience.

To the extent that any hotel offers great guest experience, it gets repeat visitations from happy customers, who also share that information with their friends.

And the only method that matters, word-of-mouth, begins to build the franchise.

If on the other hand, they have not had the time or the money to train; if they have not taken -- seen into every detail -- separate showers and tubs; two sinks; the proper amenity package; the right sheets; the comfortable mattresses, the perfect pillowcases; the thoughtful and caring housekeeping staff; the hip and together telephone operators; the friendly, warm dealers; the charming people that they encounter as they move through the space -- then the people who are there trying it out turn around and go back where they were comfortable -- which leads us to the answer to your question.

I cannot change our program if I want to compete with the other fellows, whatever the names are on their signs may be.

I can only create the franchise and the joyful experience with my own guess.

And that probably is a refrain that goes right back to my last comment on why I will do anything to protect the workforce.

That is where the battle will be fought.

It won't be over some Internet price that Bellagio puts up or somebody else puts up.

We did that when we opened Encore just to [show] the place up and put lots of people in.

But it's not an exercise that matters.

What is the point of putting someone into an expensive room that can't afford your restaurants?

These places are balanced organisms.

And the hip bone is connected to the thigh bone; the thigh bone is -- you know that old song -- connected to the knee bone.

And if nothing else, they have to have an organic, unified single personality that keeps a promise to the people from top to bottom, from check-in to asking for your car at valet.

So the guys running the City Center are my employees, my former employees and colleagues -- [Bill McBeth], Bob Baldwin.

Do they know all this?

Sure do.

They opened up Mirage.

They opened up Bellagio.

Have they got the tools to open up this one?

Are they hamstrung or advantaged or disadvantaged?

I don't know.

We are going to find out quick enough.

Did they do a good job laying the place out?

We will find out soon enough.

Personally, I can't wait.

I always get a kick out of these moments.

Cameron McKnight, Buckingham.

Couple of questions.

First, on the costouts in Macau, was there any reversal of the bad debt provisions you took in the third quarter of last year?

No, there was not.

Our policy on bad debt in both Las Vegas and Macau remain the same as the March quarter, the first quarter.

We didn't give ourselves any help, if that is what you are trying to find out.

Got it.

Okay, and the windback in the promotional expense in Vegas -- it is that simply driven by a slightly better operating environment, better occupancy, and more brand recognition for Encore?

No, it's more a reflection of our getting more focused on who we should have in the hotel.

Occupancy actually was down in the second quarter relative to the first because all the things that we did to shill up the place when we opened up Encore, we kind of worked through and decided which ones we needed to discontinue.

And so promotional expenses were down.

Even though hotel revenue in the second quarter relative to the first was down, our cash-based revenue was up nearly $3 million area.

You can't buy business in our industry.

Now, there's two kinds of people -- the ones that know that and the ones that don't.

The young ones don't know it.

The older ones find out.

Okay, great.

Thanks.

And that probably leads into my last question.

Steve, would you be able to comment just on how you are thinking about Macau and the Asian region going into 2010 and what is happening now and how you see things panning out perhaps in the second half and into next year?

I look forward in Macau -- I am loving the place.

I have always loved it.

For the past seven years, it has been one wonderful experience after another.

I am looking forward to having some of the most exciting opportunities of our lives in developing Cotai.

We are going to do ourselves proud when everybody gets to see Encore.

That will be the fancy -- I am going to say something that sounds particularly self-serving and developer-speak.

But I have never been more serious in my life.

The Encore hotel in Macau is the prettiest building of its kind in the world.

I don't believe there is another hotel tower remotely close on this planet to that 415 suites and villas that we are going to open up this spring.

It is quite stunning.

The smallest room is 1,000 square feet.

Even the spa, the eight spas -- each one is an individual spa, as if you had your own spa.

The villas have their own little casino rooms.

Everything about it is the result of all the wonderful lessons and experiences that we have learned these past seven years.

It was very difficult being brand-new in Macau.

As some of our friends are finding out, it is not quite so simple just to slide into town and build a big hotel.

You need more information.

Well, we had information when we did Encore.

And I am very, very proud of the way we took advantage of it.

I think that the Encore tower when it debuts in a few months is going to give people a really clear insight as to what we will do next, and the level at which we will be operating in China.

It is a great place to do business -- really wonderful.

None of the anxiety that we have at the present time in America.

I have been self insuring my employees, up to 40,000 of them, for 40 years.

And everything I am reading about Obamacare is a train wreck.

And I say that as an insurer -- a train wreck.

Andrew Berg, Post Advisory Group.

We all saw the article recently about government agencies and traveling to Vegas.

Is there anything that you are doing individually or LVCVA is doing on behalf of the city to proactively go back to government agencies to market the value prospect that is gaming -- convention in Las Vegas?

Well, our senior senator is the Senate majority leader.

You would think we would have a leg up on this.

He's a Democrat, and he is the Senate majority leader.

We've got the government on our back -- not just us in Las Vegas, but all business.

They are on our back.

There is an attitude that -- there is a very definite bias in this administration that business is bad.

Haven't you noticed?

I don't know how long it is going to take to get over this.

But it is awful.

And we call Harry on the phone and ask for help, and he is very sympathetic.

It's always a question of how much reach you have in these matters.

The President of the United States has his own office, and he has his own group, a little cadre of people that agree with him and look at the world just the way he does.

And they don't listen to anybody, from what I've heard from my business friends.

They invite people down to Washington and tell them what they think.

And they don't ask or listen to anybody.

Okay, but at this point, there's nothing you're aware of that that's an individual program that LVCVA may be doing to proactively trying to address --

No, no -- Andrew is on the board of the LVCVA.

I think maybe you should answer that.

For months, the LVCVA was actually very quick to respond and they organized a multifaceted effort focused on PR, advertising, political outreach.

They came around to all the various operators, and work with each of us to refine our messaging and identify what it is that we could do in order to kind of support people coming back and recognizing that Las Vegas is a legitimate place to come and do business.

The LVCVA, I believe, has done a terrific job in responding to these issues.

And I think some of those things have made a difference.

And they continue to.

Janet Brashear, Sanford Bernstein.

I wonder if I could ask about your growth plans.

Specifically, if you were to raise money in Asia, how would you plan to reinvest that money?

And is that money necessarily limited outside the US?

And secondly, what opportunities are you considering right now that you might not brand Wynn, and what is your strategy about growing without the Wynn brand name?

This is Matt Maddox.

Just on the first question, we are actually in a quiet period, and we can't provide any comments on that filing that we put out about 30 days ago.

On future developments and other opportunities, I'll turn that over to Steve.

It is the policy of our company to do one thing at a time and try and do it well, consolidate that thing, and then move onto the next thing, having hopefully learned something to make the next thing better.

And that is what Encore represents, both in Las Vegas and Macau.

We are participating with enthusiasm in the process in New York.

I came back last night with my colleagues.

We have been there heavily for the past several weeks and months.

We have designed -- we have put ourselves forward with respect, hopefully as an alternative, to create a new experience at Aqueduct Raceway, to take the concept of the racino as it is currently understood to be, which is basically a large clubhouse or room full of video lottery terminals, into something beyond that -- a place that integrates food and beverage and retail and entertainment, and makes it fun to go to, even if you are not a video lottery terminal player -- a place that is a complement to its neighborhood; a fun and exciting location to have recreational activities with.

And hopefully, at the same time, to give the Aqueduct environment, at least the clubhouse of Aqueduct, a chance to be a place where people would also be able to go and watch the races because of its close integration into our new facility that we have designed and shown the government.

And we have been given the opportunity to make a presentation, to make a submission.

And as a matter of fact, I spent the day the last several days in New York doing exactly that with my top management associates.

So here we are, trying to see if we can get our flag up in the big A and be a good neighbor and do something constructive and helpful, and have people think that they are glad we came after we had been there for a while.

It is the same attitude we have got in Macau -- how can we possibly get ourselves to the point where people say we are glad they came here.

They have been good neighbors.

They build a nice place.

It is fun to go there.

The restaurants can all be attended by children without walking through casinos.

The recreational facilities are accessible to people without having to deal with rows and rows of slot machines or something.

So we are taking that idea, a completely new idea, to New York.

And we may not win.

We may be -- someone else may be selected.

There are six or seven others -- very aggressive groups of folks that are trying to do it.

But we have taken a pass at New York, anyway, up or down.

Can I try the first part of my question another way and just ask what your growth plans are in Asia?

Well, we are lucky enough to have a very large parcel of land at Cotai.

And clearly, that represents our next move in China.

There is no other jurisdiction available in Asia that would warrant a Wynn Resorts focus.

Someday, if Japan would consider a destination resort, we would be on it in a heartbeat.

Taiwan would be a place that would require at least some examination.

But at the moment, we are thrilled to be where we are.

We were so concerned, so concerned about doing a good job in Macau that seven months before the opening of Macau, on Thanksgiving weekend -- Macau opened the following September.

As much time as I had spent in Singapore and as highly as I regarded that community, I regretfully withdrew from Singapore in a letter to the government.

And in that letter, I explained that Singapore was entitled to the best efforts of a first-rate developer.

But the best efforts meant that there had to be focus and concentration.

And that we were a company that feared that if we were doing two things at once, we might dilute our focus, and that our concentration might be less than what it should be, and that we would shortchange Singapore and our own shareholders.

And so regretfully, because of the commitments I had made in Macau, I had to withdraw.

But hopefully someday I could come back.

And they had done a great job, and maybe someday we could be part of that scene.

But I withdrew from Singapore when, at the time, we were a very active participant -- a very active participant -- because I had made a promise in Macau.

And we keep our promises.

Well, I think that -- [not that much] -- that was a decision made by my Board of Directors.

Every one of the men and women on the board were of a single mind on this point.

And I don't think anything -- and management as well.

I don't think that -- Linda Chen is on this call, and Allan Zeman.

They are both in China at the moment.

(multiple speakers) Oh, Linda is traveling, but Allan is on -- is somewhere in the audience listening.

And Allan, I am sure, was speaking for the board -- our position hasn't changed at all.

If you know how to do a thing, it only counts if all of your experience comes to bear like a karate chop on a single moment.

If you know how to do a thing, but you are trying to do five of them at once, that dilution makes you totally ineffective --ineffective.

And I think in the competitive environment, we live in today, and all the other factors we have to deal with, you'd better have your act together.

You better really have your ducks lined up, because you can lose sight in a minute.

Take a look at some of the competitors up and down the gaming industry -- almost any of them.

What happens when you lose focus?

What happens when you forget fundamentals?

Trouble, trouble, trouble.

We want to avoid that.

We have so far, and we are going to continue to do it.

That's my answer to your question about tomorrow.

Susan Berliner, JPMorgan.

Just two quick questions.

One, was wondering if you could comment what your competitors are doing on the promotional front in Vegas.

I know you had said you had pulled back some.

And Steve come also, the timing that we will learn who wins Aqueduct?

Oh, good question.

[Win] Aqueduct, the Aqueduct process -- the schedule is a bit unclear.

The endgame of that is unclear.

A decision will be made by the governor's office, the Senate, the representatives of the Senate and of course the assembly.

The process that they are going through now, they had 16 or 17 of their staff going through the proposals and questioning the applicants this past week.

And I think it concludes on Friday.

How long and what form the deliberation will take and whether there will be a second request for conversation has not been made finally clear to us.

I think that the governor and the senator and the assembly speaker are waiting to see what it is their staffs report back to them.

So I cannot give you a definitive answer to question one.

And, Andy, do you know anything about our -- we don't pay much attention to our competitors except what we read in the paper.

We do, we look at all the various promotional offers.

And it's all the stuff that traditionally everybody else does.

They are deeply discounting rates.

They are providing all kinds of other services as packages to try and entice people to come.

But we tend to focus more on what works for us and the kinds of customers that we are attracting, and how it is that we can get them to come more frequently or stay a little bit longer and spend more money while they are here.

So beyond that, I can't comment.

Dennis Forst, KeyBanc.

Mainly, I wanted to ask about capital expenditures.

They were $125 million in the second quarter, and I wanted to see how that was divided between Macau and the US.

And then going forward, where those numbers are going to fall out.

Sure.

The large majority of that were the Encores.

About $50 million was retention payments for Encore Wynn Las Vegas, just finalizing that job.

Another approximately $50 million for Encore at Wynn Macau.

And then that remaining $25 million -- we're doing a lot of renovations in Macau, a new Chinese restaurant, a couple new VIP rooms --

Really part of that thing that we are opening next spring.

Yes, all really a part of Encore, in some additional [spots].

So the large majority of that, over $100 million of that, is embedded in the Encore budget.

And in terms of maintenance CapEx, the numbers remain $25 million to $30 million in Las Vegas on an annualized basis, and about the same in Macau.

Okay.

And then how will the spending go on Encore Macau?

That should be ramping up right as we speak, I would assume.

I am sure you noticed, Dennis, our budget -- it was actually revised down $50 million last quarter.

We've been out at $700 million.

We are now looking at closer to $650 million.

We spent approximately $310 million to date.

And you are right, that is going to ramp up between now and when we open, which is in early spring.

And then you have 90 to 120 days of construction costs that come after opening, of course.

So that additional $300 million will probably be spread over almost the next year.

Yes, the next four quarters -- as you said with Las Vegas Encore, you are still paying off the bills.

That's exactly right.

Okay, good enough.

And then can you give us a tutorial on the tax rate?

I have never been able to understand how you calculate it.

My understanding was you don't pay any taxes in Macau, so it is basically 35% of income from the Las Vegas properties, offset by the interest expense that that you pay in the US borrowings, which would mean no taxes.

Dennis, I will tell you what -- we had about 42% or so effective tax rate this quarter.

That was -- as you know, I'm sure you can read in literature, quarterly tax provision are pretty much -- they are hard to calculate, because you calculate taxes on an annualized basis, and then you have to backfill in the quarters.

What happened was we made more money domestically than we'd initially projected back at the beginning of the year.

And so that caused our effective tax rate in the second quarter to be higher than what we had initially projected.

So we had to provide a larger provision.

Okay.

And if I remember, in the first quarter, there was a positive tax provision also, wasn't there?

Yes, there was.

And in what was that related to, then?

That was not --

If you remember, we had made $32 million in EBITDA in the fourth quarter of '08, $43 million in the first quarter of '09.

So we were projecting quite a large loss domestically on a very conservative basis.

I think things picked up.

So what you found was the loss that we were going to achieve was a benefit.

And as we made more money, we actually then had to back off that and report a provision.

So it is picking up on a forecast that was much more conservative back in December.

Bill Lerner, Union Gaming Group.

Two questions.

The first is regarding Danny, obviously, unfortunately.

I'm sure there was a direct and an indirect impact of his absence in that theater this quarter.

I don't know if Andy or Matt could quantify that opportunity cost -- and would like to hear your thoughts on what generally you might do there going forward.

Obviously, we know you have had Garth in there, and we see what you are doing with Beyonce temporarily.

But any thoughts would be helpful.

And I have a follow-up.

The entertainment policy that would be related to the use of the Encore theater is a work in progress at the moment.

Beyonce is a very special kind of event.

And we have $65 million worth of cash, front money and credit in this building in the next four nights.

And this is -- we put Beyonce in here on the toughest weekend other than December 19th of the year.

We did it on purpose.

This is -- conventions and stuff like that start the first part of August.

We picked a real trough in the traditional revenue seasons.

And so she is a special event as opposed to an ongoing entertainment event.

And a remarkable, and as I said, lovely, lovely lady.

Danny Gans provided sort of a four-show a week staple that backed up some of our restaurants.

The tickets made money, not a lot.

It was more of a four-wall deal.

We couldn't lose any money.

And we made ourselves $1 million or $2 million a year on the showroom, and then we got the benefit of the people coming through the place.

So that when you take that away, it isn't a cataclysmic event by any means -- it is a personal loss, but it is not something that hit our P&L very hard.

It's better to have Danny, of course, for a whole bunch of rather nonmaterial reasons than to not have him.

But what we do with that showroom is very interesting.

I should tell you that we own the life rights to the Bee Gees.

And we're working on a show about that.

Garth Brooks was here as a friend.

He didn't charge.

That was just a buddy singing.

As a matter of fact, Garth is going to be here tonight to watch Beyonce with his wife, with Trisha Yearwood, and his three daughters -- going to sit with me.

And I think that Garth Brooks is a stay-at-home dad, and take his kids to school every morning -- he really does actually take his children to school every single morning -- an extraordinary fellow, really extraordinary.

And so we are looking to use the showroom intelligently.

It's the perfect space.

It has perfect acoustics.

And there are a number of people we are talking to.

We haven't made the deal, so we keep our cards close to our vest until we talk about deals we have made as opposed to the deals we haven't made.

Andy, I don't know, do you have anything to say about Danny?

No.

I think that is pretty much the story about (multiple speakers)

Entertainment isn't what it used to be, Bill.

Entertainment is not the moving factor in this city anymore.

As important as it was with Siegfried and Roy and [O] and [Astaire] -- as lovely as it is to make $2 million a month with -- $25 million with Le Reve, I must tell you that the movers, the things that are moving this town now are food and beverage, hotel accommodations, service.

The public is getting very sophisticated.

And rather than watch a show, they want to be part of it.

Maybe that will help explain the $700 million in nightclub revenue that has appeared in this city -- maybe $800 million, since the millennium -- an entirely new phenomenon in every city in America, including Las Vegas -- and I might add, every city in Europe -- the idea that kids go out at night, adults and kids alike.

And they want to dance and whoop it up in a nightclub where they are part of the action, as opposed to sitting in a chair watching someone else whoop it up.

So we have had a sea change here.

The late shows in Las Vegas have been impacted by the nightclub scene.

And Las Vegas at the moment is the center of the nightclub universe.

Conde Nast Travel magazine said the hottest nightclub on earth is XS at Wynn.

I was delighted that they said it.

But Tryst in four nights last year -- in four nights -- did $41 million, open from 10 till 4 in the morning with a 70% profit margin.

(multiple speakers)

That's a week.

Four nights a week.

Four days a week, excuse me.

Thursday, Friday, Saturday and Sunday -- $41 million.

What an incredible thing that is.

I think we made $28 million before we paid Victor Drai.

My God, that is as good as Siegfried and Roy were, working six nights a week.

I mean, it's amazing.

But, look, things change.

And we have to be agile.

That is why I worry about my workforce being agile.

So that's what's going on, Bill.

Things are changing.

That's great.

Thanks, Steve.

I just had one follow-up, then -- a quick one on Macau.

Just trying to gauge whether there has been an opportunity cost of not having the new Encore until the spring.

In other words, have you been capacity constrained at VIP at all at any facet of Wynn Macau, would you say?

What you think, Ian?

I mean, I understand the credit dynamics there, so that's fluid.

My own instinct would say no.

I think as business ramps up towards the end of the year, we are opening at the perfect time.

So I think right now, we could do with more rooms on the weekend, for sure, and more gaming space.

But next year, will be a telling year.

And business will be back to a more normalized level.

So we are opening at the right time.

Robin Farley, UBS.

I wonder if you could give us a little more color on what drove margins in Macau outside of the cost savings.

I know you talked a little bit about cost savings.

But was there an increased level of direct VIP business?

Can you give a little color on that?

The revenue mix was fairly consistent with the last quarter.

Ian pointed out $166,000 a day -- that's $15 million just for the quarter.

So I think if you try to compare the first quarter versus the second quarter, that is really the margin difference.

It was all the (multiple speakers) [things that] the operational people implemented.

I'm sorry -- are you saying that the mix of direct VIP was the same in Q1 and Q2 (multiple speakers)?

It hasn't really changed that much, the mix of direct versus junket business.

We have reached the allotted time to take questions.

I hand to call back to you for closing remarks.

I hope we have been responsive.

If we haven't, everybody knows our phone number.

If it's based upon what we published today, it is always nice to talk to you all.

Have a nice week.

And if you're in the neighborhood, give us a call.

If you are an investor, we will get you in to see Beyonce.

This concludes today's conference call.

You may now disconnect.