永利渡假村 (WYNN) 2010 Q2 法說會逐字稿

Good afternoon, and welcome to the Wynn Resorts second-quarter 2010 earnings call.

Joining the call on behalf of the Company today are Steve Wynn, Marc Schorr, Linda Chen, John Strzemp, Matt Maddox, Andrew Pascal, Scott Peterson, and on the phone, Ian Coughlan and Robert [Gazno].

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

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

Maddox.

Please go ahead, sir.

Thank you, and good afternoon, everyone.

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

With that I am going to turn it over to Steve Wynn for opening comments.

Not much to say that isn't explained on our press release, except this -- business is slightly better in Las Vegas.

We're noticing a little improvement because we have been working on our hotel mix.

And we opened up the Beach Club on May 30, which was right at the -- in the last section of the quarter.

But that has helped and been profitable and is ahead of plan.

And it also has a related nightclub called Surrender.

It had a minimal impact on our other clubs, so that segment of our business is quite incredible in Las Vegas, and that is in sharp contrast to the softness in the market.

The nightclub and younger person recreational market, represented by Tryst, Blush, XS, Surrender and the Beach Club, that is a business that could do over $150 million for us with a profit margin in the mid-40s, so we are really happy about that.

We opened up Encore on April 22 -- or 21st, so we had the benefit of it for all but 40 days.

Its impact on our operations Macau was, interestingly enough, accretive.

There is a number that I've mentioned on these conference calls in the past that I consider to be the critical number in understanding the gaming industry in any given jurisdiction.

That number we refer to as fair share.

And you know, you measure the percentage of equipment you have in a market like The Strip or Macau, and then you measure the percentage of revenue.

If you have the same percentage of revenue as you do of equipment, then you have your fair share, and that is a one-to-one.

To the extent that number is less than one, then you are a dormitory for your neighbors and a net donor to the neighbor.

And if it is more than one to one, then you are a net receiver, and you've made a dormitory out of your neighbors.

Prior to the opening of our Encore facility, we had 8.5% of the equipment and 10.5% -- and 13% of roughly of the revenue.

After, we didn't add much equipment; we went to 10% of the equipment, but we went to 17% of the revenue, or 16% or 17%.

Our ratio before Encore was 1.6, and I think that was by far the best in the market, with our 500 tables now.

Interestingly enough, we would have been very happy if we dropped down to 1.5.

In fact, we went to 1.62.

So not only did we add more equipment, but it increased our fair share ratio slightly, and that meant that we -- that our tables and our facility were well-received.

And that is of course gratifying for us.

Biggest year in the history of this Company or any other company in my 42 years.

So we are very happy.

We had a Board (technical difficulty) ago in this Company, and after months of work, I was very proud to show the Board of Directors the Cotai Project, which is now assembled.

We now know (technical difficulty) will look like, what its components will be, where its romance and excitement will come from, and how it will attempt -- and I think very successfully attempt -- to gain the upper hand competitively in a very competitive market, which is Cotai and Macau.

So all of that, we are underway now.

We are finishing the back of the house.

And we will be starting the drawings for the foundation now almost in a matter of weeks.

So we are a little ahead of schedule in where we thought we would be in Cotai.

The design development period went much faster than it has gone, in my career, in the past, when we did all those other hotels, like Golden Nugget, Golden Nugget of Atlantic City, Beau Rivage, Treasure Island, Mirage, Bellagio, Wynn Encore in Las Vegas, Wynn in Macau and Encore in Macau.

This was the best job, and it went the quickest.

And you can count up all those properties.

But maybe the combined experience that our design -- all of our design team has been together all that time.

And this time, interestingly enough, we used a different approach.

We included in the design process the key operating executives in the casino and other departments, not just consulting them, but having them at the table, making the very meticulous A-B decisions.

You know, designing one of these hotels, these massive places, is a whole myriad, endless chain of A-B, yes-no decisions.

And without them, it wouldn't be possible to get where we got as quickly as we did.

And it was a very satisfying process.

So we are excited about our new project, and we are all deeply involved with the next stage of getting it ready for groundbreaking.

Those are my observations in general about what has happened in the last 90 days.

We hope for continued improvement in Las Vegas -- or let me put it differently -- we hope that we'll get smarter in Las Vegas in dealing with the peculiarities of this market and this very, very mercurial national economic -- economy that we are living with.

It is -- the national economy and the political environment in the country as we head up to the elections is very, very touchy, and it is impacting all businesses.

Today, we got a report at various of our Board committees' meetings about the impact of the bill -- the financial reform bill that the President signed, with its hundreds of new committees and regulations to be formed, bodies and government bureaucrats to be created, who will then tell us what we should be doing or what standards we have to live up to, both at the SEC and in other bureaus that have been created by this financial reform act that the President was so enthused about.

There isn't one single person in the United States of America that has a clue of where the financial reform act will lead and what it really means, in spite of the fact that there are undoubtedly some interference with business, very much like the health care bill.

So we are living through this along with the rest of America, and you can decide whether you want to be pessimistic or optimistic.

You can decide whether the glass is half full or half empty.

I'm at the point where I hope we just don't tip the glass over.

So let's take questions.

Shaun Kelley, Bank of America Merrill Lynch.

Hi.

Good afternoon, everyone.

I guess, Steve, my first question is really it is such a notable inflection, your comment about Las Vegas.

So maybe you could give us a little bit more color on specifically what you are seeing and are you seeing the ability to maybe actually begin to raise room rates at all in the market?

Andrew Pascal is here, and that is exactly what he is doing.

Do you want to talk about it, Andy?

Sure.

So I think we've been looking at every segment of the market, and we are finding some modest improvement, and we are able to actually start to improve our rates.

We become less dependent on the leisure business and the promotional segment.

That is the segment where we are aggressively out there marketing and stimulating demand.

And we are trading that business for a little stronger kind of convention and group business, which last year averaged somewhere around 12.5% of our mix, and is trending closer to 17%, 18% now.

So I don't know that this one data point is something that we can rely upon yet as a trend, but we are a little bit encouraged, and we hope that we will continue to see some modest improvement through the balance of the year.

Linda Chen is here from Macau.

As I say, she's been working on the design of her new hotel.

And Linda can talk to you about Asian business that we've experienced in Las Vegas and what she thinks that's all about.

I think Asian business has decreased, but probably sustained the best among all segments of business.

(Inaudible) in Asia, in China and the cross marketing that we experienced as the new customers we also be able to meet because of the Macau, so we get the benefit of that in Las Vegas.

We are getting referral business.

Yes, and also the brand building.

It is not just referral.

It is -- we are getting our name out in not just Macau.

You know, all of China, all of Asia.

And people want to come and see the Las Vegas property when they have a long enough break.

Well, those are the nightclubs, better room rate, sustaining interest in our casino by the Asians has helped us.

We began -- this is more third quarter than second -- but we began the remodel of the 2700 rooms at this Wynn Las Vegas because they are five years now since it opened.

And, thank goodness, the rooms were fully utilized with high 90s occupancy.

And it is time to remodel them, and consistent with our personality, we've upgraded them.

And I think between the regular rooms, the suites and the villas, we are going to spend $99 million between now and January and February -- Andy?

April.

April.

We will be done by April.

And the way we do that is we take out several floors at a time, and then each week, we release one floor back into service completed, and we take another floor into service.

And this slug of rooms that are under refurbishment moves up the building -- or down.

You start at the bottom, Andy?

Start at the top and move down.

Start at the top and move down, yes.

We are also remodeling the baccarat game starting in October.

It will be ready for Christmas and New Year's.

And we are making our baccarat pit much sexier.

And those sort of --

(inaudible)

And we've also -- creating a new restaurant experience at a place called the Lakeside Cafe, which is on the Lake of Dreams, that heretofore has been known as Daniel Boulud, but we have decided on a concept that we think is very cool, and that restaurant will open up by October.

And those are the capital expenditures that are underway.

And the Wynn is going to be all spruced up, from the golf course all the way to The Strip, by the spring.

And it was -- one of the things that is happening here, as the market softened and many of these companies with very bad capital structures neglected their properties rather severely and the properties are all (technical difficulty), they're showing the lack of capital expenditures, and the public, of course, takes note of this immediately.

There is no secrets.

The minute the place is not clean or it is getting threadbare, it has very bad effect on your clientele.

You go in the opposite direction, take advantage of our capital structure, and make sure that we are pretty and all fluffed up all the time.

Maybe just one more, if I could.

Obviously, Cotai is a huge, important project for the Company.

Any sense on just when you might be willing to -- or ready to share that design and development with the investment community?

Good question, and I didn't expect to be able to say this, but I'm hoping that we will have a lot more to talk about at either the next quarterly meeting or the one after.

I would say in the one after we are going to have some pretty -- we're going to have numbers and maybe give out pictures or something.

But we know what it is going to be now, and how it works.

We have some technical issues to resolve about back of the house and cab queuing and energy plants and stuff like that that make the building work.

But it turned out to be great, and it left us, after we are all done with our best shot, with a second site that we didn't think we were going to have on the property.

That's my answer.

Great.

Thank you.

Joe Greff, JPMorgan.

Two questions.

One is on Las Vegas, and it's great hearing you're raising room rates here.

Are you seeing any improvement in spend per occupied room outside of room rates?

I'm going to let Andrew answer that, but I want to point out that at the time when we decide to raise room rates, and it's happening successfully, within three weeks after making that decision, we also reduced the salable inventory associated with this remodel, which gave us a perfect opportunity to do it.

Because under normal circumstances, we are going to take 15% or 16% of the inventory out until we are done.

So that gave us some more leverage why we could lean on the rate.

Andy, you can talk about the spend per room.

The short answer is no, no material change.

I think we are going to see just the benefit of a better mix.

So we are displacing promotionally oriented or leisure and more kind of value-conscious customers with people that hopefully spend a little bit more.

So we are not seeing by segment an increase in spend per room night, but we are going to see some improvement just because of the shift in mix.

With one caveat, Andy.

I would have to say that we have a little trouble attributing all this extra money that falls in around here from the nightclubs with our rooms.

And I think Andrew is hesitant about putting -- giving that a big break when it comes to revenue per occupied room night.

But I think there probably is some relationship there.

Andrew, it sounds like from your comments that we should be taking out 400 rooms per period between now and April.

That's correct.

The standard rooms will be done in January; then the suites are going to take a little bit longer and they'll extend into April.

We didn't start the suites (multiple speakers).

Come mid-January, you're right, you lose about 400 rooms through January, and then we'll start to phase back from there.

But that is a safe number.

And then on Cotai, Steve or Ian, maybe you can enlighten us, what exactly is the process, especially with respect to government approvals and maybe a timeline there?

And then Steve, your comment earlier about a second site on the property -- so we should be thinking about Cotai as having a Phase I and then a Phase II component?

Well, the government -- the process with the government is under way and long-standing, and communication is complete and perfect between us.

And it's just the grinding of the procedure and it won't interfere with our timing.

We've got several months to go before we can break ground on the foundation, and I am anticipating support from the government, as we have in the past.

As I said on a previous call, and I did say also when we opened Encore -- because this question is asked of me repeatedly -- freezes on games, freezes on casinos, how does that impact you?

And I said the way it works in Macau and the People's Republic of China, the government decides what is best for the country, and they use people and experts and companies of various description to get what they want.

When they develop a program and a plan, they give complete support and they give direction to the people that they use to execute the program.

My company, although it is mostly Chinese and has Chinese ownership -- our company is such a company.

We are agents of change to make Macau a more suitable place in governmental terms.

If we were not to do this project, we would be discouraged at the very outset, and you would know not to proceed.

If you are encouraged to proceed, you are always given the support that you're needed to be successful.

And we are being given that support.

Thank you.

Was there any other part of your question?

Just (multiple speakers).

The other site (multiple speakers).

When we finished design development, we found out that we had on the corner of our property streets on both sides, 12 acres left over -- that we can use --

Is it still a 52-acre site, or is it a 64-acre site?

It's is a 52 -- I don't know.

Is it 52 or 54?

51.5.

Yes, so there is 12 left over.

Got you.

Thank you, Ian.

And it is very, very -- it's critically situated.

It is right across the street from MGM -- MGM's site.

So it gives us a chance to expand and add other things that will make Macau more attractive.

And we'll explore those now that we are finished with our primary design.

Thanks, guys.

Mark Strawn, Morgan Stanley.

Two really quick questions, one on Vegas and one on Macau.

First on Vegas, talking about the room mix, I was wondering if you could share any details on what the cash occupancy looks like in Vegas.

Basically your paid occupancy less any comped rooms to the casino and how that has been trending.

And in Vegas -- sorry -- in Macau, I'm wondering if you could just share any color on what July trends have looked like.

Andrew?

So we don't break out kind of the composition of cash versus comp-based business.

I'll just generally tell you that our cash-based business is up year-over-year.

And as far as the trends we are seeing in July, we see some further strengthening.

So again, it is a modest improvement, but I think we've already spoken to it.

The same thing is true in China.

Thank you.

Steven Kent, Goldman Sachs.

Just a couple things.

First, maybe Andrew, if you could talk just a little bit of how you are looking into the end of this year and into 2011 on holding off on bookings or holding back some volume, given some of the price increases you're thinking.

And sort of how you are handling filling rooms with maybe holding off a little bit and getting better pricing.

And then Steve, just on Cotai, could you just tell us a little bit more about who the target audience would be?

Would it be more towards mass market, more towards a more affluent market?

And then finally, just round numbers on the cost on Cotai.

I'm not prepared to give cost numbers yet, until I budget it and until the Board of Directors hears about it and thinks it's okay.

I don't want to get ahead of my -- the people that run the Board.

As far as what the place is in terms of its market position, I was in China for half of June.

And having been -- having worked on the hotel for quite some time, I thought it was time for me to check myself.

And I got everybody that had anything to do with customers and the business in a big conference room and went around the room one person at a time, and asked the very same question that you asked.

Who are we, and what are we doing in Cotai?

Where are we going, how are we going to present ourselves, where do we fit in?

What should the public expect?

Because consistency is very important in business, just as it is in life.

So -- and I was really excited and very gratified that there were very diverse personalities in the group, and they were relaxed and comfortable enough to express themselves.

And what was really fascinating was that to the man and woman that were in the room -- they're men and women -- every one of them in their own way said the same thing.

Dance with the girl that you brought to the party, or dance with the guy that brought you, whatever that old anecdote is.

We know who we are.

We know what we do best.

Stick to what we do best.

Take advantage of Cotai and it do it better than any (technical difficulty).

And that had been what Mr.

DeRuyter Butler and I have been doing in our design development exercise to date.

And when I went to the people that I work with there, that really run the place, that was their advice as well.

So that did it, and that ended the conversation.

We are going beyond what we've been before in appealing to people of good taste and judgment, and we're going to just build the most amazing hotel that anybody has ever seen.

And it will accommodate a lot of people; it will have between 1500 and 1600 rooms.

Each of the rooms caters to a different segment.

But in each case, the rooms are bigger and more beautiful than any we've ever built.

And that is saying a lot, if you see Encore in Macau or Encore and Wynn.

But we've gone a notch up in every respect.

And we also were able to take complete and total advantage of our experience.

Even when we built Encore in Macau, I made the point that that tower was built as a result of our experience in Macau, and therefore was a really pointed right where it should be pointed.

And the results since it opened prove that.

But we still had to live with our urban environment and the land that we had downtown on the Avenue 24 June.

And this time, we had a blank sheet of paper.

We could do it from scratch, armed with the experience and the knowledge gained from that experience.

And, oh boy, was it fun.

And the choices we were able to make and the kinds of things we could offer our customers are truly scrumptious.

So we are very excited.

But that is who we are going to be.

We are going to be Wynn Resorts Cotai, Wynn Cotai.

We are not going to look like Sheraton or a Hilton or a different company.

We are going to look like us.

You know what to expect when I say that.

Want me to take the question on do we hold back inventory.

I think just first I want to make sure that my tone has been interpreted.

I've spoken to some modest improvement in the convention segment, but again, I don't want that to be misinterpreted as our being overly optimistic.

So to answer your question directly, we don't hold back inventory.

We look at the pace of demand by segment and then that we price our hotel in order to capitalize on what we think is the opportunity.

If the demand is not there, then we tend to reduce the price and try and stimulate some demand.

And if it is, well then, we are able to yield it up.

But as far as generally holding back inventory, that is not our practice.

And is it still -- are you booking essentially in the quarter for the quarter -- or in the third quarter for the third or fourth quarter?

Is it still pretty short-term?

No, we are booking through, looking out, anywhere from six to eight quarters.

And there is a long tail on that, but we've had good, healthy bookings in the year for the year.

Not what we would have liked to have seen coming into the year, but in the convention segment particularly, we are seeing some strengthening going into next year.

Okay, great.

Thank you very much.

Bill Lerner, Union Gaming Group.

Question for Steven and Andy, just a follow up -- or a quick second follow-up.

The first one is, Steve, you of course talked about the beginning of the [rumored] model in Vegas.

What about the new rooms or the design of the new rooms in Vegas do you think will encourage folks to pay more per night?

Good question, simple answer.

YES.

Yes, meaning --?

They will like it more.

They will pay more.

And that's a -- there's nothing structurally changing about the rooms?

It is just --

No, it is reragging, reaccessorizing.

Thank you.

And then the follow-up, Andy, what is going on during -- or after, I suppose, the Beach Club dayparts?

I know it's not the same demo that necessarily you are used to outside of the Victor's Places.

But what is going on in other elements of your property in food and beverage and retail and so forth?

Is there anything -- is there any lift there as a result?

I know in a vacuum, those places are doing extremely well anyway, but --.

You know, I want to correct you.

When you say Victor's Place, you are talking about our colleague, Victor Drai.

Yes.

Please remember that unlike our neighbors on both sides of the street, we don't lease anything.

XS belongs to Wynn Las Vegas.

Those are in-house clubs.

We make arrangements for incentive compensation for management, but those clubs are owned by us, and the revenue belongs to us, and the bottom line belongs to us.

And then we take a valued colleague like Victor Drai and give a percentage of the profits.

But those are our clubs.

Those are our employees.

That's our inventory.

Those are our internal accounting people and our cashiers.

So I want to make that very clear.

There are no leased clubs in this Company.

I know that intimately.

Okay, I didn't want anyone to think we rented out anything.

The state of Nevada has had a fuzzy position about accountability, and I just want to keep us on the right side of that line.

As far as kind of the ancillary benefit, we are seeing some lift in food and beverage, and we're going to try and capitalize on that further.

That is in part why we are reinventing and creating the Lakeside Grill.

We are also doing another outlet, [Le Cave], in partnership with Michael Morton, which is going to be a great new addition, and I think it is going to appeal to -- both those outlets are going to appeal to that market that we are now attracting.

I forgot to mention that.

Yes.

So again, we are seeing good, solid lift in the food and beverage outlets over at Encore, and I think with the --

There are two new ones now.

I forgot Le Cave and the Lakeside Grill.

I left one out.

When does Le Cave open, Andrew?

Early November.

Okay.

Great.

And then a follow-up -- or the last one here, maybe this is for Andy.

What are you seeing -- or are you seeing anything reflective of euro weakness?

By that, I mean the currency now.

I know, of course, those trips -- Europeans book trips further out than folks from regional places around the US of course.

And I would think that strengthening the euro over time takes some time to play out.

What are you seeing, if anything, Andy?

We're not seeing anything.

It is not materially affecting our business in any way.

There was a period when the euro was really up there at around $1.58.

There were some guys from Europe that were coming over here and thought they were playing with pesos.

They were playing with dollars.

And I can't say that we didn't get a little lift from that.

Some of the Europeans really like the cheap dollar when it came to gambling, because, you know, they were paying off at -- they thought $0.67 on the dollar.

Now that that worm has turned, I don't know that it will hurt us or anything.

But we've got a lot of customers from the United Kingdom, so we get the pound sterling as an item now and then.

Got it.

All right.

Thanks, guys.

Chris Woronka, Deutsche Bank.

Could we maybe get a little bit of color just on the directional ramp-up of Encore Macau throughout the quarter, kind of both on the revenue and the expense side?

And if you ended the quarter at any kind of imbalance in terms of revenues not being where you think they can get to, but expenses being a little bit elevated, just with preopening and things like that?

Thanks.

Anybody have anything to say about that?

We carry most of the expenses going into the quarter, so our expenses weren't affected at all, and we are meeting all our projections.

We had everybody on payroll in the first quarter.

So it was just a nice, fat pickup going on forward.

And if you look at the win per table in Encore, it actually outpaced Wynn Macau.

So there wasn't the dilution in the revenue, because Encore (technical difficulty) quite nicely.

And we're getting longer play --.

Yes, we did a thing on the corner there by (technical difficulty), and we call it the Diamond Club, but it's really like Las Vegas, a high-end pit.

It's not non-redeemable chips.

It's not a junket room.

It is two dozen games and 100 slot machines, I guess.

And we put a little (inaudible) kitchen in there and a little high-limit slot alcove in there.

It was sort of a mini boutique casino.

Well, we opened the damned thing one evening at 6.30, and within two weeks, the players made us raise the limits.

And you remember, I talked about our fair share going up.

It all came from that room.

They really loved it.

And it is like a Las Vegas high-end pit.

And I think we are dealing with 500 to 1000 Hong Kong (multiple speakers) minimums (multiple speakers).

Yes, minimum of 500.

The average bet is what, 2500?

So we've got an average bet that is $600, $700, but we've got a minimum bet of over $50.

That's a pretty good table limits, even -- anywhere, for a non-junket room.

And the rate of play has gone from 61 minutes per play up to 88.

Yes, Marc Schorr is always into this, but our length of play went from 61 minutes to 88 minutes in that casino.

Little things like that sound sort of petite, but when you can go from 61 to 88 minutes on length of play, all kinds of good things happen; the [whole] percentage gets more powerful.

A lot of things happen.

People stand at the table longer, that means they are more apt to be eating in your restaurants or shopping in your stores.

That means that something has happened to make them like the place.

Either it's an interaction with -- it's the environment, the lighting, the colors, the mood, the music, the interaction with some wonderful employee.

This is the nitty-gritty of the gambling business.

Something happens.

And one of the places where it is reflected, if you've got your act together, is in the length of play.

People don't stay at the table if they're not happy.

And once they are happy in a place, then there is a tremendous amount of ancillary falloff from it.

So that is what Encore gave us, and it is all a result of having learned lessons of profiting from your experience.

One thing that I would follow is the fair share that Steve talked about of 1.6 times, but if you look at our EBITDA share or our net income share, so how profitable is the business coming into the building, Wynn Macau generates 25% of the EBITDA in the market and 40% of the net income.

So each one of our tables (technical difficulty).

So we are not buying the business.

It's quite profitable business that's coming in.

Okay, great color.

Thanks.

David Katz, Jefferies & Company.

While I have pretty much the whole team there, as we progress through the rest of this year in Macau, I am getting a sense for what the dynamics are in that market and how the carrythrough will be from the strong growth we've seen so far this year and started last year.

Whatever thoughts you can share with us about what you may be looking at or what trends you may be looking at to get a sense for how the rest of this year is going to roll (technical difficulty) a top line perspective would be really helpful.

And then I have one other quick question.

Would you like us to write a report for you?

Okay, Andy, I'll let you do that.

I'm tired from the Board meeting.

You know, the one thing we don't have in Macau are forward-looking trends like we do here in Las Vegas.

So to sit here and predict how future gaming revenues are going to be six months from now is actually quite difficult.

I think it is very tied to the macro situation in Asia.

All of the things that I track appear to be holding up quite well.

It looks like a lot of the macro issues have come in for a soft landing, people were worried about.

So for what it's worth, to me, it appears to be very stable.

I don't know, Linda, if you have any comments.

However you look at quarter-to-quarter, we are comparing to a strong quarter last year.

Oh, the comps get tougher in the back half of the year, so the question is sequentially things continue -- they appear to be stable.

Matt, a minute ago, you made a statement about our share of the revenue and our profit building.

Repeat it, will you?

So we generate about 15% to 16% of the revenue in the Macau market on 8% of the product, 8% to 9%.

But more importantly, we generate 25% of the EBITDA and 40% of the net income.

So the one thing you will find about Wynn is from our EBITDA to our free cash flow, we capture between 50% and 75% of the EBITDA for our shareholders going to the (multiple speakers).

Now, there was -- one of our neighbors who has got great ambition and is doing a big job, the Sands, they released earnings yesterday and they had a $300 million number for three or four places in Macau, three places.

And we had to $215 million or $216 million.

EBITDA has as much meaning as snow on top of Mount Everest.

It is a worthless number, because you've got to pay interest, you've got to pay taxes, and depreciation is as real as the payroll.

I just got through telling you what it cost to change the rooms and keep them fresh.

So you ask yourself, what really is going on.

So you subtract the cost of ferry boats, subtract the interest payment on the first quarter of both companies, subtract whatever the depreciation is that both companies use, and -- just make it equal, whether it is on a 40-year schedule or a 10-year schedule; it makes no difference to me.

And you will get to the fact that the money left over afterwards is greater with a smaller company in terms of Macau.

Bigger ain't better.

Better is better.

Because when you borrow all that money, you've got to pay it back.

And when you build all those facilities, you got to depreciate them and take care of them.

So you better damn well make sure they carry their weight.

Now, I am a big fan of the development in Cotai and the things that my competitors have done, and they are making the future bright for Macau, and I'm proud to be part of it and proud to be their neighbor.

But when you are analyzing what is going on, don't get confused.

So we are a younger company than the Sands and MGM.

And we are a little bit more steady or a little slower, and it's the old hare and the turtle story.

We're a little bit more like a turtle than a hare.

But at the end of the day, we are going to build Macau and it's going to be -- the Cotai project -- and it's going to be a big increment to the wealth of our company.

And we'll go somewhere else at that same time.

And when you take the four or eight-year difference in age between us and the Sands or the 20-year difference between us -- and 16-year difference between us and MGM, we'll catch all those guys.

We'll catch all those guys.

But we will do it in a very steady, processional way, and each of our properties will have the kind of characteristics we are describing now.

And we wouldn't do as well if it weren't for them.

Don't misunderstand; I am not deprecating them.

But I am pointing out that we are a different kind of company, and we are going to stay that way.

And maybe we don't move quite as fast as the other guys, but we don't borrow money quite as flagrantly.

We don't take on projects that we can't really control down to really fine point.

And maybe that disadvantages us competitively on occasion.

And I'm willing to accept that myself in exchange for having security for my employees, predictability for my investors.

I am willing to make that exchange.

I'm willing to take longer to get where I want to go.

And where I want to go is where we dominate the gaming industry in terms of quality and performance.

Thank you for that.

And if I may say, you set up my follow-up question quite well, which is when we look at your balance sheet, which obviously (technical difficulty) very favorably, beyond the Cotai project which lies ahead, what other financial strategies -- and maybe this is something more for Matt -- can you talk about where would you like your ultimate aggregate leverage to wind up?

Where are you most comfortable?

And what other uses for your capital do you have?

I'm not sure that that is a strategy that is appropriate today.

You know, we are in a competitive environment.

You know the shape we are in.

We can go wherever we want and do whatever we want.

That is clear enough.

And I think we'll leave it at that for the moment.

It is -- I think it is enough information.

I'm sorry, I don't mean to make it tough on you, but I'm going to stop right there and take another question.

Thank you very much.

Dennis Forst, KeyBanc.

Andrew, I wanted to ask about the cost of the room remodel.

I must have missed it when Steve gave it.

How much is that going to run?

99.

99?

It is a 45 for the typical rooms, 46 for the suites, and for the villas, another 10.

Great.

That adds up.

And then secondly, Steve --.

And then add a little something for baccarat, and that is all we are doing.

Okay, terrific.

Thank you.

And then Steve, given your perspective on Macau, which is probably clearer than anybody's, and the Cotai strip, when you build on the Cotai strip, you're going to have a great location.

Who else new is going to be there?

Clearly, Sheldon is going to open sites five and six.

I hope so.

We are counting on that.

Do you do there is a possibility they won't open them?

No, no, I'm just saying -- it depends on timing (multiple speakers).

Do you think anybody else will open out there before you do?

No, the city -- Studio City is a hodgepodge of lawsuits and confusion, and was since its inception.

So maybe the biggest break they get is if they don't start in that case.

Stanley Ho has property, and MGM and Pansy Ho have property there (technical difficulty) Pansy Ho combination is right across the street from us, adjacent to, in particular, the Hyatt corner of City of Dreams that faces us.

And then Stanley has property out there, doesn't he Linda?

Yes, the Galaxy (multiple speakers).

Galaxy is opening in March, but they will be right away, and then that will be it at Galaxy -- won't it?

I mean, they've used their property.

So I think it is Stanley Ho (technical difficulty) -- does Pansy and MGM have a name?

Do they operate under a name?

MGM.

MGM.

They use that name?

Okay, so MGM -- it is MGM and SJM companies.

And again, whatever Studio City is, it's hard to tell.

Okay, so but they are likely to be behind you in opening?

Absolutely.

And will there be competition for --

Excuse me.

They will be behind us, but this is important.

If they get their act together and they start while we're building, they still won't know what is inside our building.

So they are going to have to build it without the advantage of an education on Wynn Cotai.

Right, and that would probably -- between the properties that are already under construction and ours, that probably doubles -- maybe more than doubles the capacity on the Cotai strip.

You're going to probably lead the market, like you do on the peninsula.

Do you worry that there will be enough business for everybody there, or that they are (multiple speakers)?

We studied that.

We're going to have 500 tables.

We are not going to be any bigger than we are on the peninsula in terms of gaming.

We are smaller, not bigger, in terms of the other places.

I mean, I don't know how many take as they have at Venetian.

It's enormous -- and slot machines.

Three times us.

I mean, the overlay on equipment is staggering.

We -- again, bigger isn't better.

Better is better.

But we won't have that kind of casino size.

We know what size our casino has to be to get all the money.

And we are going to -- I'm telling you what it is.

It is 500 tables and 1300 slot machines, more or less, give or take a handful.

That is where we will be.

That includes all the private rooms and the junket rooms and everything.

So I don't know what SJM would do or MGM.

I think MGM is learning a lesson.

To build an unlimited amount of general casino tables is a misguided notion.

It doesn't add up at the moment.

Even though the margin is better in the general casino, there is a limit to how many tables you can spread.

As far as the growth of the market, even slowing that growth down to half as much as it what it is now, we believe that the market will be ready for the capacity that Cotai represents.

Sheldon Adelson and his colleagues have made that point, and I think they are quite correct.

Okay, great.

If I could ask one quick question of Andrew.

I've noticed the hold percentage on slots in Vegas going up pretty dramatically.

Is that intentional?

Are you changing the mix of the machines?

When did you notice that?

About the fourth quarter of 2009.

I mean, some of it is, yes, we're --

Paying attention.

We are changing the mix on our floor, and we've increased the complement of participation product, which, as you know, carries a higher hold percentage.

And some of it is also the composition of play shifting down denomination, which also carries a higher hold percentage.

Okay.

Terrific.

Thanks a lot.

You've been paying attention.

Thanks, Steve.

Robin Farley, UBS.

I've got a question on Vegas and one on Macau.

In Vegas I wonder if you could give us a little color on -- you know, your table drop was down slightly, after being up nicely in Q1.

And we've seen a little bit of others in the market (inaudible) talking about table drop being up as well.

So if you can reconcile sort of what's going on with your table drop.

And you mentioned that expenses were up because of higher customer acquisition costs.

And just were those customer acquisition costs things that would have borne fruit in Q2, or are they for future quarters?

Robin, the reason the table drop is off is because there are so many more tables around here, even though they are not doing a very good job for their owners.

And secondly, the reason our customer acquisition cost is up is namely our competitors get desperate.

There's two things happen.

They stop taking care of the building and they increase their promotional allowances -- to no avail, I might add.

It is a one-way street to oblivion, but that is the natural knee-jerk reaction when they get desperate.

They don't take care of their building, and they grasp for customers.

And then it has an effect in the marketplace and it takes everybody down.

The person who starts this kind of stuff doesn't do themselves a bit of good.

It takes a while before they wake up to it, and then they get new executives or something.

It has been the oldest story in the history of Las Vegas.

We go through this cycle all the time with inexperienced help, and unsophisticated management.

They spend too much, they overcomp, they do all this stuff this -- this is as old as Methuselah around here.

Maybe I'm getting old.

I've been doing this for 42 years, but I've seen this about 11 times.

And then there is a new group of young, inexperienced managers -- again.

They fire the other guys and the people, okay, well, we can't do this anymore, stop -- we can't comp people that don't play that much.

We can't afford this.

There is no margin in this business.

They've got blackjack at some of these hotels down to where the game isn't worth the space it takes up on the floor.

But what the hell -- they got the tables, they got the dealers, they want to protect the jobs, they go and give the joint away.

If the rooms are empty, they figure they got nothing to lose, even if they are new rooms.

It sounds like that's continuing into the second half here, that situation.

Pardon me, ma'am.

In other words, the competitive situation that you saw in Q2, it sounds like it is continuing here into the second half of the year, in terms of customer acquisition costs and table drop being down.

Andrew?

Yes.

Yes.

Yes, Robin.

Absolutely.

In a word, yes.

I think that's (multiple speakers).

But you know, we've got these nightclubs, and there, we are able to get an advantage, because it is the management of atmosphere.

So their knowledge and experience really matter.

A blackjack game is a blackjack game, unfortunately.

A slot machine as a slot machine.

They are all a commodity.

When we get into the areas where there is a difference that matters, like the way we treat people, how beautiful the places are, the management of environment, then the competition can't run with us and we are safer.

And that is where Linda's customers come in.

They are brand oriented.

They are very conscious of the little things, the quality of their experience, how clean the place is and how they are cared for.

Nightclubs, believe it or not, in a strange way, it is a similar kind of thing.

So those are the two segments where we hold our own.

Okay, great.

Then a question on Cotai.

I was interested in your comment about the second site, the 12 acres you have left over after the design.

Is that something that you would design and develop sort of concurrently, or is that something you are saying kind of several years from now you would do design work for?

Since we just finished this phase, there is the piece staring us in the face, and we are delighted with it.

We haven't gone any further in our thinking.

Would it be -- just to understand what you are saying -- call it a site, would it be an expansion or would it just be -- just kind of a feature and amenity on the existing property (multiple speakers)?

I don't know.

I don't know, Robin.

I am saying we just finished the design, and it turns out that it was on 40 acres, 39 acres, not 52.

So we had this lovely site left that we can use to augment the whole Cotai profile with something that will make Macau a better place.

And make money for us, too.

So we have to think about that.

The site didn't get created until we get finished putting in the hotel that we are going to build.

So I can't answer your question because it is too soon.

Okay.

Great.

Thank you.

[Robert Shore], Hudson Securities.

It's actually Bob LaFleur.

Just one quick question.

I noticed that your slot performance was very strong in Macau, up 21%, and Las Vegas Sands also had very strong slot performance in Macau.

It is not something we talk about much.

It's a small part of the business.

But I was wondering if this tells us anything about the evolution of(technical difficulty).

Is JD around?

No, he is gone.

Ian is on the phone.

Ian -- yes, Ian you are there.

Yes.

What do you say about (technical difficulty) picking up?

The Sands had strong slots, we had strong slot performance.

What do you think about that?

There is definitely big growth in the slot market, and I think all operators have been very pleasantly surprised over the last 36 months at how slots have taken off.

We've managed to grow our business very well at all levels of slots.

We have a very, very highly productive high-limit slot market, where we give very personal attention to our customers.

We watch it very carefully.

And the advent of Encore for us has allowed us to take that to another level.

So it is not a small part of our business.

It is quite a big part of our mass-market business, and we watch it very carefully.

It has been very rich and rewarding for us, and we believe there is still great potential for growth there.

There you are, sir, from Hudson Securities.

Thank you.

Have we exhausted the curiosity for everybody, including our competitors that are on the call?

If I said anything that upset anybody, I apologize.

We love you all and enjoy talking to you.

And you can all rationalize our results as best you see (inaudible).

And I will say thank you to everybody.

Talk to you in 90 days.

This concludes today's conference call.

You may now disconnect.