永利渡假村 (WYNN) 2012 Q2 法說會逐字稿

Good afternoon and welcome to the Wynn Resorts second quarter 2012 earnings call.

Joining the call on behalf of the Company today are Steve Wynn, Marc Schorr, John Strzemp, Matt Maddox; Maurice Wooden, COO of Wynn Las Vegas; Scott Peterson, CFO of Wynn Las Vegas; and on the phone Linda Chen, COO of Wynn Macau; and Robert Gansmo, CFO of Wynn Macau.

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

(Operator Instructions).

I would now like to turn the call over to Mr. Maddox.

Please go ahead sir.

Thank you everyone for joining us today.

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

So, with that, I'm going to turn it over to Stephen for the introductions.

Hello and good afternoon everybody.

I appreciate Linda staying up so late in Macau.

I think we have everybody here to answer questions.

I will make a couple of summary remarks.

First, Las Vegas, last year we -- I mentioned before, we enjoy a great deal of very high limit baccarat business and that high play tends to be volatile; in the long run not so much, but in the short run it can be.

For example, last year, during the first six months of the year, winners -- that is to say people who won money from the casino -- were outnumbered by the losers.

The losers were outnumbered by the winners.

And that is to say, the amount of money that we paid to people who beat us compared to the amount of money of folks who lost money to us was a positive for the Company of $150 million-odd.

This year, the people who won money in the casino were much more, and the people who lost money at the casino were less.

And the delta was $38 million.

That is to say there was $112 million difference in six months in the win of the casino associated with high limit baccarat.

Last year we held 37% or something like that, and this year it is 17%.

Normalized it is about 26% for that game.

So when you normalize everything, the trend in baccarat, Marc will remind me; in 2010 high limit baccarat won how much, Marc?

$111 million.

$111 million, and then if you normalize a whole percentage?

$125 million.

Pardon me?

And 2010 if you normalize (multiple speakers)

2010 was $125 million.

Normalized.

Normalized.

Actual is $111 million.

And what was normalized last year?

$145 million.

And this year, normalize it.

$174 million.

$174 million; we actually had more business.

So, all of that is academic in a matter of speaking, but it does shed some light in understanding the kind of shifts that can take place short term in businesses that have this kind of high-end gambling.

In terms of the rest of the business it is about flat or slightly up in Las Vegas in terms of non-casino revenue.

And so, if you normalize everything, we would've had a better result than we did.

Last year we had a premium result because we had abnormally high hold percentages.

But our business levels this year in Las Vegas are slightly better than last year, except for hold percentage.

In Macau, for the first six months business was flat.

We were slightly ahead.

The market has gotten more competitive.

Two new hotels opened up in the second quarter operated by the Sands, and those two hotels added more games to the marketplace.

And generally speaking, business was flat for the market, the high limit business, and the VIP junket business and the total casino win.

But we suffered on the top line an adjustment of a couple of points on revenue, but we didn't seem to have the problem on the bottom line.

As a matter of fact, the basic challenge in Macau, we have our share of the business, is to preserve margin, the bottom line.

And that is of course difficult, when we have been able to hold the percentage we paid the junket operators to [40% plus 3] or so for complementaries and our competitors are about 5 points ahead of us in terms of what they give the junket operators.

Now, ordinarily, that is not an unusual thing.

That happens all the time in competitive markets.

A hotel like Wynn, or before Wynn, Bellagio, was always facing the challenges of other properties who tried to buy the business away from us by increasing promotional allowances and other customer discounts of one form or another or player benefits.

We believe that we give away about as much money in terms of promoting our business in terms of sharing revenue with junket operators or discounts, complementaries and stuff like that, we believe we give away as much as we can consistent with good solid business thinking, and because we're really concentrating on keeping the bottom line.

It's the reason why on almost any metric -- return on investment and stuff like that -- we still are very happy with our position in China.

And so -- but that doesn't lessen the fact that the challenge is continuous.

The market is constantly moving and changing both in terms of the amount of volume that comes into town.

It's been a rock 'n' roll, rollicking several years.

And that growth rate has slowed down as the base has gotten bigger.

And because Asia is feeling much to a much lesser extent the kind of uncertainty and economic stress that the rest of the world, Europe and the United States, are experiencing.

But, I am hoping that we can be agile and enough to adjust to those changes.

For example, we are improving our high limit slot business in China physically in the current period.

And one of the other -- if I can just extend these comments for another moment, when you are in a competitive market like Macau and hotel B or hotel C increases the incentive to the junket operators to get more business from them, they could do so by increasing the percentage of participation.

They can also increase that by extending extra credit to them, using credit as a marketing technique.

Now we know from 40-odd years of experience that that is a very dangerous path.

Using credit as a marketing tool is a big mistake in gaming, and has proven to be so over the decades, which is not to think you shouldn't give the right kind of people the right kind of credit.

But you can't just try and buy business by extending credit.

That ends up poorly.

We're very conservative about credit.

I've said that on these kinds of phone calls before.

And we were so conservative that when the economies of Europe and the United States and China were being questioned, we were very tight in our reserves.

It turns out that in the past six months and before, we've been too tight.

Our collections have improved, I'm happy to say, beyond our expectations.

And so we have made that adjustment this month in order to correct it and be more -- and be a little less conservative than we have been.

And I think you can see those adjustments.

They really are -- it really does represent real earnings that we had, but for the first half of the year were suppressed because of our conservatism.

And we have restored that upon the advice of our auditors and based upon our own experience, primarily.

So, one last comment; if the competitors increased promotional allowances to slot players and to VIP players, what can you do about that?

Can you just sit there and lump it, watch your market share be eroded?

And market share being eroded doesn't bother me so much as the bottom line being eroded.

That's quite a bit something else.

So, there is a counterpoint to all of this.

The structure in Asia is that junket operators have sub-junket operators.

And some of the sub-junket operators who feed and support the main junket operator are aggressive and resourceful and energetic people in their own right.

They have aspirations and ambitions of their own.

We take advantage of those aspirations and ambitions by offering key primary agents the opportunity to be the primary junket operator because that, in effect, increases their percentage of participation because they are not being part of a larger group.

They are now the head junket guy.

That is the counterpoint, and we're using that strategy successfully I think.

And as a matter of fact, we are introducing and we have built some new space.

And we are introducing some new junket operators as we speak that will be obvious in the quarters ahead.

And so, that is basically my comments on the existing situation and counterpoint strategies to deal with such a competitive market whose growth rate has seemingly slowed.

We are underway in Cotai with a very ambitious and far-reaching project that will have the same effect on the market there that Bellagio did, for example, and Wynn did here.

I want to remind everybody that it's okay not to be first sometimes.

If you recall, and I use a little history as an example, when Bellagio opened everybody thought that Mirage was the number that could be topped.

And then we won $600 million; (inaudible) $600 million -- $500 million, $600 million with the casino alone at Bellagio which set a new record.

When we opened Wynn in 2005, for the first time in Nevada history a casino went over $700 million, which was a Nevada historical mark.

And then last year in 2011, we broke our own record and did $774 million in casino revenue.

So, if you build the right product and you have a concomitant, parallel organizational professionalism, you can take the market up.

And we are hoping that our Cotai property would do that.

Naturally we have to wait until it is finished, and everybody is hard at work doing that, now that we have been granted our land concession and we can proceed.

One other thing, if I can change the subject.

I will cover my observations today and then open this up so you can question my colleagues.

We wanted very much to be first in the marketplace with the financing of Cotai because there are, after all, going to be a couple of new hotels built in the next few years on the Macau Cotai strip.

And thanks to Mr. Mattox and company, we had a terrific response.

And we basically have done $2.3 billion in a revolver and a -- we're hoping to close in 10 days.

But generally the expectation is that our revolver and our term loan will be $2.3 billion and the interest rate will be under 2%.

So we are very happy about that and expect that to be finished in the next couple of weeks now that we have the commitments.

So, unless anybody at the table has any general comments to offer, I'm sure there will be specific questions.

Linda, do you have anything that you want to add at this time about the overview on China?

No, I think you summed up very well that it's more important to preserve the margin, and really the two issues -- credit and promotional allowances.

You said it exactly right.

It is not about the marketshare and topline only.

Maurice Wooden is here.

Both Ian and Marilyn are on vacation as customary at this time of year.

But the super competent people like Linda, who is really the COO there, and Maurice Wooden is here today.

Maurice, do you have anything to add to the general description of things?

No, I think the specific questions when they come in will (multiple speakers)

Okay, then.

Let's start with the questions, everybody.

(Operator Instructions) Joe Greff, JPMorgan.

Hi everybody.

Hi Steve.

Big picture question for you on Macau, and perhaps Linda if you can chime in on the recent Macau gaming revenue deceleration.

Obviously we have seen a number of mainland China economic measures like GDP growth slow, and that is certainly a reason for the recent market-wide performance.

I guess my question is this.

To what extent is the recent performance driven by non-economic factors, say political ones such as wealthy VIP patients maybe visiting Macau less and waiting for the government changeover later in the year?

Is that a factor?

How big of one?

What are your players or junkets telling you in this regard?

Nothing in regard to that, Joe.

Unless Linda has something to say, I don't think we felt that kind of -- Linda, am I wrong?

Or would you take that?

You are correct, yes.

I definitely don't think any of the slowdown is caused by any of the political or other issues.

Like you said, outside of economic issues I think some of it is intentional that the junkets are being responsible by controlling credit, and so are we.

So part of the slowdown is actually I think very healthy, controlled growth.

I don't know if you can really expect 20% growth year-to-year to be reasonable.

And Macau is growing at 7% to 8%, which is compatible to the China GDP growth.

Okay.

Has there been a mix shift between direct and junket in the VIP segment in the second quarter?

Linda?

No, I don't think there's much of a change between direct and junket.

There is actually a growth in the mass market, if you will, mass compared to VIP, because we do have more mass facilities to open in the second quarter.

Okay, great.

And then, Matt, I have a couple of quick modeling questions.

How much of the cash balance is Macau?

Of the $1.9 billion, around $500 million is at the parent and $500 million or $600 million in Macau, and the rest at Wynn Las Vegas from the bond deal.

Got you.

How much CapEx in the second half of this year related to the Cotai development?

In the second half of this year?

Yes.

You know, well, it looks like we will probably spend somewhere in the neighborhood of $150 million.

On foundations.

On foundations over the next nine months or so.

A lot of land remediation as we mentioned last time, Joe, as we dry that property out and start to sink foundations.

In the second quarter we spent $58 million in Cotai, $50 million of which was land-related, and we spent about $140 million on Cotai so far.

$112 million of that has been related to the land and another $27 million on the land remediation, and there is probably $150 million to go over the next 9 to 12 months.

Great, that is it for me.

Thank you.

Shaun Kelly, BofA Merrill Lynch.

Hi, good afternoon.

Matt, just to follow up on two more housekeeping questions for you, we were kind of calculating something like $30 million to $35 million of EBITDA impact from kind of the hold swing to normalize it in Vegas.

Any chance we could get you to comment on that?

Sometimes I know you like to, or not like to.

Yes, I will this quarter because we only held 9% in the second quarter in baccarat, which is almost 18 or 19 points lower than it should've been.

If you normalize everything including the adjustments, this quarter would've come in around $116 million because of the baccarat.

The baccarat is (multiple speakers)

In April for the first time in 45 years, I saw baccarat go minus for a month.

I never saw that before.

But on the other hand, last year I saw a 37% hold.

If I was a customer I might have asked for an investigation.

But those are the kind of swings that can take place.

I guess April this year was an answer to April last year, June or July last year, where all we did was win.

And actually that makes me uncomfortable, because I really don't like the customers to bump into such terrible bad luck.

After all, this business is about amusement, self-indulgence on a very special level.

Basically the people that come here and do these things, they are here because they like that more than they like the money.

They like the game.

It is their hobby, so to speak.

It is an indulgence, like some people buy bottles of wine for $20,000.

These are people that like to gamble.

And what is best for them is to have the normal ups and downs and normal swings.

They don't expect to win but they like to get lucky every once in a while and have fun with the house's money.

The last few months it has been extreme in that regard, but last year was extreme in the other regard in the first six months of the year.

So I really don't like it when we win too much money from the players.

We get way ahead of the statistics.

It has a stultifying effect on the psychology of our customers.

No, I appreciate that.

And then I guess the second housekeeping one I had was just on the credit provision or the benefit that you guys had.

Did that fall all in Macau, Matt?

Or kind of where did that show up?

Did it hit the P&L?

No.

It was (inaudible) two-thirds Macau, one-third Las Vegas.

So after the first quarter we did a full hindsight analysis of all of our collection history since opening, and determined that we were over reserved and needed to change our estimates.

So the good news is our collection trends have been quite strong.

Okay, but that is benefiting the property level EBITDA numbers that we're seeing in the quarter?

Yes.

Okay.

And then, the kind of big strategic question I had was -- and Steve, you hit on this in your prepared remarks, just the promotional activity as the gaming revenue growth has really kind of flattened out here.

I guess the question is, has that gotten really any worse quarter on quarter?

So, have you seen both at the opening of Cotai Central?

And then probably more importantly, what you saw in May and June when we really started to see gaming revenues decelerate in the market, did you see kind of real significant increases or changes in behavior by some of the other operators, whether they are on Cotai or just around the market?

And how would you current characterize that environment?

The answer in a word is yes, we did.

When they open the Cotai Central, you can imagine that the folks that operate those places had to develop strategies that would justify revenue for all of their places.

And so they got more aggressive than usual.

And I'm not criticizing them by any means, but you asked the question are we seeing more aggressive activity, and the answer is positively yes.

And does it affect us?

Sure.

Do we have to react?

You bet.

The choices that we have -- there are choices that we have.

But I don't think one of them is simply to increase the discounts or to increase the incentive payments to junket operators, because when we look at that number in a common sense and straightforward way, we cannot justify by an expectation of increased revenue any increase in the discounts or the promotional allowances of participation given to the junket operators.

If we could share more money with the junket operators intelligently we would do that because they are, in fact, an important part of our business.

So we go out to the red line, so to speak.

Now, if our competitors see that line somewhere else, all the more power to them.

We are paying attention to the numbers and we don't agree that we can go higher, and so we don't.

Linda Chen spends all of her waking hours worrying about such things, and if he is she has something to add to this, I think she should.

No, I think you said it.

The difference also is not just the VIP business.

It's actually price war has entered into the mass and the slot market.

I think we always consider how much junket commission that is given out, but we're actually giving out a lot more incentives now in slots and mass market to also buy that business.

To me in this room, Linda's voice is a muffled.

I would like to ask the person who asked me the question -- could you understand her okay?

We could understand.

We also get a little static, but we could understand.

I would like to repeat what Linda said, because I knew what she was going to say because of the numbers that we study.

The aggressiveness of our competitors has spilled over into the slot machines.

And they are being very aggressive in slot promotional allowances to the players, and they have also built very beautiful rooms that are attractive and cleverly designed.

So, everything gets stepped up.

Competition has made everybody sharpen their knives.

It's healthy in the long run, challenging in the short run.

But we understand this.

We have only been in competitive markets all of my 45 years, and most everybody in this room has been with me a long time and so we understand this.

We don't overreact.

So we wait until we see something real and then we deal with it, which maybe makes us a little slower sometimes.

But we're not sleepy, we're just careful.

Next question.

Was that answer okay with you?

That was great.

Thank you for your time.

Carlo Santarelli, Deutsche Bank.

Steve, when you look out at China right now and you think about the big picture macro, and you think about the growth in this market over the last few years, how do you kind of reconcile the way you want to handle your balance sheet going forward in light of the backdrop and kind of the great unknown that is China right now?

Thanks.

Well, Carlos, you know we have kept a very respectful ratios of debt to equity as we launch properties even on day one in Las Vegas when we built Wynn, and it was $1.7 billion in debt and $1 billion in equity; hardly a highly leveraged business.

We haven't followed a model that many of our competitors -- I remember when Shelly Adelson in his deal, he held on to high interest rate notes for a long time in order to play the market just right and he did it beautifully.

I, on the other hand, temperamentally didn't want to live with that kind of pressure.

So we increased our equity at the very beginning of the Company's history and maintained those equity-debt relationships that were conservative by any measure.

We have done that in China as well, as you know.

And I think that horses run true to form most of the time, unless it is a very wet track.

And we're going to do the same thing going forward.

So, we will be mindful of having a lot of room, a lot of cushion in our equity on our balance sheet to handle the vicissitudes of a changing market.

You know we came through this whole last '08/'09 thing.

We opened up Encore at exactly the wrong time, right smack in December of '08 into the jaws of this economic turmoil.

And although it was painful in terms of return on investment, we didn't have any crises or any real heartburn about it.

We just sort of sucked it up, went straight ahead, took very good care of our properties, took very good care of our employees and had the kind of reserves financially it would take to protect such things.

I think we should do the same thing going forward.

You know, this is a world in which no one can predict tomorrow.

With long term this next quarter you have to be ready for all kinds of things to happen, because most likely they will.

I think China, incidentally, is more stable than anyplace else.

Europe and the United States are tricky.

I think that China represents, at least to our family, more stable environment, even if things are a little edgy, than anyplace else.

They seem to have cool leadership and they are term thinkers.

So, we will behave accordingly.

Steve that's helpful.

Thank you.

And just really quickly if I could on Macau, it seems that even if you kind of back out, obviously, the promo and the debt, you guys seem to do a pretty good job managing costs in Macau.

Is there anything maybe Linda can expand upon as to what you are doing there to manage some of the other OpEx?

Well, I think -- is Robert Gansmo on the call?

Yes, I am indeed, Steve.

Rob, what do you think about that question?

Well, as everyone knows the primary costs revolve around payroll.

And so, we, like all the operators, have had salary increases on an annual basis.

And we also keep up with the market to remain competitive in our salary offerings.

However, we also try to offset that to some extent with operational efficiencies, try to make sure our processes are as smooth as they can be and try to minimize the number of FTEs.

And so consequently, I think we've done a pretty good job.

We're running about $1.3 million, just under -- between $1.3 million and $1.4 million per day before we take into account commissions or bad debt or anything like that.

So -- and I expect that to continue.

But there will be continuous cost pressures, primarily driven through the pressures on payroll.

Great.

Thanks, Robert.

That's helpful.

Steven Kent, Goldman Sachs.

I was just wondering about the new program for the sub-junkets, whether they would be -- whether that would cannibalize some of the existing business with the main junkets in the sense that -- are the terms to those sub-junkets the same as that you offer to the main junkets?

Is there a difference there?

Steve, when I said that our counterpoint to pressure from the big junket operators to increase their percentage is offset by the fact that some of their agents wish to be promoted to main junket status.

That is to say they want to go off on their own, sort of like Internet companies do.

And we understand that Chinese ambition, that entrepreneurial spirit.

And we can take advantage of that entrepreneurial spirit by offering a junket arrangement -- a primary junket arrangement to someone who may have been a key sub-junket operator or agent for somebody else.

And we do that when we find our main junket operators spreading themselves very thinly.

What they do in Macau is the main junket people will be in almost every hotel and because they have to be.

The customers want to be serviced wherever their yen for luck takes them.

So if someone walks from SJM across the street to Wynn, if the junket operator doesn't have a room in both places, then some other junket operator will pick up the customer.

So the junket operators are forced to have outposts in each hotel.

Well, couple that with their natural yen to grow and be part of every new property, they get spread around.

And sometimes they shortchange one location in favor of another, or at least it appears that way to us, if it does.

Then we say, well, you don't need the tables that we've given you.

We're going to remove those tables and either put them into a more -- if they are unused, we will put them back in a general casino where the margin is good.

Or we will create another junket room and give it to someone who is up-and-coming who is very aggressive.

And very often, that maybe someone who was a sub-junket operator for someone else.

But now instead of getting a piece of the pie that they used to get from their main junket operator, they get the pie itself.

That, in effect, is an increase in their participation without it coming out of our hide.

Steve, am I clarifying that?

Yes, that is actually very helpful.

And the cost is the same to us regardless of sub or main junket.

We just eliminate one of the middlemen.

And we don't do that in an adversarial or menacing way.

It's just a normal course of human ambition that -- listen, they exploit competition among the hotels by saying I got a better deal at MGM than I did from you, or a better deal from Venetian than we got from you.

Why can't you give us as good participation, why can't you give us 48% if they do?

We say we can't afford to give you 48%.

Well, I've just got to take my customers, because I give so much money back to the customer, says the junket operator.

I am hamstrung Mr. Wynn.

I can't help myself.

They say to Linda, we've got to go next door.

And Linda says, well, I'm sorry you've got to go.

We've had a good relationship.

But if you're going to go next door and you've got 18 or 24 tables, maybe you don't need these other six.

We will take them back.

And that is the price they pay by hijacking business from us to someone else.

Hijacking is a pejorative term.

That is the price they pay for spreading themselves around.

Again, I say that is normal and admirable and understandable.

And we have no hard feelings about it, but we can react to it.

And our reaction is to say, okay, we will take back the tables.

You don't need 24, we will give you 12.

Well, all of a sudden that is 12 tables available for allocation to a new junket operator who is very happy to except accept 43%, because he was only getting a percentage of the money that the other guy was getting.

Now he is getting the 43 and he is happy as a clam, and he gets his own room.

Or we put it back into the general casino where the margin is good, but maybe the volume isn't as high.

That's (inaudible) counterpoint to all of this, and that is that both sides -- the junket operator as the salesperson so to speak, and the casino as the home base.

Those are the two sources or the two dynamics that we -- both sides exploit.

And I'm sure it will continue in good faith and with warm and fuzzy relationships all around.

Steve, if I could just shift another question, which is given the very compelling loan characteristics you just laid out, which are incredibly favorable, and also given the incredibly strong existing cash flow, the financing for Cotai now seems very, very secure and you will have excess cash.

Can you tell us a little bit about how the Board is thinking about special dividends, annual dividends and share buybacks and how they balance those three opportunities to return cash given the financing relationships, financing that you just locked in which are so compelling?

I can't resolve that question in absolute terms.

I can tell you that that is the order of business before the Board when we get together, and it comes up at this time.

The Board was naturally waiting to see how the financing would go.

Matt has been very busy for the past few months, and when my colleagues and I get together that will be one of the things we do discuss, Steve.

So I can't speak for the Board today, because I'm not authorized to do so.

You, I think, if you changed seats with me, you could make an argument for several different approaches to our very favorable posture.

And we're going to measure all that, toss it around.

We've got probably the fanciest board in gaming.

I mean, think about it.

Al Shoemaker was Chairman of First Boston.

Russell Goldsmith was Chairman of City National Bank.

Ray Irani is Chairman of Occidental Petroleum.

Governor Miller, as you know, who was 10 years governor of Nevada and Chairman of the National Governors Association, a man who directed fiscal policy for the State of Nevada successfully for 10 years, and also the guy who started the investigation of our former shareholder.

Boone Wayson is on our Board; was on the MGM board after the merger of Wynn -- of Mirage and MGM.

And Boone ran Wynn -- the Golden Nugget of Atlantic City when he was 28 years old after being in charge of Cajun Credit.

That is how experienced he is and he is 60 now.

So, there is an awful lot of experience on my board.

For example, Allan Zeman runs an enterprise that spans all of China -- Xingjian, Hong Kong, Guangzhou.

He's in four or five different provinces, not to mention running Ocean Park.

We've got a lot of perspective on the board.

John Moran from Dyson-Kissner-Moran, the original leveraged buyout company -- we've got a lot of experience.

And this conversation is really juicy, not to mention Elaine and Linda and Marc.

Everybody gets into this very intensely (multiple speakers)

(inaudible) in China.

Yes, and the Chinese board.

Bruce Rockowitz is the president of Li & Fung, the largest sourcing company in the world, with offices in 275 cities; and won Barron Magazine's 30 best CEOs in the world.

Nick Faldo Smith was head of Hongkong Land, the Jardine, Matheson subsidiary of the great English trading company that is so much a part of the history of Hong Kong.

And Jeffrey Lam was a legislator.

We've got a lot of firepower in the board.

This is going to be a subject, now that we know about the financing, this is going to be a very interesting subject.

We'll take into account the economy in China, the economy in Las Vegas.

So much depends upon the upcoming election in America, no news to anybody.

So we're going to measure everything.

Felicia Hendrix, Barclays Capital.

Hi, good afternoon.

Steve, I was wondering if we could talk about Cotai -- about Wynn Cotai for a moment.

And can you just walk us through the permitting that you still need there?

And when do you expect to get your construction permit?

And what has to happen prior to that?

Thanks.

Oh, you mean the permitting process.

It goes into stages as you build in China.

First is the foundation permit, which is currently under consideration.

As we polish up the presentation, I guess it went in already, that will be forthcoming.

We will be driving pilings and digging and excavating with augurs the great caissons of the high-rise this fall.

Once we get out of the ground that will take probably the better part of the year from now.

Then it goes very fast, because it's just another port and place building, pretty quick.

The building permits are issued in stages as you submit final working drawings, specific construction documents that have very detailed stuff on them.

And that's scheduled, along with the rest of our construction schedule, to go along in stages and phases that match the moment.

And it results in about a 46-month schedule.

I can't tell you the date that you get a permit for one part of the project or another.

But I can tell you this; that once you get to where we have been in this spring, then everything after that is pretty automatic.

It's a technical schedule.

I'm sorry I can't answer the question month by month, but the reason I can't answer is because it is not important at this level of the Company.

It's handled.

We've been through it before.

It proceeds in a very orderly, predictable way.

Okay, great.

That's helpful.

And then as you think about the continued potential for Wynn Macau, just wondering if you could share with us some of the plans you might have to continue to drive incremental revenues there.

I know you are always tweaking things, but do you have any specific plans to reconfigure public spaces, tweak the mix of your gaming floor?

Good question; I will give you an example of how delicious it gets over there.

We have 52,000 feet of retail that's going to push $1 billion in sales before we're done this year, $900 million-odd.

Our profit on that may be $170 million or $180 million.

For a shopping center with 52,000 feet, think of what I just said, that the rental income is that high and the profit margin of the rental income is 70%.

We have -- you been to the property (inaudible)?

Yes.

Well, you know the Esplanada Cafe is right there in the lobby by the elevators.

Yes.

And as a 24-hour restaurant, it's a little bit bigger than we need.

Half of it is the buffet, and the windows and the tables along the pool.

The front half is a square.

It's 2000 feet.

The entrance is in the middle between the front half and the back half.

We decided that we didn't need the front half, that we could handle the business with the back half.

So I went to a couple of our famous retailers and for the moment I'm not going to mention the name, but I said to them -- two of them in particular; we had a little tennis match going.

I said, look, we think that the 2000 feet is going to do $40 million.

I want 15% or $6 million for this space, would you take it or leave it?

Well, there was some bickering and some jockeying and offers and counteroffers.

At the end of the day, one of the two major international retailers paid us $6 million fixed for 2000 feet.

$1.5 million a quarter, $500,000 a month fixed rent, guaranteed, for 2000 feet.

Those are the kind of options that you get.

Now, that is being done this summer and fall and they will be open, I hope, by Christmas or something like that; maybe a little bit later.

We built a new junket room that is going to be open for Christmas; another retail space, a small one, for jewelry at the entrance of the casino.

Oh, yes, we opened up -- late in the last quarter, we moved Tiffany across the hall to where Fendi used to be, because they were underperforming.

Tiffany paid to move themselves.

And then Louis Vuitton that was doing $100 million dollars in [28 feet] or more has now got another 2000 feet since April 1 where Tiffany used to be, and their store has become almost twice as big and the sales are booming at Louis Vuitton in spite of the economy in China.

And so that will show up in the next few quarters as incremental income to us.

Graff, the jeweler, opened up last week or two weeks ago where a host area was by the Wynn Club.

And I saw Laurence Graff last week in Europe and he was thrilled with his store.

He told me, he said -- I saw him at lunch.

He said I've never seen anything like it, and we've only been open a week.

So anyhow, we tweak the space.

And the game that is really adorable is the one with the retail.

That is nothing but fun.

And then Cotai, we're going to have 120,000 feet, not 52,000 feet.

I think we're going to get up to about 58,000 feet in this year in retail.

We're going to increase by 10%.

But sales are really rocking there and so is our rent, because in all of our new leases we get 15%, which is terrific for us.

Those are the kind of tweaks.

Then we take tables away from junket operators and give them to new junket operators.

We take tables, add them to slots or take them away from general casino and vice versa to try and maximize our income.

But it's the kind of thing that the team over there does on a monthly basis.

That is really helpful.

I appreciate that.

And just a final question on the gaming side at Wynn Macau, on the direct VIP side of your business, I know you commented earlier about the junket side.

But on the direct VIP side of the business, are you seeing any change in credit-worthiness or liquidity from your direct customers at all?

Linda?

I don't see any change in terms of credit-worthiness, but the collection I have to say has been a bit slower than before.

So, that could also be caused by obviously a slowdown in the economy.

And the other part is we are more cautious, definitely more conservative on issuing credit on the direct program side.

There is no credit if you don't collect.

You have to pay 39% tax anyway.

That's right.

If you're conservative.

If you've got your head screwed on right and you've got to pay a 39% tax, you better make sure you know what you're doing with credit, because it is very painful if someone jumps the fence.

Okay, thank you so much.

Robin Farley, UBS.

Thanks.

I have a question on the provision for doubtful accounts and then one on table mix.

On the provision for doubtful accounts, I know that the amount -- the credit is $17 million.

But can you give a sense of what the full delta would be?

In other words, that is normally an expense, so the full amount would be more than just the $17 million if you hadn't gone back and revisited.

(multiple speakers)

Sure, I understand the question.

The charge under the old methodology would have been $14 million, so the delta is $31 million.

And that's split two-thirds Macau and one-third in Las Vegas.

The $14 million is really not a number that you should focus on, though, because what you found in the first quarter in Macau we have an $8 million incremental charge that reversed itself right away in April.

So we were fully reserved in Macau at 150 days, and we found that that was just overly conservative.

So that got extended out to about one year which is what caused the change.

So, while Linda said collections have slowed a little bit, compared to the way we were reserving, collections are still very, very good.

In other words, to put it another way, Robin, we always thought that in China after 150 days if we didn't get the money it might be gone.

It turns up, it shows up anyway.

Much more of it shows up than we thought later.

So they slowed down but they didn't get bad.

That's right.

In Las Vegas we used to say after one year we're going to be 100% reserved if someone doesn't pay us in 12 months.

Now we see money showing up so that we have extended that by several months.

To 18 months.

What triggered you to revisit your reserve policies and reserve levels this quarter versus -- given that you have seen -- that you have gotten more cautious about extending credit?

We have been -- every quarter we talk about how conservative we are.

And our auditors and ourselves after the first-quarter charge of $8 million in Macau, which reversed itself after a week, determined that we need to do a full hindsight analysis of everything we have collected relative to everything that we have issued.

And when that analysis came back, we had the information in our hand that made us change our reserve policy.

Robin, one of the things that make us be so tightfisted was that all during these last two years, there have been rapid expansions of junket and new hotel rooms, and new junket rooms in the market.

At the same time, as the new hotels open -- I'm talking about Galaxy, the Sands, various operations -- the expansions of the operations at the Four Seasons, the introduction a few years ago of City of Dreams, everybody got very, very aggressive.

And they were using credit as a tool.

And we said, oops, this could be very bad.

The amount of outstanding credit in the marketplace ballooned, ballooned.

And we looked at that more than we did at our own books.

And Linda said, Steve, I'm there once a month -- and she said Steve, I'm a little concerned about this.

The amount of money -- we were playing the other guys hand really.

The amount of money that these other guys are giving out is so big and these are our junket operators as well as theirs.

They're the same guys that go from hotel to hotel, the junket operators.

The amount of outstanding paper that some of the big junket operators have is staggering.

I remember Marc Schorr looked at books that one of the companies one day who shared the numbers with him.

How much did he have outstanding in those days?

He had $250 million.

One guy had $0.25 billion US outstanding.

Well, that story gave us the willies.

So, we started tightening up not based so much on our own experience, but on that expectation that this could turn sour.

Well, it didn't.

And this hindsight analysis that Matt just mentioned has revealed that our worst fears were not realized, and therefore we could resort to a more relaxed approach.

When I say more relaxed, less conservative than the extremes that we had gone to defensively in the past.

And Robin, just as a quick example, at the end of 2011 on a gross basis our bad debt reserve was 42% of our accounts receivable.

At the end of June after this adjustment, our bad debt reserve was 44% of our accounts receivable.

So even after we made this adjustment, our reserve is still higher relative to our receivables than it was at the end of 2011.

And I wonder how that compares to our neighbors.

Do you have any idea?

That's helpful, those reserve percentages.

Thanks.

The other question I had was just looking at your mix of VIP and mass tables in Macau, because some of the wording in the release seems to suggest that some of the decline in mass table drop was due to fewer mass tables.

And I guess I'm just curious what your thoughts are about shifting some back to mass given the -- (multiple speakers)

Yes, Robin, you are very, very -- that was a very clever observation.

You perceived something that we share with you, and we're going to do exactly what you said.

Okay, that was easy.

Thank you.

That's all my questions.

John Oh, CLSA.

Hi, I have a few questions.

I will start with the comment that Linda made earlier about some of the weakness or some pockets of weakness we have seen in the collection.

Are there any distinct, or I would say anecdotes, Linda, that you could share with us?

If it's coming from a certain segment of your direct VIP plate on the very high-end, or on the mid or on the lower end, or any specific geographies in China where you are seeing a little bit more difficulties in collection?

She didn't say that.

Okay.

So -- yes, I didn't say that.

I was just going to say I didn't say that.

Actually I said collection is a bit slower.

The reason we (inaudible) is we're still collecting.

Now the first obviously I guess trick in in collection is giving good credit.

So, when we are conservative in giving credit, we know that it is credit that it is worthy that we give out that eventually we will collect.

The reason sometimes the collection becomes slower is for many reasons.

One is obviously a bit of a slowdown in the economy, but second is because many casino -- more junkets are competing for the business.

So when you have one player who was playing maybe instead of one or two casinos, they're playing five or six casinos, then it takes a bit longer for them to turn around their receivables.

So -- but at the end of the day, they are not doubtful.

They are not bad credit.

We are still collecting them, even though instead of taking one month it might take us two months.

Or to put it another way, the reason they are a little slower is because they can be -- I mean what is our defense?

As long as they pay us, it's pretty hard to turn them down.

The guy says, well, I didn't pay you in 30 days.

I paid you in 60, or I paid you in 75, but I paid you.

So I'm back again.

I want to play.

You used to pay us in 45 days.

It took twice as long this time.

Well, I'm sorry, but I have never not paid, and I have my credit or can't I?

That is how it comes down.

And when you take a look at his history and you say, okay, go.

But please try and pay quicker.

And he says I will, and then he doesn't.

If you want to be in our business, you want anecdotal information, you want to sit in our -- stand in our shoes, that is what happens, just like I told you.

Okay, thank you.

And just to follow up on -- just to try and understand the advanced commissions that you provide to the junket operators from your property, Matt, could you share with us some color as to what is the average number of months outstanding right now?

And perhaps any trends that you have seen -- is that number increasing given the competition of new supply?

Sure.

We settle by the fifth day on the following of every month.

Yes, you asked a question about how many months.

None.

Unlike our competitors, we are out at the end of the month by five days later.

We have held that line to our -- and it has caused some stress.

What we do is we advance the guys during the month.

Usually we used to give them as much as we owed them.

We settled with them in terms of what they receive at the end of the month, at the first week of the following month, and they settle with the credit at the same time.

Well, we started a few years ago saying, okay, halfway through the month we will give you what your expectation is for the rest of the month, that sort of thing.

We are zeroing out.

And you don't get 30 days from that midmonth advance.

At the end of every month, it is closed out.

(multiple speakers)

Yes.

It is 15-day credit on the 15th of the month.

We don't have a rolling program.

Yes, we don't use a rolling program.

I'm really glad you asked that question.

That is one of the main deltas between us and the other guys.

That is still a conservative bias at Wynn Macau.

Our exposure is limited.

And we have reached the allocated time for questions and answers.

I'd now like to turn the conference back over to management for closing remarks.

Anybody in the room have anything they would like to add to what they have heard today or expand?

I invite everybody to speak up.

Scott, Maurice, Robert Gansmo or Linda, Marc, Matt?

Well then, thank you everybody.

We will talk to you next time.

Bye.

Thank you for your participation on today's call.

You may now disconnect.