永利渡假村 (WYNN) 2015 Q4 法說會逐字稿

Good afternoon, my name is Jennifer and I will be your conference operator today.

At this time I would like to welcome everyone to the Wynn Resorts fourth-quarter 2015 earnings call.

(Operator Instructions).

Thank you.

And I would like to turn the conference over to Stephen Cootey, CFO of Wynn Resorts.

Sir, you may begin.

Good afternoon and welcome to the Wynn Resorts fourth-quarter 2015 earnings call.

Thank you and good afternoon.

Joining the call on behalf of the Company today are Steve Wynn, Matt Maddox, Maurice Wooden and myself here in Las Vegas.

Also on the phone are the operational management teams from both our Las Vegas and Macau properties.

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

And with that I'm going to turn the call over to Mr. Wynn.

Well, we released the numbers a few weeks ago and so there is no real revelations to discuss.

I think probably what is interesting is to say that January in Macau, if I can anticipate some of the questions, was our best month in a long time.

Happy to say so.

And Chinese New Year is in progress, but early in the week, a little too soon to say.

The mass component clearly looks a little stronger than in the past.

It is too soon to tell because the weekend is coming up with the VIPs.

So that is pretty much the way we feel about China in terms of current first-quarter numbers.

With regard to Las Vegas, January was terrific and Super Bowl and February are off to a roaring start.

And between that and President's weekend, Las Vegas is an apple pie shape up through the 15th which will be Monday.

The question in Las Vegas will be how is the last 14 days.

But as of now business is pretty good in the United States and holding its own in Macau.

With regard to our project, we issued some statements; we are working with our contractor to get them to catch up so that we will have an opening in June.

They believe they will make the June 25 date, which was the contract date of our relationship with our builder, and it is possible they could be late but hopefully they won't be.

We are working very closely with them to try and catch up in any areas that need to be caught up.

And our fancy hotel will be ready for public display later this year.

We are going to start work in Boston, hard construction.

We are doing remediation at the moment.

We've come to happy terms with our neighbors in Boston.

And that was a relief.

And now we are going to proceed with constructing this wonderful destination resort in Boston metropolitan area in Everett, and benefit I hope people throughout the region, and have a very exciting hotel to boot.

And with that, and reminding you that all of us are here to take your questions, we'll begin to do so.

(Operator Instructions).

Joe Greff, JPMorgan.

Steve, one topic that has been noteworthy of late, and not to be too personal or untoward, but Steve it's been noticeable, your open market share repurchases here and it is gotten a lot (technical difficulty).

I was hoping we could get an answer as to (technical difficulty) your interest in buying stock at these levels.

Is it (technical difficulty) or is it that you are sensing on the fundamental side -- and obviously given your comments about Macau in January and Chinese New Year's, is it your sense that we're seeing a turn or a bottom here?

I lost a part of your sentence.

What did he say, Matt?

He was asking about your open market purchases, what is your view?

My view is that I like Wynn Resorts especially because I think that management is great (laughter).

But I like the stock, I like the stock a lot, and I bought it on what I thought was an extreme weakness in price.

That's my own personal opinion.

I don't give investment advice, nor do I have any -- there is no inside information in this Company.

We tell you everything including I just reported the first week and a half of February.

I don't know anything that you don't know, Joe.

But I like the Company's long-term prospects.

I like our latent assets in Nevada.

I like our opportunity in Massachusetts.

And I like the long-term prospects in China and beyond.

So I like my Company.

And when it is trading at low levels I am always prepared, depending on my financial capacity, to buy the stock on weakness.

I reserve the right to do that at any time and I may very well do so.

I think I bought a few shares a few days ago, so --.

That is just my mindset.

And I can't be any more clear about it.

I am subject to stepping in the market and buying my own stock at any time that I have the -- if I have extra cash and I think that the stock is a good buy.

And I certainly did and do at these levels.

So off I go.

Does that answer your question, Joe?

Answers it perfectly.

That is all for me.

Thank you.

Carlo Santarelli, Deutsche Bank.

If I could, Steve or anybody, from Macau that would be willing to answer it.

As you guys contemplate a few things, and this might be a two-part question, but when you think about big picture China, potential currency devaluation, how do you kind of handicap that as to what it means for the Macau enterprise?

And then if I could take a bigger picture question as it pertains to your -- the future post the opening of Cotai.

Obviously you will be in construction of Boston.

But Steve, could you talk a little bit about other potential contemplated developments or uses of cash flow once Cotai is up and running?

Well, currently we have got a project that is going to start in the spring right here in Las Vegas.

We sold our Ferrari dealership to the Rolls-Royce dealer in town, Roger Penske and I. And reclaiming that valuable space we are moving poker over to Encore.

And starting at the casino corner where the ticket counter is now for the showrooms, we are going to have retail and a new retail mall that goes through where Ferrari was and a two-story building with a beautiful glass roof, an atrium kind of structure, that has 75,000 feet of rentable space.

And we expect that we will pick up somewhere between $20 million and $25 million in extra income and probably $0.30 worth of new payroll.

I mean just a pickup in EBITDA because we had 300 or more feet on the strip right on the sidewalk in unused real estate that was very, very valuable.

And, along with other real estate that we own in Las Vegas, represents an opportunity for future development that is quite unique.

We -- I remind everybody that the golf course is 130 acres and we have 1,000 acre-feet of water in our own wells that were purchased with the Desert Inn Water Company in 2000.

I look at that as an asset.

And China and its complexity has made us refocus on some of the things that we have going for us that are already in our -- under our control.

So all of that is the kind of thing that we can examine.

As I told you, the strip real estate, I have already committed to a drawing and the project is underway, probably cost $70 million.

And the interest on the money is -- if we borrow 100% of it or if we use our cash, our cost of money is less than 5%.

And we pick up $20 million or $23 million in EBITDA just by plucking off something that we own for nothing.

We have got a lot of options like that here.

And that makes the Company exciting.

It is another reason why I like the stock.

Because none of our assets are a secret, none of the opportunities that this Company possesses are unknown to anybody, they are all sitting out there in plain view.

And I don't mind discussing them when someone asks.

But I'm certainly not going to ignore them.

I think Boston is going to be the Everett Boston metropolitan area opportunity is enormous.

And we can't wait to be there.

It's the first time we've ever had a hotel that has nonstop service from every major capitol in the world, Hainan Airlines and Cathay Pacific fly nonstop from Beijing, Hong Kong and Shanghai to Boston.

So does every other world capitol, nonstop to Boston.

And we are 12 minutes from Logan Airport with our new hotel.

So all of that sort of makes me feel confident and positive about our future prospects.

Great, Steve, thank you.

And if I could, if anyone from Macau was on, I would love to understand a little bit about the experience with potentially the currency devaluation.

And what maybe some of the team has heard from customers as to what it could ultimately mean down the road.

And how maybe their circumstances, the impacts it would have on the business in their opinion, if any.

Well, first of all, I think Matt can comment on that or Steve Cootey.

Yes, sure, what I would say is the global currency wars are impossible to predict.

Look at what the Fed is talking about interest rates now in the United States.

So we look at how we hedge our risks with the debt that we borrow and the denominations of the debt, but there is really nothing we can do about countries trying to devalue their currency.

I think his question is, what impact will it have on our customers in their own Chinese domestic environment.

Do you have an opinion about that, Ian?

We haven't had any direct feedback from customers at this point, Steve.

It doesn't seem to be troubling people.

It is probably too early to call.

Like any devaluation, if you are buying domestic products you don't feel it.

If you are buying and you are trading internationally you do feel it.

If you are an exporter and a businessman in China and you are one of our customers, and they are, then devaluing the currency increases your ability to sell your products outside China.

So a devaluation, which is of course a methodology of supporting the economy, tends to make our customers have more liquidity.

And when we talk about devaluation, QE 1, 2 and 3 took the US dollar down by 18% or 20%.

So you can judge what a devalued currency impact has on people by taking a look at what happened right here in the United States where we did precisely that with our federal reserve interventions in QE 1, 2 and 3.

That's helpful.

Thank you all very much.

Steven Kent, Goldman Sachs.

A couple questions.

First, there is definitely a narrative that seems to be gaining traction that Macau is bottoming out.

Broadly I would love to know if any of you agree with that.

And what numbers do you think we can look at that are away from gaming that would suggest that that is bottoming out?

And what I mean by that is economic factors or anything along those lines or visitation or anything that we can look at that would suggest that.

And then one other thing just because I didn't completely understand it.

Can you just walk us through the $33.8 million decrease in fair value of the redemption note, which resulted in net income attributable to Wynn Resorts of around $22 million.

That should have been recorded in September 30.

I don't -- I'm not sure I have ever seen that before.

I'm not sure what happened there or what that means.

Sure, so where do we want to start?

Do you want to start with the first part of the question or the second part?

It is Matt Maddox, I am here with Steve Cootey, we can cover the accounting issue on the note, the redemption note.

What happens is, Steve, that is like banks have to do, it is fair value accounting.

So you have to go through and look at the yields on your debt and then apply those yields to that parent company $1.9 billion 2% note.

And because high yields gapped out what that meant is that 2% note in theory should have had a higher yield.

So you have to reduce the value of the note on the balance sheet and that increases profit through the income statement only to come back around later.

And it is non-cash fair value accounting.

And in fact, the FASB is already looking at changing that starting next year.

And Bank of America is implementing it where it will run through the balance sheet only because it is destroying financial institutions' income statements.

Okay.

Does that clarify that?

Yes, thanks.

(Multiple speakers) so then let's talk -- bottoming out maybe will be -- that I understand better.

Yes, how about the bottoming out part, Matt?

Well, Steve --.

Non-casino stuff, do you see any non-casino economic information that would give us a statement, a clear economic view of the Macau market, or China for that matter?

Did I repeat your question properly?

Yes you did, Steve.

Okay, good.

So take a crack at it, Maddox.

I don't have any idea how to answer that question (laughter).

We've focused on our retail volumes and we are noticing that some of our retailers are starting to stabilize a little bit more compared to last year and the previous quarters.

Our hotel occupancies are remaining about the same as they have been and we are seeing some pick up there.

And then, Steve, you track all the visitation just like we do from each region.

And the visitation also feels like it is stabilizing.

So, all the China macro data is confusing for the moment, but what we see in our building and visitation to Macau feels like it has been stabilizing since November.

And I think you'd hear that from all the operators.

Okay, thank you.

Robin Farley, UBS.

Hi, thank you very much.

It is actually [Arpina] for Robin.

Could you comment at all on the health of the junket system in terms of what you saw through Chinese New Year?

What did you guys see that has changed versus let's say a couple months ago?

Any color on further consolidation?

We see junket operators -- we see junket operators going -- retracting.

We have less than we had -- we were at 14 at one point, I think we are down to 8 or 9 now and probably heading for 4 or 5 before we are done.

The strong ones with liquidity and balance sheets are doing good business, but the ones that were newer or less firmly capitalized, they seem to be having trouble staying in business.

And that is pretty much the story I think around town.

The ones that (multiple speakers) have we check up on regularly and they are fine.

But there is fewer of them.

Right, right.

When they show any weakness we cease relationships with them.

And we have done that with 5 of them already.

And just one real quick question.

As you prepare to open Wynn Palace on Cotai, what are some of the return metrics internally that you are looking to meet?

Any color on those expectations?

What would meet your near-term EBITDA hurdle on a run rate basis?

In other words, has anything changed post-Chinese New Year or what you were looking at sort of internally versus now?

Well, we are not post-Chinese New Year yet.

As a matter of fact we haven't really seen Chinese New Year in full bloom until this weekend.

So please --.

Right, right.

Okay, just I know that doesn't necessarily impact your question.

Or our answer for that matter.

Matt, do you want to take a shot at that?

I don't think anything that has happened in the last few weeks has changed our outlook on Palace.

We still believe that it is going to be a market share taker out at Cotai and predicting the Macau market has been hard.

All we are saying is the market feels stable right now and we are confident in our product.

We don't put out EBITDA projections for new projects.

Right, I was more asking about how those expectations have changed just internally versus a couple months ago.

They haven't.

They haven't.

They haven't to answer you, now I understand your question.

I can answer that.

Our expectations haven't changed.

The assumptions we have made in the business plan remain the same.

Remember, when we got to the point of doing those assumptions, changes already occurred in the marketplace.

So we haven't made any changes recently to our assessment.

Great, thank you very much.

Shaun Kelley, Bank of America.

Steve, I just wanted to ask about in your prepared remarks you mentioned a little bit about the filing that you had with the contractor for Cotai.

Just given how important the project is to kind of the next phase here for the Company, can you just give us a little bit more color on if that were to slip or move at all any -- kind of any potential on the magnitude?

Is it down to relatively small kind of differences at this point?

And just any more color on what could move around on that would probably be helpful.

Well, it is nothing more complicated than they got a little bit behind.

And they have a plan on catching up.

We are working very closely with them and there is a very good chance that they will.

And even if they don't it will be close.

So that is pretty much the way we see it now.

That is a description of where we stand.

Now, in the trenches the work is feverish, there are 9,500 people on the job.

And everybody has got their chins down and are paying attention.

It is a very, very ambitious extravagant product.

I have talked about it over a period of a year or two to all of you in these conference calls.

We aimed very high.

And that has put pressure on the finishes of the building.

Of course, it's a fancy place to say the least.

And all of the subs are working to do their best job and they will get there, they will get there give or take a few weeks I think they will be fine.

There is not much more you can say about it than that.

I mean when they told me they were going to finish early in September they gave us a written notice that they were going to achieve the early completion bonus of $38 million.

And so, we shared that with you because they notified us in writing.

And then when they told us that that was doubtful because we had shared it with the public, we thought it was incumbent upon us to also share with the public that there wasn't going to be an early bonus or an early completion.

But I want to remind everybody that the original contract was for June 25 that we would complete this project in the first half of 2016.

And hopefully that date will stand or right close to it.

And that is where we are at the moment.

That is helpful.

And maybe just one follow up would be -- you started to get into sort of your staffing levels and plans for the property for the actual casino level employees.

Should we be sort of expecting that that starts to move over and see some cost savings at the kind of Wynn Macau property level sometime in early second-quarter, is that probably appropriate given the timeline that you have laid out?

There is a really good question and it goes to the heart of my instructions.

Usually the way it has worked in the past, we have two critical paths, one is that of the completion, the construction and the finishing of the building and the other one is the critical path that is the spooling up and the hiring and training of the full staff of thousands of people to run the place.

And under ideal conditions those two critical paths move in exactly parallel and coterminous step.

They meet at the exact same point on the opening day.

When the construction gets behind, in and of itself that is not a big deal.

I mean, so the building is a few weeks late.

But what is important is that you don't go and hire a whole bunch of people that are sitting -- getting paid and twiddling their thumbs.

That is very, very damaging financially.

So what I did with Matthew when we were there a couple months ago, I have changed the order of March.

And I said I want our landmark dates on turnover of the building to occur before we do the hiring if possible.

In other words, let's make sure that our critical path of hiring doesn't get ahead of the critical path of the building.

Then the impact of being a few weeks late is not so -- is not quite as serious as it might have been if we went to full staff.

So that is where that stands and I am happy to say that we are in equilibrium at the moment.

Great, thank you very much.

Thomas Allen, Morgan Stanley.

So, Steve, in your prepared remarks you said that Las Vegas was an apple pie shape.

And if you think about it from where we sit, it seems like the economy is anything but an apple pie shape.

So why do you think there is that disconnect and do think it can realistically continue and, if it can, for how long?

Thank you.

Well, we are holding high and we have got this very privileged kind of patronage.

It is one of the advantages -- there are advantages and disadvantages of having a high end super quality resort.

For example, your average customer tends to be a little wealthier, a little better able to afford more expensive food and wine and hotel rates.

On the other hand, if you are the place of choice for baccarat for international visitors, anything that interferes with that tends to work against you because we had more baccarat business than anybody else in Las Vegas.

So when baccarat is affected from China we are the ones that get the biggest impact.

On the other hand, there are still a lot of good customers around.

And from what we can see we are still the one of the places of first choice if not the place of first choice.

And we do everything we can to keep it that way, of course.

And since New Year's it is working as it was designed to work.

We've got better room rates and our casino is profitable.

Our margins in the casino, even though sometimes our drop or our handle is off.

We tend to be very fastidious about having all of our games be profitable.

We don't pay so much attention to the top line as we do to the bottom line.

So when we evaluate the casino, we don't evaluate the handle or the Wynn, we evaluate the contribution to EBITDA of our games.

And we try to maximize every foot of the casino with one metric in mind, contribution of EBITDA per foot.

Well, that sort of thing comes home after a while and we get the benefits of it and we see it now.

That is why I said the place was in good shape, I am happy with the performance.

And our turnout for New Year's, for Christmas/New Year's, January with the conventions -- that's another thing.

When there is a big citywide convention and corporate leaders and high paid people come to the conventions they want to stay here.

And their propensity to gamble is higher as is their desire to eat in better restaurants and shop in better stores, so forth and so on.

So I am happy with the way Wynn Las Vegas is performing.

And that is what I meant when I said it is an apple pie shape, that is an old-fashioned expression.

Did I answer your question?

You did.

I guess -- I mean I guess just following up.

If we are going into a recession, I mean how do you think Vegas can hold up?

Obviously you have a lot less supply growth this time than we did in 2008 and 2009?

And then as a follow-up also, you did mention you're exposed more to more of that high-end baccarat play.

Have we seen any signs that that stabilized in Vegas over the past few months?

Thank you.

Well, Chinese New Year will certainly be interesting and it is not -- we are just starting it.

We are 3 days into a 7 or 8 day event.

I would say baccarat business is off in Las Vegas unquestionably.

Is it going to get worse or is it stabilized?

I don't know, too soon for me to answer that question.

But if there is a recession in America, and it is hard to see why there won't be if we keep going the way we are, then Las Vegas will ultimately reflect whatever is going on in the rest of the United States.

It always has.

There's sometimes been a delay if conventions are booked and things like that.

But in the end -- at the end we always seem to be just like anybody else, part of America and a big reflection of it.

So, I don't want you to construe my remarks about a healthy January and a promising February to mean that we're running counter to anything else you're seeing.

We're just lucky, that's all.

Just luck, we're holding high.

I don't want to make too much of it.

Very helpful, thanks, Steve.

Harry Curtis, Nomura.

I did have a follow-up to Thomas' last question.

Do you have any visibility into the second half of the year for Vegas?

I mean if we don't go into recession what is on the books that gives you some confidence that you will see some continued pricing power?

The perfect guy to answer that question is sitting next to me, Maurice Wooden, who runs America for us.

He is the boss man of Las Vegas and for that matter Wynn America that is where we tucked in Boston.

Bob DeSalvio is not on the call, but he is working on construction.

Maurice, do you want to come over here and deal with that?

Sure.

I mean when we are looking forward into the second quarter I think we see very stable, very confident business on the books that we believe that for the next quarter will be in good shape, consistent with where we are today with the first quarter.

When we look at Las Vegas, the question was asked about baccarat play and others, and I think again it is just too early to tell about the gaming side of it.

But on the non-gaming we are very focused on cash contribution and we figured out different ways to make sure that we make up any shortfalls in the casino with looking at other parts of our business where we believe that we can get that cash contribution.

My question was really focused on the second half.

Can you share any data points that give you some confidence as to how that looks?

Sure.

And again, looking at the second quarter or the second half it is the very same answer I would give you is that we look at our books and we see what is on the books and we are very comfortable and confident that we have a healthy base of business in the second half of the year.

Okay, great.

Steve, I wanted to switch gears going back to the Palace because it was originally designed for premium players.

And while there may be still some of those left by the time you open, the question I have is, how have you changed or are you changing your marketing several months before it opens given the focus on more of the -- less of a premium player?

Well, I am not sure that the premise of your question is one that I want to accept on the face of it.

I am not sure that our marketing strategy should change one spec.

We may not have 12 junket operators or 14, we may have 4 or 5, but there is -- there are no shortage of wealthy gamblers in China.

And there are no shortage of premium mass players in China.

And our building was -- we made an adjustment to allow for some of the junket areas to be premium mass and stuff like that.

We made modest adjustments in the facility presentation and the furniture, so to speak.

But look, there used to be this avalanche of revenue for all these casinos and all these junket operators in Macau.

So now there are fewer of them.

So where are they going to gamble?

I mean, they are going to go to the place that somehow meets all of their expectations.

We designed a place to be that.

So I think that considering how many casinos there are in America and in Las Vegas and we get more than our share of the business, to worry about whether you are going to get a proper share in Macau is really a waste of time.

The answer is positively, yes.

We will be able to fill our casino with the most selective customers available in the market, I am sure of that.

And we will have a demonstration of that shortly this summer.

But let's not think that all VIP players have disappeared because that is simply not the way it works.

They have been lessened in number, but there are still a lot of them around.

But, Steve, where I was going with this is that we have seen in the last 12 months two casinos open, visitation has not increased.

And what I am really interested in is how you plan on reaching deeper into China to increase your odds of having 100% occupancy more times than not.

Are you going to be expanding the number of marketing offices, just how are you going to do it?

Well, we are not allowed to promote with our offices in China.

We can advertise in very limited ways about rooms.

But they are very, very careful about that.

And I am not sure that a place like Wynn Palace lends itself to mass marketing techniques.

Places like the kind we operate, 99% of the marketing is word-of-mouth.

You see, the people that would come and stay in Macau, as large as that country is, the percentage of the population that comes to Macau is relatively small compared to the total size of the country.

And that group that comes to Macau, they know everything about every hotel.

They go to the one they can afford or they go to the one they think is best depending on their income status.

So what happens is within 60 or 90 days of when Wynn Palace opens up an enormous percentage of that market will -- the people who attend that market will know all about it.

And word of mouth will take place the first 12 months that place is open and it will establish itself as Wynn in the Peninsula did as the nicest place to stay.

And we never advertised at the Peninsula, in the first Wynn Macau, nor did we advertise in Encore.

And we filled those 1,000 rooms and we could have filled 2,000 of them.

And we got 1,700 new rooms.

And I'm not sure what we would gain if we could advertise in every place.

But you can be sure that any wealthy guy that is in Beijing, Shanghai, Fuji and Guangzhou or Dalian, whoever goes to Macau, they know all about us already.

That is one of the good things about the gaming type of visitor, they are very, very hip to -- everybody knew about Caesars Palace and Bellagio and Mirage within a few months of when they opened.

And so commercial advertising and traditional marketing isn't quite as important when you open up really grand destination hotels.

Everybody writes about them and talks about them.

So that is not actually one of the problems that I am trying to solve at the moment.

All right, just as one housekeeping item and then I will be done.

Can you give us some estimate -- estimated date on when you think that Everett might open?

Yes.

We start in April and May as we expected to do.

What are we thinking, about 28 months?

30.

30 months.

30 months from April.

Okay, perfect.

Thanks a lot.

So that is April 2016, April 2017, April 2018, late fall 2018.

Before 2019.

All right, thanks very much.

Felicia Hendrix, Barclays.

So, Steve, last quarter you expressed your frustration with planning for an opening at Wynn Palace without knowing how many tables you have and so forth.

If I may use the word Zen, you sound more Zen about things today.

Just wondering if something has changed now, maybe you have more information regarding the size of the casino, maybe you have run scenario analysis that made you more comfortable.

If just you could touch on that.

I am more comfortable.

Zen was a good word.

I am more comfortable.

I am feeling good about it.

I am convinced that the government of Macau is doing everything in their power to make sure that the citizens of Macau and the employees who are citizens are protected and safe to the extent that they are able to contribute to that process.

So that is to say the government of Macau is on the side of the development of Macau and the healthy continuation of the industry.

And I think all of us have managed to work our way through some of the complexities and ramifications of that process.

And so I am -- I have spent a lot of time there in the last few months and I am feeling better about it.

Have they given you some kind of comfort level with the number of tables that you would get or is it more of a general comfort?

Well, we don't have a specific allocation of tables.

I have a general confidence that the government wants the operators to be successful and they want these new hotels to take their place as very vibrant successful destination, multi-faceted, diverse tourist attractions that they are in fact designed to be.

I am confident that the government wants these places to get off on the right foot.

And I think that the government will do what they have to do to see that that happens.

And that is the basis of my confidence.

I have confidence in the government's ability to take care of the problems that are associated with growth in the market.

I think that is probably the best way to express it.

Okay, that is very fair.

And if I may, I have -- my second question is a bigger picture question.

And, Steve, when you and most of your peers talk about Macau and its future, everyone is optimistic about the future growth of Macau.

Last quarter you said that your long-term confidence was strong and you said it again on this call.

And I am just wondering, given where we stand now -- we are in the midst of a market transition from VIP to mass, there is uncertainty, we talked about some government policies.

You are feeling more comfortable now, but there are government policies that have inhibited growth.

Just wondering, can you discuss what drives that longer-term optimism?

And what do you think the inflection point?

Is it a period of time?

Is it an event?

Is it a political change?

What is driving that optimism longer-term?

That's a very intelligent question.

Good for you.

It is just the size of the country, the priority that the central government has put on the success of both SARs, both special administrative regions, both Hong Kong and Macau.

The dynamism of that country is overwhelming.

And remember that the Communist Party is a meritocracy in China.

And although one leader may be a bit more conservative than his predecessor or a bit more liberal, generally speaking they want a successful life for the citizens of China and for the people in Hong Kong and Macau.

The personalities of those cities are highly developed and not under discussion anymore.

Macau is the destination resort place along with Hengsheng Island.

And Hong Kong is a financial center.

There is no argument in the higher echelons of government of Peoples Republic of China on what role those cities play in the overall scheme of things in China.

And so, consistent with what I said a moment ago that the government seeks to make the country successful, I am positive that they will.

That doesn't mean that in the short term the enormity of problems they face is directly proportional to the enormity of the country.

It is four times the size of the United States.

And imagine the problems we have and the complexity that our government faces with 350 million or 330 million people.

How would you like to add 1 billion to that without the kind of infrastructure we have got.

I mean managing China is a daunting task and they have got a lot of smart people doing it.

And where they have come, you know you draw your confidence in the future from a careful study of the past.

Starting with Deng Xiaoping in 1979 when he said if it is a black cat or a white cat, (inaudible) cat it doesn't make any difference to me, as long as it catches mice it is a good cat.

The government of Macau -- of China has been empirical and pragmatic and has brought hundreds of millions of people out of poverty, a feat unequaled in the history of civilization in any country.

Obviously somebody is doing something wrong -- doing something right, rather.

They are tapping into the latent energy of that population.

Why would we consider that that would not continue?

And when it comes to recreation, Macau is the place of choice.

That big picture kind of common sense based upon history is the basis that is -- so when you ask where is the inflexion point, I don't know that.

But when you ask me why do I think the long-term prospects in Macau are incredibly positive, that is my answer.

I love being part of the Chinese scene as a businessman.

That doesn't mean that there aren't short-term discomfort and adjustments.

But, hell, what kind of adjustments do we have to make in the United States considering what is going on?

It is just as tricky here as it is there.

Did I help you with that answer?

You made an intelligent question; I don't know if I gave an intelligent answer.

No, that was very helpful, I appreciate it.

Thank you so much.

David Katz, Telsey Advisory Group.

This may be considered as a follow-up on Harry's question, but I think there is probably little argument about the quality of buildings that you develop and the execution that you've demonstrated over the years.

But as we look at the Macau market -- and I hate to be too short-term about it, but looking at this year and perhaps next, there are, in addition to fewer VIP junkets as you describe, and still a lot of patrons but fewer of them, there are also a number of other properties and hotels competing for them.

And if I can just ask what -- other than doing what you always do, what differences to your strategies are you contemplating, in whatever terms you are comfortable sharing them, to deal with that elevated competition in what can only be described as a compressed demand environment at the moment?

Well said, compressed demand environment.

And you are spot on.

If I had some new technique or marketing device up my sleeve --.

You shouldn't tell us (laughter).

I shouldn't tell you.

But if I don't have one I think it is only honest to tell you that I don't.

But I have an answer, however satisfying or unsatisfying it may be.

If you set out to take a resort hotel to another level, and when you say another level, superior level.

And you thought by so doing you would give yourself a competitive advantage almost as if you had a trick up your sleeve.

Then I will tell you what you would have to do to get to that point.

And if we have got a trick up our sleeve here it is and I'm going to confess.

The way you make a hotel go to another level is you start with every single minute element of it.

And as you construct the plan for the building and the design and the human resource engineering you revisit every single assumption once again from day one using all of your experience and asking how could we make each individual component better.

And if you did that from the bottom up starting with the back of the house, the doorway, the lighting, the hallway widths, the training of the employees, the compensation of the employees, the way you cook their food, the way you clean the floor -- everything.

What it is like when you are laying in the bed, what do you see when you are in this room or that room type.

If you had the patience and the experience to take that journey, which would take you at least two years before you could bid the building, then you would have traveled our path in the creation of Wynn Palace.

And that is what we did, that is how we are doing it and if we are right it will work and if not boohoo.

Does that answer your question?

Very well.

Good luck.

Thank you very much.

We're going to do what we have always done.

We are going to keep trying to make it better in every way.

And that, look, the customers aren't going to change.

There are people who come to Las Vegas and Macau to live big and have fun.

And whoever gives them that product consistently and fully wins the race to the top, I guess is the way to put it, or ends up in first position.

Now that doesn't mean that we are going to be bigger than anybody else, it will mean that our hotel will be successful.

And we will have a proper return on its investment in that sort of thing.

And we will have a loyal and growing clientele.

Now we took the long way home at the Peninsula, we weren't the first to open in Macau, we just made the most money when we built the place downtown that is Wynn Macau now.

So I don't see any reason to change our strategy.

It is not broke.

We don't need to fix it.

And in the hospitality business, whether you are in Boston, Macau, Las Vegas or anywhere else, the rules aren't going to change.

We know who our customers are, we know what they want.

And we're going to try to figure out a better way to give it to them.

That is my ace in the hole.

That is my secret.

Thank you, I appreciate it.

Which I just blabbed out, so now everybody knows.

Thank you very much.

Funny thing is they haven't copied it in the past.

Adam Trivison, Gabelli & Company.

With reference to Macau, can you tell us how you are thinking about the positioning of the Peninsula property once Wynn Palace is up and running and more traffic shifts to Cotai?

We are going to run it exactly the way we are now.

There is a market for downtown or the Peninsula that seems to have a personality and life of its own.

We were examining that when I was in China a week ago.

We were looking at what were the changes in some of our competitors once they opened up in Macau -- in Cotai.

Specifically we were looking at the Galaxy people.

They have that place right next door to us.

And it is interesting, there is a clientele downtown -- down in the Peninsula and there's a clientele at Cotai.

The Cotai clientele is different, it is more mass oriented.

Have you noticed?

You know with the people coming across the border.

Ian, Gamal, what do you think the difference is between downtown and Cotai?

And what do you think is going to happen in -- you envision any changes in the Peninsula when Gamal opens the Palace?

Every new joint that has opened in Cotai has been allegedly the death of downtown and it hasn't happened.

So we continue to drive down here.

We have history, the history of Macau, old Macau, we have got the Lisboa, the Grand Lisboa which is somewhere where everybody visits when they come to Macau.

The geography is very different and the scale of the resorts is completely different.

We run the best joint and it is 10 years old.

You continue to reinvest in the property.

It looks like it is brand-new and we have got a very strong loyal customer base and it is going to complement Wynn Palace.

Okay, great.

Thank you very much.

Only an Irishman would call a $1.5 billion hotel a joint.

See how relaxed everybody is in this Company (laughter)?

I learned that from you.

I know (laughter).

We have no other questions at this time.

Thank you.

Everybody else, talk to you next time.

See you.

Thank you for your participation.

This does conclude today's conference call.

You may now disconnect.