永利渡假村 (WYNN) 2016 Q2 法說會逐字稿

Good afternoon.

My name is Nicole, and I will be your conference operator today.

At this time I would like to welcome everyone to the second quarter 2016 earnings conference call.

(Operator Instructions).

I would now like to turn the call over to Stephen Cootey, Chief Financial Officer.

Thank you very much and good afternoon.

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

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

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

And, with that, I am going to turn the call over to Mr. Wynn.

Hello, everybody, and it is very nice to have this call.

I think you have seen our earnings that we were happy with Macau.

We held a high, but we made $20 million more than we did last year, and it is another increase in our quarter.

And even though we held a high, we were also carrying an equal amount of extra payroll for the Palace, which opens next month, so the increase is real.

We will be transferring all those employees in the next few weeks -- in the next few days, actually, and so we will have a different expense pattern for the Peninsula operation of Wynn and Encore in the months ahead as we equalize the payroll.

I think we mentioned table allocations in our press release, and I would like to take a moment or two to comment upon those and give some insight to those 160-odd people that are on this call, according to the operator.

We haven't analyzed in the past as we headed towards the opening.

We were unable because of the table cap to predict how many tables we would get.

So we established a long time ago various scenarios where we could operate from 100 tables to 280 tables and new tables on how to operate both hotels, all three of them, actually, efficiently and profitably.

Some of the things that you may find interesting, for example, in a recent month -- and this is pretty typical -- we had 180 tables allocated at Wynn and Encore to VIP -- to junkets.

To junkets.

And then we analyzed, as we do now, for the past year, we have had a completely different focus in this Company about the gambling activity of our clientele.

And instead of analyzing the casino on win or turnover, we have analyzed both in the United States and in the People's Republic of China and Macau.

We have analyzed and we run our business on a completely different model, and that model is contribution to EBITDA, to profitability of each unit in the casino, regardless of win or turnover or activity of a gambling customer.

What, instead, we look at is how much money do we make with such pieces of equipment, whether it be a table, a Baccarat table or a slot machine.

And the results of our inquiry, both in the United States and China, have been very, very enlightening, and I will share them with you.

As an example, of 180 junket tables in a month, 60 of them were responsible for all of the EBITDA.

The other 120 were either breakeven or, in some cases, losses taking all costs into account.

That is to say, that our profitability was limited to a much smaller group than one would at first imagine.

Now -- and we made a number of very startling changes in the way we laid out our casino, the policies that we employed with regard to the rules of the game -- craps, blackjack, and Baccarat, roulette included -- that embraced limits; the moments with the client when we would give free promotional allowance allocations of rooms, food, beverage, or airfare.

We took a different look at all of that, and, since last July 10, a year ago, a little bit over a year ago, we changed Wynn Las Vegas and Wynn Macau because we were the largest recipient of Asian business in our hotel in Las Vegas.

And when that business tailed off as it has in the industry, we decided that -- and we lost $150 million in Wynn at one point.

That is how big our Baccarat business was that we could lose $150 million.

And we were left with a smaller number.

We used to give discounts to blackjack players and crap shooters.

We dealt blackjack at 3 to 2 if you got 21.

We started putting in tables where we paid 6 to 5 and dealt single decks or double decks.

We changed the layout of the floor.

We put our higher yielding games in more prominent locations.

We put destination type games like craps in secondary locations.

We changed the amount of free odds that we gave at dice games from what was commonly referred to as the 3,4,5 game.

And that had to do with the number of free odds you would get if you made a line bet to double odds.

Now, to give you an example, when someone has a 3,4,5 crap game, the house advantage is 37 basis points.

38 basis points.

When you go to double odds, the house advantage is 58 or 57 basis points.

Now, that doesn't sound like a lot.

That is a very narrow margin of a house advantage mathematically.

However, 20 basis points is a 60% or 70% increase in the margin of a dice game so that the outcome in terms of profitability was based upon a rather granular analysis of each game.

We made a bunch of changes.

And in so doing, we were able to overcome in terms of profitability what would ordinarily have been a massive loss of top-line revenue.

So the gaming industry is a little deceptive in many respects.

It takes a very sharp analysis and very high degree of self-awareness because, when you take rooms away from the casino block and you can sell them for cash, our margins in the hotel rooms are very high as they are in slot machines.

Casino table games in Las Vegas, if you were to do an analysis, would have a profit margin in the teens at best.

We were able to take our profit margins in table games up into the [40s%], which I think is unique in our industry.

Well, this kind of analysis applied to China is also very enlightening and instructive.

Having allocations, having table caps as we are experiencing in places like Pennsylvania, I was -- this week I stopped at Bethlehem at the Sands facility, and I was watching what an alert management team did to offset limitations imposed politically on the amount of tables.

And they used a concept known as Stadium Games where you use three or four dealers for roulette and blackjack and have 150 automated digital stations for players that allow people -- it is a much more efficient use of an allocation of tables because you get 150 players with four dealers.

And in the case of Bethlehem, when I watched the other day, on Tuesday, and they were able to take advantage of that and introduce people at lower minimum table limits to roulette and Baccarat, who might not have played those games were it not for the low entry-level afforded by this stadium concept.

Now, we use those at the Wynn Macau and the -- and they are being used in Singapore and around the country.

And I suspect that, because of the payroll efficiency inherent in such concepts, that we are going to see more of it.

And it allows us to make better use of our staffing levels and offer the opportunity for excitement on a playing level to customers in a manner that is very efficient.

Having said all that, we anticipate the following aspects of our business, which will not impact our profitability, that by having fewer games you get to have higher utilization.

Remember, in most casinos around the world, utilization is less than 50%.

You know you are sort of keeping the payroll and the games for peak periods.

Weekends.

A few shifts a week.

By having fewer tables, you increase utilization dramatically, and you are able to control limits.

So let's get to the second part of my presentation, which is this.

A close analysis of the market in Macau will demonstrate that the bulk of the profitability in business is in what is now referred to as premium mass business.

We distinguish between mass and VIP because in the mass, very much like America, people buy in for cash.

They get -- they play with regular chips that are negotiable, as opposed to the VIP or junket end where we use non-redeemable chips that are purchased by junket operators or supplied to us, and then the customer is forced to bet that non-redeemable chip and they keep betting the non-redeemable chips and they save the redeemable ones and then either cash out or buy more non-redeemable chips in which case they get a little discount.

My point is this: the money we make and the margin that we enjoy is based upon the vast premium end, and that premium mass end is not a hard line of division.

It isn't a question of, well, one guy bets $25 using US currency for a moment, bets $25 and a premium guy bets $500.

No, there is a whole range in between where people bet $2000, $3000 a decision, but they are playing in the mass area of a casino.

We refer to those as a more premium customer.

Now, the Wynn Palace in Cotai was designed from day one, six years ago, specifically for premium mass business.

Some of our competitors who are very intelligent operators, they have designed buildings that are specifically designed for the lower end of the mass market.

The Wynn Palace is not such a structure.

The rooms, the restaurants, the retail, all of the amenities -- the layout of the place, its entire conceptual framework was based upon getting the higher type of mass player.

So we were always in a position to operate our casino with less equipment than our competitors.

Incidentally, to give you an example of that, when we opened Wynn Las Vegas, we had close to 2900 slot machines, and we won $180 million a year.

Today, even with Encore, we win well over $200 million with less than 1800 machines.

Technology has played a role in this, and it is playing a role in table games as well.

So to close this little presentation of mine, we feel positive and comfortable about the hotel, and we are looking forward to the opening on the 22nd of August, and I am hoping that some of the things that I just highlighted in my comments are instructive to all of you.

One other note away from China and Las Vegas for a moment is, on Tuesday at 5:00, we expect to get our final environmental permit in Boston and begin full-scale construction on Wednesday.

Although we have had hundreds of people at work already on areas that were not impacted by the environmental permit, work that was necessary to build our building on things like a slurry wall and other preparatory construction aspects of the foundation.

But hard construction begins on the tower itself Wednesday morning, and we don't anticipate any other interference with that process.

I think that about covers it.

Matt and Steve, Bob DeSalvio is on the call from Massachusetts and is happy to elaborate on any of the comments that I have made or any of the questions you may have, which you can begin asking right now.

Thanks for your attention.

(Operator Instructions) Joe Greff, JPMorgan.

Steve, thanks for your comments, your perspective putting on the topic of table game allocation.

Along the same lines, along the same topic, does the fewer initial amount of table games than, say, 150 to 250 that maybe some people were thinking, does that alter the amount of labor-related OpEx shift from Peninsula to Cotai?

Ultimately, depending on utilization, it will, as it always does.

You know, you adjust your workforce, based upon the demand that you have from your customers.

So -- but that is something that you see as time goes by, Joe.

Got it.

And then, just to make sure we all understand this, is there a chance that you could open with more than 100 -- and I ask it knowing that Galaxy went through a process and maybe got a little bit more to open and then got 50 more and then 50 more after that.

Do you have a timetable for when more tables would be released, I guess, with the second go around of additional table games being allocated, would that be more of a 2017 event or could that be a late 2016 event?

Joe, we haven't been formally notified nor in the manner that the government does such things yet and I suppose it is possible.

What we do in the absence of official notification is, we make plans to run at a minimum efficiently and then, if demand calls for it and the government decides that it is a good idea, then we respond when they give us the tables.

But they don't tell us in advance about such things, and so the best thing for us to do is not to plan for it.

Got it.

And then a final question for Steve Cootey.

Can you allocate the EBITDA impact, the positive favorable EBITDA impact in the Macau from the high hold?

About $20 million.

It was about the same as the extra payroll we are carrying, Joe.

Yes, yes.

I heard you say it.

I just wanted to clarify that.

Great.

Thanks, all.

Shaun Kelley, Bank of America.

Maybe just to follow up on that payroll comment, so the $20 million of extra headcount that was being carried, that is still -- those are employees that are currently at Wynn Macau that will be shifted over to the Palace.

And then, in addition, was there additional staffing that is feeding the preopening line, which is why we saw that expand?

Let me clarify that.

We were carrying $20 million to $25 million a quarter of extra payroll in the Peninsula operation for Macau.

All of those people are being transferred as we speak, and they are employed at the current table limit level.

The extra tables, were we to get them, would have been reflected in new hires, which have not taken place.

So the people that we said we are transferring, we are transferring and they are employed.

Does that answer your question?

I want to make sure I am responding properly.

I think, from an accounting standpoint, what you are talking about, Shaun, is Wynn Palace will have 7000 employees.

Roughly 2000 will come from Wynn Macau.

So when you see preopening ramping up, that is the other 5000 people that are coming on board right now and came on board in the second quarter.

That is that $40 million in preopening out of the $45 million was related to Wynn Palace hires outside of the transfers.

Perfect.

Now I understand.

That makes perfect sense.

And my second question would just be, when we look a little closer at the VIP line, it looked like perhaps the rebate percentage was a little higher than normal.

Usually that may have to do with what is going on in the direct VIP business, but any color you could provide on that?

There was no change in commission structures in the second quarter.

Yes.

You have got me on that one.

I am not sure what line you are looking at.

Linda is on the call -- or Ian is.

Ian, do you have a comment on that?

We haven't altered our commission structure.

It remains the same We're very parsimonious.

I am not sure what is being referred to.

No.

Sorry.

Maybe to be more clear, just asking about was there any kind of hold outside of the norm on the direct VIP business?

Was there any hold?

You mean, did we play lucky?

Yes.

We did.

We did.

I did to the extent I think we played lucky almost exactly to the extent of the extra payroll we were carrying.

So what I am saying is, the $20 million increase is real.

We've played lucky in both direct and junket.

Both sides.

They make up that combined number of 3.98% hold percentage.

Okay.

Got it.

Thank you very much.

Carlo Santarelli, Deutsche Bank.

Matt, for starters, you just mentioned playing lucky in both direct and VIP.

Sorry, and junket.

Could you maybe clarify a little bit what the mix in terms of drop or something is of the two segments at this point?

You know, Carlo, we normally don't do that, getting into the mix of direct versus VIP.

We always -- I can tell you both held high in the 3.98% on the $11 billion in turnover.

But, generally, what is relevant to this conversation is that we have three or four very prized junket operators who consistently produce for us and produce profitable business for us compared to any other equipment in the building.

And they are going to be both -- they are all established with proper tables in both Cotai and in the Peninsula in August at the opening, regardless of anything that we have discussed so far.

But we also run our own program very much like we do in Las Vegas where we give credit to people in Hong Kong where we are permitted to do so, and those numbers jump up and down depending on who shows up.

I mean, to give you an example, in the last week in Las Vegas in five days we won $22 million in our own program in Baccarat from a handful of customers.

So we get this -- we benefit from having an extremely loyal high-end group of customers that come to us in a number of ways, some through junkets in China and some in our own programs here.

And they vary; the volatility or the attendance of such clientele varies unpredictably from month to month and week to week.

So the reason we don't discuss it is because it would be irrelevant.

It is not instructive and it is unpredictable, which is why we don't give guidance on it because we really don't know what to say other than what I've just told you.

Great.

That's helpful.

And then, if I could just understand a little bit more how you are thinking about the positioning.

You will, obviously, open Wynn Palace with 350.

If I am not mistaken, your allocation or your table allotment coming in it was like 509 or somewhere around there, plus the 100 is 609.

So (multiple speakers).

It is 520 plus 100.

It is 620.

620.

Okay.

Sorry about that.

And so you will have 270 at the existing plus your 350.

How are you thinking about the splits between mass and VIP at each of the properties now?

Will you try and lean more heavily --

60 or so in both hotels in the junkets and VIP and the rest are in mass.

So the mass floor is unaffected.

The adjustment takes place in the VIP section.

Understood.

Thank you.

Jon Oh, CLSA.

My question pertains to the 250 tables that you are shifting from Wynn Macau.

I think this number is a little higher than what we are modeling generally speaking.

So, as I am thinking about the cost shift and the expense shift that will be moving from Wynn Macau to Wynn Palace, that is a positive thing.

How should we also be thinking about the potential that you are actually peeling off more of Wynn Macau's tables and what it would do to your revenue of your existing Wynn Macau?

Basically, I'm trying to understand this risk of self cannibalization, which I think, Steve, you brought the point that maybe only maybe 60 tables out of the 183 in VIP are contributing to profits so you have some slack to pick up there.

But what about some of the mass-market tables and premium mass-market tables in existing Wynn Macau today that you may have to shift to get Wynn Palace to the right size?

How do you feel about this risk of self-cannibalization in the coming weeks as you open Wynn Palace?

Well, that is the good news.

The shift is irrelevant because the tables that are left at Wynn Las Vegas are the ones that -- and in Encore are the ones that are making the money.

We are not touching the mass floor.

That is the point.

We had an enormous amount of tables that were idle with payroll in anticipation of the shift to the other place.

So, in one way, it is fortuitous that we are not affecting our premium mass capacity or potential in terms of tables at Wynn Macau and Encore Macau.

The adjustment was made in the junkets and sending out the junket operators and the tables allocated to them.

Our mass floor doesn't change.

Our premium mass floor doesn't change in either place.

What you'd see, Jon, is if you look at the numbers, we have some poker games that are more of an amenity that would likely go.

That is about 14.

And then of the 20 or so mass games that would need to be transferred to get to those numbers, those are underperforming games in certain areas that we rarely open.

So.

This may be a fascinating -- you may -- those of you who watch this industry so closely -- and our competitors as well may find this to be a fascinating observation.

When we concentrate this business on the tables that we have predetermined to be the ones that are most profitable and increase their utilization, some of this speculation has to remain as speculation.

But I think you are going to see the results quick enough in August -- the last week in August and in September, leading up to Golden Week.

And I think that we might find this very instructive before it is over, and we don't do much spinning here.

We let the numbers speak for themselves.

But I want to point out that the trend in our industry has constantly been to less equipment and more efficient utilization of that equipment.

I also want to remind everybody that you cannot get dynamic in a casino; you can only get dynamic in the non-casino area where you create attractions that produce people of a certain income level that make the place profitable.

I can't overstate that simple observation more strongly or strongly enough.

In a hotel casino, in these integrated resorts, the hotel itself is the show.

A lot of conversation has been promulgated about the diversification of gaming away from just gambling to non-gambling things.

And that conversation has widely and largely been misunderstood.

So let me make a point about that now.

When you say diversify to non-casino things, you have to understand that isn't a simplistic thing, well, we will have more restaurants.

We will have more shows.

We will have more this or that other than a slot machine or a Baccarat table.

Diversification means how well do you make the entire place an attraction from a hospitality and touristic point of view so that you don't just rely on a Baccarat player or a slot machine player.

Now, that diversification involves the entire building.

We spent, without exception and without any possibility of contradiction, more money on non-casino attractions in Wynn Palace than has ever been spent on any facility of that sort on the planet Earth.

And it has been done in the things that really matter to people: the width of the hallways, the height of the ceilings, the attractiveness, the decor, the size of the rooms, the elegance and luxury of the retail offerings, and, most importantly, the entertainment quotient of each and every food and beverage outlet.

The customers of Macau in the past -- since 2002 and even before with Stanley Ho's operation, the customers have a very distinctive personality.

They shop, they eat, and they gamble.

Their attendance to traditional entertainment attractions has been unpredictable and, in most cases, unsatisfactory.

We saw a Cirque du Soleil show.

Remarkable company that we pioneered ourselves in Las Vegas.

We saw that show open and close at the Venetian.

The entertainment attraction at the City of Dreams is primarily being supported by freebies -- you know, people that go in and are offered the experience complimentary.

What we have seen at Wynn Macau and Wynn Las Vegas, the only five-star facility in Macau and the most complete in terms of five stars in spa, five stars in food, five stars in rooms.

That is very unique in the gaming industry.

We are the only ones that had that kind of across-the-board five-star rating.

That is diversification.

When Wynn Palace begins, at 8:00 in the evening, on the night of August 22, everybody will experience visually for the first time -- the press will see it the week before with me -- the most diverse, the most elegant, the most completely diversified attraction in the hospitality industry that exists anywhere in the world.

I say that unequivocally because it took us six years to be able to make that statement, and all of you who have enough interest in the matter and the press will get to see it for themselves.

You will eat the food with the incredible array of chefs from pastry to -- we have an Alain Ducasse chef in our coffee shop in this hotel.

It is on the water experiencing $70 million or $80 million worth of entertainment on the fountains.

That filters through to the entertainment quality in each of the restaurants, even in the gaming areas.

So, in the lobbies, tens of millions of dollars have been spent on floors that open.

The theme of the hotel is flowers.

We are talking about Ferris wheels, carousels, 25-foot-tall Faberge eggs that open, all made of flowers.

Everywhere in the hotel there is entertainment, public entertainment, and in every aspect of the hotel, the hospitality diversification has been intensified and redoubled.

And those are the things -- if you want to take a hotel to another level, not a casino, a hotel, then you have to revisit each and every component down to the most minute detail and revisit them, ask all of the questions, question your history, question fundamental assumptions, the ones that survive have survived cross examination and recross.

And new stuff emerges as you apply a great deal of self-critical judgment in the design development phase.

All of this will be self-explanatory and self-evident at 8:00 on 22 August to the rest of the world when this hotel takes its first breath publicly.

The press will get to see it and the financial community in the days preceding August 22.

Incidentally, we adopted a technique.

I was asked, how do you want to handle the opening, Steve?

I said, I tell you how I want to handle the opening.

I want to show the world.

I want to show the political leaders who don't attend these hotels.

I want them to see the villas, the penthouses, the entertainment attractions alone in small groups of tours in each of these remarkable moments in this building before it opens.

And then, during the month, that is what I am going to do on the 22nd to our invited guests.

But, in the weeks preceding August 22, all 12,000 or 13,000 of our employees will be in small groups of eight to 10 and experience the identical tour and visualization of this hotel in tours with music and with full tilt presentations so that, by the time we get to August 22, there will be an awareness in the community of what we have built.

That is the policy we are following and it begins in two days, and that is the indoctrination and the display -- when you talk about the villas and the penthouses and the other attractions in this hotel, normal people will never get to see them.

They will be reserved for special guests that are being entertained, that are being fed in these restaurants.

The politicians and political leaders, union leaders, line employees, will never see every part of this place because they are specialized in certain parts of it.

But our job from August 1 to August 22 will be make sure that anybody who works for the Wynn Macau company in either the Peninsula operations or the one in Cotai are completely exposed to what we have built for them as a place to work.

Because, at the end of the day, this is all about our employees because if our employees have a sense of the place and its luxury and its special nature, then they will pass that on to the public.

Those are our strategies, those are our philosophies, that is our thinking, and we are going to bring it all to bear along with 40-odd years of experience to see if we can get this place off and running in a nice way.

It was built to take market share.

No question about it.

No need to pussyfoot about it.

And we will see if we can keep the promise.

Personally, I saw it three weeks ago.

I thought it was the most joyful place we have ever built.

My wife, Andrea and I walked through the building, and we were quite dazzled by it.

I am hoping that all of you will be (technical difficulty).

Okay.

Thank you for the color.

If I may follow up with another question.

I think you made a statement earlier about premium mass, and it seems like that is going to be the front and center of the Wynn Palace strategy.

Could you size up the state of the premium mass market today, specifically if you could maybe give us some sense as to some visitation trends you are seeing and also customer spend?

Are you seeing any encouraging signs right now, and how do you feel about the state of this market, and we know your position very well given the product that you are building, but any color on premium mass as a segment will be very helpful to us?

Thank you.

Ian Coughlan.

My Irish boss.

Do you want to talk about that?

Sure.

What we have seen in premium mass at Wynn Macau specifically is very sticky customers.

We have been allowed over the last 18 months to grow the mid tier of premium mass.

We have cultivated a lot of new players.

It has been very strong for us.

We have allocated more tables to premium mass, and it suits the property.

So they are our type of customers.

It has been running very well, and we are very confident about premium mass at Wynn Palace.

We have the product to support it, and we have built the place for premium mass, and Wynn Macau is no different.

So we are seeing finally a return of some of the higher, higher end premium mass players.

We have seen that particularly over the last eight weeks.

So it is strong, it is steady, it is stable, and we are looking forward to Wynn Palace and Cotai being a different market with lots of premium mass there to harvest.

And, John, on all three months -- April, May, and June -- we were up in the mass segment year over year.

Thank you.

That's very helpful.

Felicia Hendrix, Barclays.

Good afternoon.

I just want to switch gears for a second, if I may, because my question is on capital allocation.

So, Steve, so you are opening up Wynn Palace in about a month -- a little less than a month, right?

And then we move to Boston and, by the way, congratulations on getting closer to commencing construction there.

So, in a few years, Boston will be open, and then following those two projects, you should be back to generating strong free cash flow.

The next project in line is obviously Paradise Park, if that gets approved.

So I'm just wondering, how do we think about your free cash flow as you are building out that project in Vegas?

Is there is a scenario where you are returning cash to shareholders while you are also embarking on construction in Vegas once Boston is open?

Felicia, I think we always return cash to shareholders, and we will continue as long as our business remains robust to pay dividends.

That has been our policy from the beginning of this Company.

And once, as you look at our balance sheet, it becomes quite strong we expect over the next 12 months.

And our capital allocation will be exactly what it has been.

We are in construction, Felicia, and we have been for several weeks on our Wynn Plaza shopping center on the Strip, on the sidewalk on the Strip between Wynn and Encore.

So we are very happy with that, and leasing is proceeding.

And that project is underway, and will finish next year.

Okay.

I'm sorry.

I'm sorry.

That is all -- I just wanted to throw that in.

We did start that job, and it is going well.

Okay.

Great.

And then, Steve, so when we think about Macau, right, and a lot of the questions I think that were being asked today are kind of coming from the base of people trying to figure out what is going to happen in the very near term, like, is the new supply going to grow or cannibalize the market?

And that is an interesting debate.

But when we look out further, a year, two years out and given the stabilization the market is seeing now, especially given the market, the stabilization that the market is seeing now, do you feel more comfortable about your growth projections for the market as you look out a few years?

And just as a follow-up to that, how much of your vision in Macau relies on proper infrastructure being in place, like the bridge and the light rail, that sort of thing?

Well, we are seeing numbers today that have no bridge, no monorail, none of those remarkable infrastructure additions that the government has instigated.

They have not yet matured and come into season.

So what we are seeing is the picture that you are sharing with us at the moment, based upon the numbers from ourselves and the other gents and the other companies in Macau.

The things that are in the pipeline, the bridges, as you know, it is mightily being constructed.

Monorail with its growing pains seems to be settling in, and work is proceeding on that.

Those things all add to the viability of all of the operators in the special administrative region, and they can do nothing but help as far as I'm -- as far as I understand them.

All they can do is make it easier for more people to get to Macau.

The penetration of Macau in terms of the general population is still small.

The room for growth is astronomical.

When you consider coming to play and how many folks there are.

The visitation in Macau is being augmented and enhanced not only by these infrastructure projects that are breathtaking, that bridge and the monorail, the light rail, but by the very facilities that the concessionaires have invested in, and that have opened.

I mean, Galaxy and Venetian and the City of Dreams and Studio City are very aggressive, massive projects.

And then, Parisian comes on shortly.

And then eventually we will have the SJM property, which I think in a stroke of real originality called The Palace, that comes on at some time next year, I guess.

When is that due, Matt?

I'm not sure.

I think it is further out.

Further out?

But the Parisian is around the corner.

A couple of weeks after us.

So those things match and enhance the future of the market, coupled with those infrastructure things that you mentioned.

Now, I don't know the final date of the bridge.

Have they announced one lately when they expect to function?

To have functionality on the bridge?

I know the light rail -- when?

2020 or 2021.

It keeps moving.

Yes.

In three or four years and what about the light rail, Ian?

2018 first phase, 2019 the second phase.

The first phase goes around two sides of our property and has its first stop right in the middle of the lake by our gondola station.

That is the first stop from the ferry terminal, and it goes around the north and the west side of our property and stops right smack in the middle next to our gondola station.

No accident there, of course.

We did it deliberately.

And then that gondola station feeds the MGM, which is coming along in a few months.

It feeds Parisian.

It feeds the City of Dreams and Wynn Palace.

So I like the interaction of the infrastructure as it comes on board, and it sort of matches and enhances the performance of the buildings and the projects that have been built.

That is how I look at it, anyway.

It is just sort of a -- but I tend to be a longer-range looker at these things than quarter to quarter, but that is my job here.

So I am feeling good about it.

I love our position in Macau.

That concession was one of the most remarkable benefits ever bestowed on companies.

Those of us who are privileged to have such privileges in the SAR are very lucky.

I mean the amount of money we have been able to make and the opportunity to create these places has been fabulous.

Thomas Allen, Morgan Stanley.

So you announced about a month ago the opening date of Wynn Palace, and you started booking rooms.

Can you give us any color around bookings?

You have also been hiring Host.

Any color your hearing from Host on potentially pent-up demand of people who haven't been coming to the market and maybe will start coming again when Wynn Palace opens?

Thank you.

I think we are at 70% occupancy already, and we have only had the booking machine turned on for a matter of days.

Since June 21, Steve.

We have started online sales and taking reservations, and we have had a strong demand basically.

And our rate is at a premium on both the gaming and the non-gaming.

So we're looking very, very strong for the first five weeks prior to Golden Week, and then we go up from there into the [80s%].

That's helpful color.

Thank you.

And then, just talk about the Macau Peninsula property.

Your slot volumes were really weak this quarter.

I think it is the weakest number I have seen or we have seen since 2009.

Anything driving that?

Just the movement of big players.

They can affect the month, and they can affect the quarter.

So the previous quarter was excellent, so they will be coming back.

The slot machines are very much like the tables.

There are very big slot players in China.

And in our particular case, when they show up, it gets very exciting.

When they don't, it is a little bit more subdued.

Thank you very much.

Robin Farley, UBS.

I have two questions.

One is, how should we think about, for the Palace, what percent of rooms will be sold, cash sales versus given to players?

Just how to think about that.

And then, also, I wonder how you think about how the US election outcome may impact business in Vegas?

What a good question that is, Robin.

I will take the second question.

Yes, go ahead, Ian.

This is Gamal.

We basically planned for the initial period to be at 30% non-gaming or cash business and 70% gaming, and then we will eventually get into a 75% gaming, 25% cash business.

Okay.

Great.

The election in the United States, I think we are all in the same position.

It is almost impossible to predict exactly what effect that will have.

Without getting into an economics discussion, I mean, we have sooner or later our political establishment is going to be forced, regardless of party affiliation, to deal with $19 trillion in debt that is climbing by around $1.6 [million] a day.

That means that at the treasury auction each month in downtown Washington, we are printing money at the rate of $40 billion or $50 billion a month, which is, of course, increasing the money supply and directly impacting the living standard or the buying power of the US dollar where people are being paid like everybody on this call today.

Now, part of the frustration in America is the fact that the deficit is having an enormous impact on the living style and the living standard of Americans, but not all of this is well understood by the folks, to use Bill O'Reilly's term.

The folks are being -- their living standard is being clipped by the deficit and by the printing of money and the increase in the money supply.

How long can this go on?

In the history of the Western world, inflating your way out of this kind of a problem taken to its extreme, to use the Weimar Republic as an example, people went grocery shopping with wheelbarrows full of currency.

Now, when -- before the recession, the euro was $0.87, $0.85 on the dollar.

During quantitative easing one, two, and three, it went up to $1.48.

That was a devaluation of American currency by 20%.

Now it is $1.10, and to use that as a benchmark for a moment, it isn't that the dollar got stronger, it is that the euro got weaker because they started quantitative easing and printing money in the euro -- in the euro community.

So this deficit issue impacts the mental health, the frustration, the positive sense of tomorrow that working people feel in America.

It doesn't got anything to do with rich folks.

It has got to do with government, fiscal and monetary policy.

We have $14 trillion in public debt and $5 trillion in intergovernmental debt.

The coupon on that $19 trillion and climbing is around 2.3%, and that is with short-term interest rates at zero, virtually.

Now, the Fed -- the current Fed, the lady is going to keep interest rates where they are.

That, of course, protects all of the credit card debt of $1 trillion that is out there, and so we don't have mass panic on the credit card interest.

But I know that the government is in a quandary as to what to do about this.

Now, the issue about what is going to happen with the election isn't so much an issue of Trump versus Clinton at the moment.

It is a question of whether the House and the Senate and the Executive branch can get together and make Americans feel safer and have a fiscal and monetary policy that isn't self-destructive, which currently it is.

Now, I know that in this time of year, everybody is making all kinds of promises and declarations that they can do things or they will do things, but of course they cannot without exacerbating the problems that are currently plaguing the country.

What is lamentable is that the public discourse today on both sides misses the point entirely.

We are in the chicken for every pot season where everybody is promising the moon.

I recall that one of the most popular themes this year is that we have got to get student loans and the burden of student loans off the back of the kids.

Well, when the Affordable Care Act was passed and it was going to have a negative impact on the deficit, which its sponsors had promised it wouldn't, the sponsors went looking for a way to offset $8 billion or so in additional deficit, and they came up with the kind of a stunt that we did with Fannie Mae and Freddie Mac when we eliminated mortgage brokers and we just took the loans directly into Fannie Mae and Freddie Mac, and that led to the collapse at $5 trillion of the system.

Well, they did the same thing with the Department of Education.

They gave the student loans directly from the Department of Education and eliminated any middle people.

And then they charged 6.5 points or 650 basis points for student loans instead of passing the savings because the Department of Education doesn't really have a cost of money.

But they are making the student loans direct since the Affordable Care Act.

Bernie Sanders didn't talk about that.

But that 650 basis points, that carry is being made by the government to offset what would have been an even greater impact on the deficit by the Affordable Care Act.

Well, if you really were sincere about making a better life for the kids, you would have passed the loans from the Department of Education to the kids at cost, which would have been interest free.

But this kind of hypocrisy, which sort of is endemic to the whole system regardless of party, has got to come to a halt.

Because if it doesn't, then it insinuates itself into economic demand for services and products.

It certainly insinuates itself into the price of everything from Walmart to shoes and sneakers.

Those things haven't been by themselves become more precious.

The value of the dollar has declined.

I know that we talk about China fooling with their currency.

The United States has fooled with its currency even more aggressively than the People's Republic of China.

I am not an apologist for China or anybody.

I am simply stating a fact.

But you won't see this in the conventions of either party.

You won't hear this sort of thing because it is so uncomfortable to talk about it.

But the election could put America on a better track if all the Senators and Congressmen and the Presidents and the cabinet members decide that they should or it won't.

I don't know about anybody on this call, but I am not in a position to make that prediction.

But it surely, surely impacts the life of every American.

Tax policy and all the rest all roll into this.

And businessmen across the country and people that work in businesses will be affected by this as sure as sunrise tomorrow.

And there seems to be a fear to deal with it directly.

So count me as one of those old white guys that is frustrated.

Okay.

Thank you.

(multiple speakers)

Robin, if I could -- I want to say something to Robin.

Robin, there's 465 agencies in government, and there's 4,150,000 federal employees.

1.5 million are in uniform; 2,650,000 of them are civilians covered by the SEIU union and the Civil Service Act.

If you want to make government more efficient, you have got to have a big idea that resonates with all of the government employees, all 2,650,000 of them and 460 agencies, and it is going to have to be the kind of big idea that we use to run businesses, which is namely to reinforce positively the behavior that we wish to encourage.

And that can be done with tax policy and with employment techniques in the federal government that work so well in the private sector.

If we told everybody in those 465 agencies, you ran the business for X amount of dollars last year.

If you maintain service levels and you can save a dollar, we will distribute $0.20 on every dollar you save to those of you in those departments, you would see the government contract in terms of its cost of operation overnight.

But you would have to incentivize the people in those 2,650,000 employees the way we incentivize people in the private sector and gain efficiency and better functionality.

But those big ideas don't seem to apply in Washington.

Enough of the speech.

Go ahead with the questions.

David Katz, Telsey Group.

Two quick ones.

And now that Boston is becoming a more of a tangible property and this may involve getting Bob into the act, I am curious how you can update us on how you plan to position it.

As we look around the geographic region, there are other large properties, other small ones, but I think they tend to be more slot driven.

If you can talk about who your target market is?

Then I'm curious what your long-term commentary might be around the table game business in Las Vegas, which candidly has been a little bit hard to model.

Whatever thoughts you have would be welcome.

Thank you.

Bob and I will do that together, and I will lead.

That building in Massachusetts is the Wynn in every sense of the word.

The rooms, the suites, the service, the food, the beverage, the public entertainment, the theatrical entertainment is everything that we do here.

We are bringing a five-star frontline integrated resort right into the center of Massachusetts.

We're the largest private investment in the history of that Commonwealth, and we are the second biggest employer except for the hospitals in the Commonwealth.

And it is going to be a doozy, and it will deal to the same level of the market that we are dealing here.

Bob DeSalvio, we are very lucky to get him to come join us.

I spent -- I was with him this week on the East Coast in Pennsylvania, and Bob, you can pick it up from there.

Sure.

We think of this market in a couple of different ways.

First of all, an incredible local market.

We have got the only casino with 5 million people in the greater Boston area.

And then, when we branch out from there, we have got about 25 million people of gaming age within a 400 mile radius of the property.

So probably the most incredible local market available with one casino.

Massport has been excellent in terms of the international destinations coming in and out of Logan, and we are now up to 54 nonstop international destinations coming into Logan.

So the opportunities for picking up areas that are very good for Wynn with direct service to Hong Kong, Shanghai, Beijing and, of course, all the major capitals around the world, provides us with a great opportunity for the international market.

And so we look at this on many different levels -- local, regional, national, international -- and feel we can qualify for all of them.

So we are very, very bullish on it.

What about room rates in that city of Boston, Bob?

Right now, extremely high and continuing to climb.

There is a real shortage of rooms.

Of course, with healthcare, life sciences, biotech, the universities, there is so much activity and so much building going on in the area and not enough quality hotel rooms.

So the rates continue to climb, and we will be at the top of the market.

There will be nobody in the market that will have rooms even close to this.

So we are actually predicting that we will do very high ADR in this particular property.

And we are the largest hotel in the metropolitan area in terms of total rooms.

Yes.

The biggest rooms in the East Coast, the largest room outside of Las Vegas in the United States of America in terms of footage and decor, and the most amount of rooms in the Metro -- in central Massachusetts.

12 minutes from Logan airport, the first hotel we have ever had that had nonstop service from China.

No Gulfstreams needed.

I think the other part of my question was about the table game business in Las Vegas, which has been a little bit hard.

If you have any longer-term thoughts on it, it would be very helpful.

Thank you.

Well, we do, and it is what I led the conference call with.

Gaming hasn't changed the price of gambling in 70 years, and yet our cost of operating these places has climbed steadily over that period.

And the mentality of the marketing people and the gaming people that deal directly with that sector of the business has been trained, has been grown and matured with a focus on the top line.

The average bet, the length of play, how often does the customer come.

What is our chance of winning X dollars, and then, let's get that customer, give them a room, pay for his airfare, send a limousine, give him a bottle of Lafite Rothschild, do anything, give him a shopping spree.

These are the earmarks of the superficial thought that has guided casino management for decades when it should have been focused on what is the profitability of every table and every customer.

Now, I am not suggesting that they don't have profitability meetings and reviews at these various enterprises.

But I am in a position to say that any examination by any financial person in or out of the industry will reveal that the profit margins of table games in the gaming industry in the United States of America stinks.

Lousy.

Less than 20%.

Now, these businesses end up with margins close to 30% because they have slot machines in rooms and bars and nightclubs, but the forgotten sector has been profitability of table games.

We decided to take another look at that a year ago.

I remember exactly.

It was at the end of the second quarter, and I went after it the first week of July.

I started moving furniture and changing rules in collaboration with my colleagues, like Maurice Wooden, who happens to be on vacation in Hawaii this week; Matt Maddox, Linda Chen, Ian Coughlan, Gamal Aziz, Steve Cootey, my Chief Financial Officer, and everybody in China.

So -- and we decided that there had to be a better way to do this.

You say it is tough to model table games.

You, I don't know how you do your model.

But if you do a deep dive in companies like the ones that line the Strip in Las Vegas, the regional casinos and take a look at the profitability of table games, that model is shaky.

We've changed that here.

We don't care about the drop.

We don't care about that.

We care about the profitability of every foot in the casino.

We take a very merchandising retail approach to the floor.

Incidentally, I think Sheldon has done that in China when he opened up years ago.

It is harder to do it when you are not living in an avalanche of revenue the way we did when casinos first started in Macau.

In the day to day, disciplined grind of normal operation, it requires reeducating all of the marketing and casino personnel to look at the customers differently.

We don't even issue promotional allowances or comps based upon past performance.

We do it on current business activity.

That is to say, if you play this trip at a certain level, we will give you free meals or free rooms.

But if you played that way last year and you show up this week, we are waiting to see what happens this week.

That is a big change in the way they thought in this business, and it requires a lot of discipline and, frankly, reeducation of the people that work in the casinos.

It took us months to get to where we wanted to be in Las Vegas.

But imagine, we were able to overcome the loss of $50 million or $80 million in Baccarat drop to make the same money or more in Las Vegas.

That is hard to do.

But now, when someone plays, it is a business.

It is a business.

Otherwise, we sell the rooms to cash customers, and we reallocate the space in our building.

The business model is constantly morphing and changing, and is it not doing so in every business in the world?

And the prize goes to who is agile.

We are trying.

We are trying.

We are, so to speak, in a commercial sense, constantly in a yoga class.

So factor that into your modeling.

Maybe you'll be able to follow us.

I appreciate it.

Thank you.

And there are no further audio questions at this time.

Thank you, everybody, for paying attention today and giving us your time.

Looking forward to sharing the results of all these exciting new projects as we go forward.

Bye-bye.