Wednesday, August 17, 2022

Macau gets most expensive casino yet, with Wynn Palace debut

Macau will see its most expensive casino to date open its doors this week, when Wynn Resorts' high-end $4.2 billion Wynn Palace makes its debut on Monday after a series of construction delays. 

The property will include a 1,700-room hotel, a performance lake, and a wide range of amenities including meeting, retail, food and beverage, and casino spaces. It is said to be aimed at high-end and premium mass players.

The total project budget, including construction costs, capitalized interest, pre-opening expenses, land costs and financing fees is $4.2 billion, according to Wynn Resorts.

At the pre-opening event Chairman and CEO Steve Wynn called the resort "arguably, the most beautiful in the world."

"To be the prettiest hotel in the world, frankly, is something that money and good taste can buy. But to be the best hotel in the world is something else altogether," said Wynn. "In any hospitality business there are only two words that matter -- guest experience.  All the rest is irrelevant, and all of the marble and crystal chandeliers, and all of the wonderful good taste that has been put into this building is dedicated to that one thing -- guest experience." 

 However, the integrated resort is launching into a market that has changed dramatically from when the project was first conceived, with the government pushing hard for a more mass market and diversified tourism offering. 

Less than two weeks before opening, Secretary for Economy and Finance, Lionel Leong broke the news that the government would allocate only 100 new tables to Wynn Macau for its new development, with an additional 25 tables on January 1, 2017, and another 25 on January 1, 2018.

While the initial allocation was anticipated, the table numbers still came as a shock to analysts, as it was significantly lower than the 250 total tables allocated to Galaxy Macau Phase 2 and Studio City, and far below the 400 tables initially applied for by Wynn Macau.

It’s also no secret that Wynn Palace has less focus on family entertainment and non-gaming offerings than its mass-market rivals, a decision that industry commentators say it may have paid for with reduced table allocation. Under the same reasoning, Union Gaming’s Grant Govertsen says that Sands China’s Parisian Macau, scheduled to open in September, and MGM Cotai in 17Q2 are both in good positions to get a greater long-term total table grant than Wynn Macau.

“As it relates to the Parisian, and in the context of the government’s explanation, no operator has historically focused more on non gaming and family-style entertainment than Sands China and we think Parisian will be no different, not to mention it is bringing online about 3,000 hotel rooms that are not five-star, as we believe the government wants more affordable rooms in the market,” said Govertsen.

However, Bernstein says the table allocation should not have a significant impact on Wynn’s fundamental growth prospects. “While table allocation was disappointing, from a fundamentals perspective, the 150 total table allocation is sufficient when combined with the transfer of underutilized/ unused tables from the Wynn Macau Peninsula (250),” said analyst Vitaly Umansky.

That being said, there is still a chance that Wynn Palace could, as part of a future capex refresh project, “check more boxes as it relates to family-style non-gaming and on-property SME support,” which could see the government reconsider future allocations, said Union Gaming.  

On August 17, Wynn Resorts founder Steve Wynn flew to Macau to host a press conference to preview the launch of his new resort in Macau.

At the event, Wynn confirmed the property would feature around “50 to 60” VIP tables, but also said the focus of investors and media should not be on the number of tables at Wynn Palace; instead,“the focus should be on the amount of people that are here.”

"The table allocation had to do with the [government’s] table cap,” reiterated Mr Wynn when asked whether the table allocation was due to its lack of non-gaming offerings.

“Our strategy is to make this hotel available to anybody, regardless of their income and their propensity to gamble… We cover all the rainbow of demand… Why do we want to turn our back on someone that wants to gamble for a lot of money?” said Wynn.

“A casino is a passive place,” he stated. “Its value as a revenue source depends solely on how many people come through it and what their average per person spend is. What is dynamic in my business is the non-casino stuff: that is what brings people from afar.”

The casino magnate also made a point to highlight the many art installations at the resort, including its famed Tulips Sculpture by Jeff Koons, a three ton stainless steel sculpture which was acquired from Wynn Resorts in June for $33.7 million.

“This hotel [has] a massive collection of Asian and European art,” said Wynn. Adding that the total value of artworks on display at Wynn Palace was over $100 million.

Visitors can also take a 10 minute ride around the lagoon in a gondola-car whose cables are supported by giant golden dragons, or watch a water performance that makes use of more than 1,000 fountain jets and 2,000 LED lights choreographed to Beethoven’s Fifth Symphony and Chinese pop songs.

Actually, Wynn Palace had already been taking pre-bookings of hotel rooms since June. According to the operator, occupancy rates in the weeks following opening are already in the 70 percent range. Brokerage Union Gaming said this should head into the 80 percent range in the weeks leading up to Golden Week.

Wynn also added there were no plans to enter into a price war with other hotel operators, and it makes sense why.

The resort features private suites for high rollers, complete with personal spa and massage rooms, dining areas and a bar. Villas will come with private pools that have fountains and gardens. The spa features a $450 facial treatment with gold leaf masks and crushed diamonds, and the resort’s interior itself is adorned with a lavish decor, overflowing with gold trim.

Nonetheless, Wynn Macau saw its share tumble after it confirmed it had received only a third of the gaming tables it had initially requested, causing some analysts to revise their price target and ratings.

During the press conference, Wynn declined to provide a forecast or estimate when Wynn Palace may break even.

“The return on investment? I expect it will be fine. And I will find out what that is after we open,” he said, adding that further land was available for development - a total of 4.5 square kilometers, divided into two plots.

“At some point, we will take advantage of that, maybe sooner than later,” he said. Hinting at using part of the new land for a botanical garden.


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