- Wynn Resorts reported their third quarter earnings last week.
- CEO Matt Maddox said that weekend leisure travel has been strong in Southern Nevada.
- Maddox is concerned that the holidays will see a decline in business.
Wynn Resorts had their third quarter earnings call last week and despite falling short of analysts’ expectations for revenue and profit/loss they offered some good news. They’re very bullish on US sports betting–with good reason–and they finally revealed some interesting information on their interactive betting partnership with Europe’s BetBull. A lot to unpack there and we’ll have an in-depth report in the coming days. One thing they *didn’t* do is confirm a WynnBET launch date in Colorado though the ‘word on the street’ still expects the app to go live by the end of the year.
Obviously, most of Wynn’s problems are well beyond their locus of control. The COVID-19 pandemic has devastated all segments of the travel and leisure business with the gaming industry arguably having the worst hit of any industry with the likely exception of cruise lines. What Wynn reported as ‘positive news’ serves to underscore the extent to which the COVID-19 pandemic has damaged the world economy.
CEO Matt Maddox reported that October saw the company go from 10% of normal visitor volumes to almost 30%. Due to ongoing travel restrictions visitor volume in Macau dropped to 8% to 10% of pre-COVID levels:
So the third quarter in Macau was really very similar to the second. There wasn’t a lot to talk about. We’re still seeing roughly 8% to 10% of our visitor volumes compared to pre-COVID levels. And it was really — there was just not a whole lot going on.
Maddox praised the government of Macau for their approach to dealing with the COVID-19 pandemic and noted that it is now probably ‘one of the safest places on the planet’ without any positive coronavirus cases in months. Maddox gave some anecdotal numbers to suggest that things were looking better:
It was actually throughout the month. And in fact, I looked at our visitor data from November 2, 3 and 4 that went ballast before I walked in here. And we’re seeing roughly 6,000 people a day come in the building, pre COVID, that number was 18,000. So those trends that we saw in early October are continuing into November.
He did say that one reason Wynn is optimistic about Macau is their deliberate and coordinated response to COVID-19. He didn’t specifically mention the horrific way that the US has dealt with the pandemic but clearly that’s what he had in mind:
And what we are optimistic about in Macau is the way that everything has been handled there, it doesn’t appear to be one step forward, one step backward, one step forward. It’s been a very deliberate approach, very thoughtful. And it just feels like we are — and the market is just going to continue to get better. I don’t know at what speed.
There were some positives coming out of the company’s US properties though the ‘one step forward, one step backwards’ approach to COVID-19 mitigation is clearly a problem. He re-emphasized that “we are not going to sacrifice our brand or our culture to make an extra few dollars here or there”. That sounds like a veiled reference to many of Wynn’s competitors in Southern Nevada who are offering bargain basement hotel rates in hopes to build traffic. Maddox made it clear that Wynn is not only eschewing that approach they’re doing the diametric opposite:
We are focused on making sure we have the highest room rates in the market. But we’ve also been focusing on making sure that we continue to breakeven or make money. And in Las Vegas, we made $20 million in the third quarter, both adjusted closer to $28 million. Some of the things that are encouraging that we’re seeing in Las Vegas is we are taking share in the casino segment.
We’re seeing new domestic customers that we’ve never seen before that previously were lifers at some of our competitors. And I think for all of the reasons that we’ve been laying out from our security protocols of checking everyone when they walk in, to our COVID protocols, to all of our restaurants being open. We’re beginning to continue — not beginning. We are taking market share on the casino side.
‘Protecting brand equity’ is only part of the reasoning behind higher room rates. The Encore Las Vegas was in the news for the wrong reasons over Labor Day weekend when some gang banger types incited a brawl in a hotel hallway. The video of the mayhem went viral and did much to damage the public perception of Las Vegas. Wynn took action, even filing a lawsuit against the perpetrators of the free for all. About that time Wynn announced they’d be raising their room rates in an effort to keep undesirables out of their properties to “maintain the guest experience standards for which (they) are known”.
There’s a good deal of debate over the impact of lower room rates in this regard–bargain basement rates have been part and parcel of the Las Vegas experience for decades with few negative externalities. My take is that this is a ‘multiple causality’ situation unique to the COVID-19 pandemic. Las Vegas is attracting a younger, rowdier crowd who are likely not as concerned about COVID-19. One problem is that a good portion of this demographic is used to going to the city’s many nightclubs but they’re all closed. That makes for a bunch of rowdy, bored and often intoxicated people in from out of town who care little about the ‘brand image’ of Las Vegas or any standards of civility for that matter.
This is an ongoing story but one that could have serious negative impact on Las Vegas’ gaming and tourism industry as gaming industry consultant Mike Mullen points out:
“Several of our higher-end profile clients say their high-end guests are done coming until this is under control. They’re scared to walk outside their rooms, and don’t feel safe on elevators or on the casino floors themselves. It’s a bad look. … You can really severely put a tarnish on Las Vegas.”
Wynn executives didn’t say much about this narrative nor did any of the analysts on the call ask about it. The bulk of the interest was in the WynnBET sports betting app and to a lesser extent the state of the operations in Macau. There was a tone of optimism about Wynn’s property in Boston despite the recent (and pointless) 9:30 PM curfew. Wynn CEO Maddox did prepare the financial market observers for a downturn in Q4 for the Southern Nevada market:
Now as everyone on the call knows, Las Vegas has seasonality, and we’re coming in to the slow time. So COVID cases are picking up in the U.S., obviously. And November, December, are quite slow in Las Vegas and have been heavily reliant on group. So our team — well, so October will not be repeated in November and December.
Typically, the time between Thanksgiving to a few days before New Years are the slowest of the year in Las Vegas. In most years, the city gets an influx of business from the National Finals Rodeo but that won’t be held in Las Vegas this year. Throw in the surge in US COVID-19 cases and Q4 could produce some downright brutal numbers for the Las Vegas area and the companies that operate in it.