Wynn Macau’s third quarter net revenues fell by 5.5 percent year on year, according to results issued by the company this week.
In Q3 2009, net revenues from the Macau operation were USD448.5 million, compared to USD474.8 million in the third quarter of 2008. The revenue dip appears to have been slightly higher than that seen by the Macau market in general. Macau saw an overall two percent fall in gross gaming revenues from January to August, compared to the same period a year earlier.
By contrast Wynn Macau’s earnings before interest, taxation, depreciation and amortisation (EBITDA) were up 20.6 percent compared to Q3 2008. Wynn Macau generated adjusted property EBITDA of USD128.2 million, compared to USD106.3 million in the third quarter of 2008.
EBITDA growth is a favourite measure of Western analysts as a way of assessing a company’s progress. This is probably because it’s most appropriate as a yardstick for large organisations with high levels of debt financing (i.e., your average Western enterprise) and those with significant assets such as real estate (i.e., your average casino operator). Gaming operators are, however, arguably atypical of most large corporations. Given that they are usually operating under a government-issued concession, they tend to have finite and clearly defined tax obligations (Macau’s concessionaires pay nearly 40 percent of the gross as gaming tax to the government). In the Macau casino gaming sector, depreciation and amortisation costs don’t attract the kind of tax relief available in some other industries and markets as a quid pro quo for investment and job creation.
One reason for Wynn’s Q3 revenue dip is the company appears to have had an unlucky streak and/or higher costs in VIP baccarat. The operator had a 2.8 percent hold on the segment in Q3 ’09, as opposed to a 3.1 percent hold in Q3 ’08. This was despite VIP table turnover calculated before discounts and commissions actually going up in Q3 ’09 to USD14.1 billion, from USD13.3 billion a year earlier.
In Macau VIP baccarat, the guiding principle seems to be ‘if in doubt, smooth your returns by boosting your turnover.’ Wynn Macau is doing exactly that. In its Q3 ’09 earnings statement, Wynn said it would add two new private gaming salons with 29 VIP tables to its Macau property from November. In the same statement, the company said it planned to open the 400-suite, USD650 million Encore Macau with its 37 additional high roller tables in the “first half” of 2010.
In the mass table sector, although Wynn Macau’s drop was down 11.8 percent in Q3 ’09 compared to Q3 ’08 (USD501.8 million from USD568.8 million), mass table games’ win percentage (calculated before discounts) was actually up slightly at 0.5 percent (20.8 percent compared to 20.3 percent a year earlier).
Slot machine win decreased 8.9 percent compared to the third quarter of 2008, and win per unit per day decreased 0.3 percent to USD365, compared to USD366 in the third quarter 2008. This appears to have been in part a function of Wynn reorganising its slots offer with an increased VIP machine inventory and a net reduction by 100 in the number of slot units on the floor. At the end of September, Wynn Macau opened a high-limit gaming salon containing approximately 40 machines.
As a result of the changes, in the short term Wynn Macau achieved an Average Daily Rate (ADR) of USD263 for the third quarter of 2009, compared to USD272 in the 2008 quarter.
The property’s room occupancy was 89.2 percent, compared to 86.2 percent during the prior year period, generating revenue per available room (REVPAR) of USD235 in the 2009 period, slightly above 2008 levels of USD234.
