Deutsche Bank’s Karen Tang appears to have set the cat among the pigeons with a report pondering whether Wynn Macau could lose as much as a third of its average monthly rolling-chip volumes to MGM. She maintains it’s a “bear-case scenario”, but we nevertheless have to assume she means it’s possible. The basis of her rather bold claim is that Neptune and Dawei (David) are putting in tables across the road as they gear up to start running much larger amounts through MGM thanks to aggressive credit terms and generous revenue-share deals.
We have no quibble with Karen’s hypothesis. If these two junkets decide to move a significant part of their play from Wynn to MGM, the effects will be serious for the world’s most profitable casino. However, what we also have to put up for consideration is the obvious question: what then?
We can see two scenarios unfolding. First, Wynn decides to do nothing, and takes the hit to see how long it will last, preferring to keep revenue-share deals with junkets the lowest in Macau and argue the case for quality. However, doing nothing does not mean nothing will be done. Although these are powerful and important junkets, they are not the only ones in Macau. If they don’t meet their rolling-chip volume targets at Wynn, they are liable to be replaced in the food chain by other junkets who have VIP customers pushing them for seats at a Wynn table. This may take a few months to unfold, but we can see how the “wu wei” Taoist philosophy might be effective in clawing back business without needing to cut prices.
The second scenario is more likely to induce anxiety in the marketplace. It is that Steve Wynn does decide to act because the bleeding is too heavy and the other junkets who have been clamoring for his rooms hold back in anticipation of higher revenue-share deals becoming standard. There are two ways he can go. One is to raise his payments to the junkets, which we think is the least likely. The second option is that he can flip them a finger and start raising his rebates to premium-direct players. Wynn knows this is a riskier move. But he has watched Sheldon Adelson stare down junkets out in Cotai recently by ramping his premium-direct business and he cannot be more than a little envious. The truth is that as more and more mainland wealth is parked offshore through Macau, more of it is available as collateral for direct-play, reducing concerns about debt-collection in China.
Moreover, can Dawei and Neptune really afford the risk of breaking with the best-run operator in Macau? Is MGM really worth taking that big a punt on? If we look at the track record of the two companies’ management teams, we would have to say at this stage that MGM looks like an obvious flash in the pan story. Any junket choosing it over Wynn in a longer-term scenario would be nuts.
Either way, we would not be betting against Wynn just yet. The wolves might be at the door, but he has plenty of food and water – and ammunition to boot.
Used with permission and copyright to IntelMacau
Extra: Our apologies to the diminutive yet irrepressible Karen Tang. We misquoted her yesterday. The Deutsche Bank analyst, perennial leader of the gaming analyst scoreboard run by Institutional Investor magazine, did not say that Wynn could possibly lose 30% of its VIP business to MGM. She said the two junkets being wooed accounted for 30% of Wynn”s VIP business and, in a bear-case scenario, if they moved half of their monthly roll across the road, Wynn would lose three percentage points of market share. Sorry.
