Daiwa Securities Group put “sell” ratings on Wynn Macau Ltd. and Sands China, arguing that projections that the Wynn Palace and Parisian megaresorts would reverse declines in Macao gambling “remain overly optimistic.” Analysts Adrian Chan and Jamie Soo wrote that the market was being overly roseate regarding “the ability of new properties 
to grow the overall market; the ability of the operators to capture a disproportionate share of the market from their new openings; and the operators collective ability to defend their market share when competitors open new properties.” They were particularly skeptical of Wynn Palace, writing, “there is no conclusive evidence over Wynn Macau’s 10-year track record in Macau that shows the success of its properties in taking market share or driving incremental demand … Indeed, Wynn [Resorts] has been steadily losing market share since Wynn Macau opened in 2006. At its peak, Wynn Macau accounted for more than 17 percent of Macau’s total [gross gaming revenue]. Today it accounts for around 10 percent, or around half of the figure eight years ago.” (Steve Wynn has declined to predict what the megaresort’s break-even point or return on investment will be.) “That Wynn is able to shift 250 tables to Cotai is really telling in terms of how much demand has slackened over the past couple years,” added Union Gaming Group analyst Grant Govertsen. He thinks Wynn Palace can limp along with an emaciated table-game repertory for a year or two but that, starting in 2018, prospects get fairly dicey.
He also opines that the government will, in effect, rub Steve Wynn’s nose in it for calling its table game policy “the single most counter-intuitive and irrational decision that was ever made” by making bigger table-game outlays to rival properties. (Wynn has drastically changed his tune, now warbling,“We have nothing but gratitude for the opportunity we have had here. Any other response would be ridiculous, irresponsible and a lie. It is that simple. I owe China, China doesn’t owe me.”)
“Based on our math, the government will have 947 table games remaining under a table cap first announced in 2012 after accounting for all the tables that have already been 
granted post-2012, including 150 to Wynn Palace,” he wrote. “Under the assumption that Parisian Macau, MGM Cotai and Grand Lisboa Palace each get 250, this would leave the government with 197 tables in its pocket that could be granted, or not granted, as it sees fit.” Wynn is trying to spin his stingy table allocation as a positive, saying “it’s better to be underspread than overspread.” One hopes so, for his sake, as Wynn Palace puts his Las Vegas properties to shame in terms of lavishness: $200 million in art and a spa that offers a golf-leaf-and-crushed-diamonds facial treatment (yours for $450). Yet for all the outlay, including the exportation of three restaurant brands (Wing Lei, Andrea’s and SW Steakhouse) from Wynncore, gambling still accounts for 80% of the profit in Macao, at least if MGM Mirage Resorts International CEO Jim Murren is to be believed (85% at Galaxy Entertainment, according to President Michael Mecca, down from 99%).
Speaking of Grand Lisboa Palace, owner Sociedade de Jogos de Macau is feeling the pinch, just coming off a 39% plummet in profit over the first half of 2016. Many SJM customers are taking their business to other countries, such as Cambodia, among others. CEO Ambrose So says the Cotai property can hold 700 tables and plans to apply for 500. Good luck with that, comrade. Of course, with a plethora of casinos in downtown Macao, there’s no shortage of tables SJM could raid to staff up Lisboa Palace. The company’s sticking by its VIP emphasis, although the numbers would seem to indicate it really needs to drive up its mass-market business.
As for Galaxy Macau‘s Phase 2 and Melco Crown Entertainment‘s Studio City Macau, the analysts observed that they had captured slightly more than 1% additional gross gaming revenue, while adding 4% to 6% in new gambling capacity. Soo and Chan concluded that “the street still 
underestimates the significant impact of the operators’ cannibalization of their own properties on the back of the new property openings.” Also, while Steve Wynn has been talking up the affordability of Wynn Palace (“The difference between the least expensive room here and the least expensive room in the city is very tiny.”), Morgan Stanley analysts ran the numbers and found Wynn Palace’s rooms to be the third-most-expensive in Macao, behind only Galaxy Macau’s Banyan Tree and Ritz-Carlton. While $300 gets you a Wynn Palace room, Studio City is offering a room, ferry tickets and free admission to two rides … for $130.
In a related aspect, Govertsen believes that the Macanese government will be generous with table games to Sheldon Adelson, writing, “As it relates to the Parisian, and in the context of the government’s explanation, no operator has historically focused more on nongaming 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 market.”
Chan and Soo weren’t the only Cassandras on the scene. Earlier this week, Nomura International analysts issued a note saying they were “concerned” by the high expectations being placed on Wynn Palace, particularly the $430 million return on investment (roughly 10%) being projected. Galaxy Macau and Studio City are limping along at $100 million ROI at present. “Expectations have risen to a pretty stretched level, especially for Wynn Palace, so has the share price which left these stocks with limited scope for execution errors or potential demand disappointment,”said Nomura’s Richard Huang. Has Steve Wynn bitten off more than he can chew?
* Rivers Casino in Schenectady held the usual, meaningless hard-hat tour for local media. There’s almost no way to get a sense of the finished product from these events. A few nuggets of information were gleaned this time, however. There will be sweeping river views, favoring the convention and banquet areas. Also, the hotel is running behind schedule as its room capacity creeps upward from 150 to 165. Even with little to see at this point, we like Neil Bluhm‘s chances for success, based on his track record.
* Isle of Capri Casinos has joined the social-gaming trend, leveraging its Lady Luck brand for maximum effectiveness.
