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They burned the Monte Carlo ... and may get away with it
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They burned the Monte Carlo ... and may get away with it
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With the aforementioned exception of Penn National and that of Bally Technologies, Feb. 3 was a wretched day to be in the casino industry, with most attention going to Wynn Resorts.
The company had to good grace to hold a conference call to announce what it was doing, in detail, resisting the obvious temptation to put out a press release and then just clam up. Steve Wynn lavished considerable praise on his employees and came across as sincerely concerned with keeping people employed, albeit in reduced circumstances. Contrast this with certain casino operators (coughColumbia Sussexcough) who have seemed to positively enjoy putting people out on the street, the more the better.
Encore: caught napping?
Wynn (the company or the person, take your pick) is also to be commended for graduating the pay reduction on salaried employees so that the lower-tiered ones face "only" a 10% cutback, as opposed to the -15% that will be suffered in the higher ranks. However, losing as much as $15K in annual income isn't chump change and life will be even rougher for the hourly employees, who are looking at 20% less pay. (Social Darwinians will doubtless adopt the Pollyanna-ish view that the hourly employees now have the "opportunity" to take on additional, part-time jobs ... in a state where unemployment exceeds 9%.) However, unless you're making peanuts to begin with or are independently wealthy, a 10%-20% pay cut isn't "a little less," as Wynn defensively phrased it, it's a lot less. Let's just be clear on that.
During the conference call, Wynn said that the cutbacks had been in the works for five-six weeks, which would place their inception somewhere between Dec. 23-30 ... the first week that Encore was open. That's interesting timing. Perhaps management was too preoccupied with opening the property to see this crisis coming, but whatever the reason, both bosses and employees have been sandbagged.
Given the severity of the economy measures and the fact that, according to Wynn himself, the company is sitting on $900 million in "free cash," as they put it, why were such drastic actions necessary? Especially when the maximum saving is pegged at $100 million? Better too much prudence than too little, of course, but it seems like we're not getting the full picture here. If I had to surmise, I'd say Wynn must be looking at some very dire -- but undisclosed -- 2009 business models and bracing for impact.
Pilar Weiss of the Culinary Union told S&G she wasn't sure where the Review-Journal got its 9,500-affected-employees figure, as roughly half (5,000-plus people) of Wynn Las Vegas/Encore's workforce is Culinary-repped and therefore immune to the unilateral pay and benefit reductions (partly because they don't participate in Wynn's 401[k] plan). "He can do unilateral whatever he wants" to non-Culinary employees, Weiss said, adding that the union hasn't had and doesn't intend to have meetings with Wynn to discuss concessions.
"I don't see any defections," Wynn predicted of his workforce and one can't argue with the implicit logic, even if a Wynn LV/Encore job might not be the highest-paying gig on the Strip now. Most of his competitors are in even worse straits and any Strip job opening draws a hefty surfeit of applicants. Wynn knows his people will stay put because the chances of landing a better job elsewhere are closer to "none" than "slim."
On other topics, Wynn was pretty sanguine, saying that Encore Macau is being financed out of free cash flow and belt-tightening isn't needed over there: "Our business in Macao is at levels that don't dictate that sort of measure." Having almost a fifth of the Macanese market with just one casino is nice, isn't it?
"I don't really feel like sweating the stock price" was another Wynn-delivered bon mot, as he implied he might be in the mood to take advantage of the swooning market and accrue more WYNN shares.
The assembled stock analysts were respectul but not fawning, with the exception of Larry Klatzkin, who coyly wafted softballs for Wynn execs to swat out of the park. Joseph Greff asked the once-unthinkable: Could Strip resorts become irrelevant and go dark? Wynn didn't answer directly but noted that the pressure was greatest on the bargain-tier properties: "Where do you go from 29 [dollars a night]?" Added one of his lieutenants, any darkness "will come from the bottom up."