Wynn Resorts, Limited (WYNN) Q2 2009 Earnings Report, Transcript and Summary

Good morning and welcome to the Wynn Resorts Limited Second Quarter 2009 Earnings Call. Joining the call on behalf of the companies today are Steve Wynn, Marc Schorr, John Strzemp, Matt Maddox, Andrew Pascal, President of Wynn Las Vegas and on the phone Ian Coughlan, President of Wynn Macau. Now I would like to turn the call over to Mr. Maddox. Please go ahead, sir.

Thank you and good morning everyone. I just want to remind everybody, we will be making forward-looking statements under the Safe Harbor federal securities laws and those statements may or may not come true. So, with that I am going to go ahead and turn it over to Steve Wynn for some opening remarks.

Hello everybody to our shareholders, who are onboard. I think it was satisfying that things seem to be stabilizing in Las Vegas and China. In spite of the sales figures in Las Vegas, we in our hotel are feeling since the end of the last quarter, since March we did feel the change in our controls and our things that we put into save money, which we do very slowly and very carefully because of our attention to our employees. They took effect as well. Those things contributed to the performance of the company, which although not started it is better than most people thought and we are feeling a little optimistic. We are very happy about China and feeling good about that too. We are even seeing our Asian business in Las Vegas still popping over here and doing nicely. So, all in all, we are satisfied, as you can be in the time, when the world is still uncertain, consumer confidence is weak. The administration is more of a problem than they are of a help usually, if you read the headlines. Everybody is frightened to death about runaway inflation, if these deficits are allowed to take place. The good news is the Senate seems to be slowing it down, but we can’t see, where it’s good for business to have debt, as a percentage of GDP go from 30% to 60% or 70%, that’s what it make as an emerging country. Maybe wiser heads prevail and the some of the things are on the table of these amazing misunderstandings and how the systems works will get slow down in Washington. Right now, we are more afraid of Washington than we are of the economy. We have got people on our back saying don’t go to Las Vegas, which is preposterous and people are beginning to ignore this kind of bombastic rhetoric from the White House and from the Administration and that’s encouraging. I must say that midweek, small business meetings are still very slow incoming. Sales tax revenues were off, we should expect in Las Vegas, but we do cater to a well to do customer in both China and the United States. We are benefitting somewhat from that. One of the points, I guess with regards to Encore, in Macau, its on schedule. It’s on budget. It’s being built out of revenue. We will open up this spring and it’s the best thing we have ever done in our lives. It's the most beautiful building that we have ever built and at least from my 40-year career. 10 rooms a floor and completely integrated 415, all-suite and villa hotel with its own spa, casinos and other things right smack in the middle of Macau, across from the front door of the Arc de Triomphe Hotel and MGM. So, we are in the 100% location with I think is the best offering that we have ever managed to execute. The building is all topped off and the skin is on and we are taking our time, because we did want to build it out of revenue and it had these disparate parts. It had two or three restaurants. It had retail. It had private gaming, public gaming, all the rest. We wanted to open everything at once and make a big fuss out of it. That’s exactly what we intend to do in the spring, so. Our development energies are focused on that at the moment. I think that’s pretty much the state of what's going on here, the last week of July we all excited. Tonight is the opening of the Beyonce. She is spending the weekend here, making videos. She has been here for three days rehearsing. She is a very hard working woman. I can understand why she is so. Why she such a powerful and accomplished performer. She has been rehearsing for 10 hours a day, because the show she is doing here is not her concert act; it's especially designed for Wynn and Encore. She is quite remarkable and we are looking forward to enjoying her tonight and Friday and Saturday and Sunday, and she is doing things in our nightclubs and she is making the video. I think all of this is going to be very nice for us and we are having great fun within. At the end of the day, that is what we all about. Having fun and making people feel good, even if times are tricky and confusing. So, with that I think we will let the usual cast of suspects and characters take their crack at us, if they have other questions. Be nice to hear from some new people too, we can, besides our competitors, who never ask questions. I know you are all on the call. Hello, Sheldon, hello Jim, how are you all. I hope you are having a nice summer. Go ahead, take the calls.

(Operator Instructions) Your first question comes from the line of Joe Greff of JPMorgan

Steve it's good to hear you, sound a little bit more optimistic than three months ago. Most of my questions relate to Macau. There are some news articles in Asia that our friends Stanley Ho talking about the Macau gaining tax rate, I guess in effort to hopefully convince people to think about lowering that. Do you think there is much support in the government to consider lowering the tax rate in light of competition in Singapore and then along the same lines with VIP junket commission capped. Do you think there is any benefit to you, I know you are not in the better 1.35%, but is there economic benefit for you that you think you can get in that environment, if you actually think it can be implemented.

First of all, with regard to the last part of the question first. We never went up there in that zone that destroys your bottom line. The fact that other people, who finally comes to a terms with the idea that they have nothing to gain by going there, is good for the market, because it allows them to preserve some bottom line and to take care of their employees, which makes so much happier town, much more stable political environment and all in all allows the people, who live in Macau to feel a little bit more secure. So, stopping junket wars and other foolishness is very much in the interest of the community. As far as ourselves go, I mean we held ourselves. We held our shares regardless; we didn’t go there because we know that it is a fruitless and pointless exercise. The younger managements the ones with less experience think they can buy business and we had already prior to them going up given all the promotional allowances that were available. That is assuming you are paying the taxes, as you should legally in Macau. I suppose if you don’t pay taxes you can give anything you want away, but we pay taxes. We declare all our income and when we do there is a maximum amount of promotional allowance that’s available and there isn’t one penny more to anybody, who is sophisticated and professional enough to be able to add. So, the caps are a good idea. The question is, will government enforce them or would they leave it to us, that is yet to be determined, but there is some sign among the operators that they have come to grips with reality. With regard to the first part of your question about tax rates, in Singapore and political issues. Is one thing for Stanley Ho, to make a statement. He is a man with a great history there and he is certainly a senior guy and he is part of this the new organization, we formed. He is the new chairman. I have great respect for Stanley, but we must distinguish between what Stanley says and what the government says. They may or may not be in sync. What is wonderful and is worth the people, who are hearing my voice to take note. Think of where you live and your government. Right now we are watching the United States government deal with complex problems that clearly seem to be beyond their intellectual ability, but the new Chief Executive Officer if, if the elections in September go as clearly they will, will be a man and think about your government, with the exception of the President himself. This man, who will take over this SAR government, it is undergraduate work in California, did his master's thesis at the University of Oklahoma in Public Health and is Doctoral Thesis at the University of Oklahoma on SMOs in 1983, when they were first new. He is a full-fledged doctor. He is a PhD with a long educational, distinguished educational history in the United States of America of understanding issues that affect people. That is going to be the new Chief Executive Officer, his name is Fernando Chui. If the election goes as most of the prognosticators consider they will. That gives you an idea in general, if that's possible in a 500,000 or 600,000 population, the Special Administrative Region of Macau. Consider then, the level of education and sophistication that permeates the Chinese, the People's Republic of China government. These are very smart people, very highly educated people, very thoughtful people. My own feeling is the government of Macau will protect and so will the central government in Beijing and the regional government in Zhuhai at Guangdong province, Guangzhou. The government will do a very enlightened and thoughtful job of protecting the interest of the citizens and the business enterprises that support the health of those businesses. In America, we have a government that has decided that anybody that creates jobs must be bad. The job creators should have a target painted on their back. What a remarkable misunderstanding of how the United States of America works. I tell you that, that is not the case in Macau. It’s not the case in the People's Republic of China and maybe we could all learn a lesson by watching what's happens there. I don’t know what's going to happen, Joe with the taxes at the moment, but I’ll bet you. I’ll bet you that government sees to it that economy and that workforce is protected. Next question.

Your next question comes from Rachael Rothman of Wedbush Morgan.

Did a great job on cost control this quarter and if you could address, maybe what some of those initiative were? What percentage of our cost you would characterize?

Can you just speak a little louder please?

Yes, I apologize. Can you hear me better now?

Yes, ma’am.

Would you mind addressing following the cost cuts that you put through this quarter maybe what some of the key areas those were in, and how we should think about the break down versus the overall cost explained and the potential for further cost reductions in Las Vegas? Then maybe kind of what lessons you’ve learned in Las Vegas and can you put some of those cost initiatives through Macau and maybe some of your learnings from the opening Encore in Vegas and what you will put into practice at the opening Encore and Macau?

Andrew Pascal will respond it with regard to Las Vegas because he was the architect of such things, with his colleagues and Ian Coughlan. Go ahead Andrew, you go and then Ian will respond.

Okay. I think what we saw in the second quarter was really all of our cost savings initiatives taking root. I think the principle one really we had to do with the way we are managing our staff. I mean FTEs were down about on average per day 650 first quarter to second quarter and we are able to manage and get there by without having to do wholesale layoffs, we did it by going to our employee group and then clear out our problems and asking for additional time-off and reduce work leads and reduced salaries. So, all the things that we talked about in previous calls, everybody here is embraced and that allowed us on the payroll side to enjoy pretty significant savings about $65,000 a day in additional savings in the second quarter over and above we already picked up in the first. There were also literally hundreds of other initiatives to save money across all of the other line items, many of them related to just operating supplies and outside services and communications and promotional expenses and then of course we went to work on all the variable expenses that we could implement in terms of our cost of sales. So, in total our savings from the first quarter that we realized in the second were just over $140,000 a day. I think that we are about, where we are going to be. The benefit that we have now is that with an operating in this more than now for four months or five months. So, we understand how to expand and contract, expand our workforce in order to address our high demand weekend business and then contract midweek in order to fit, what are the business volumes that we see midweek.

With one other remark about Las Vegas before Ian picks it up. We are $35 million behind last year through tonight yesterday. I’m giving a little bit of July, for the whole year, which is not good news because we added Encore, but for the balance of this year our comparisons become much easier, because that’s when the bottom filled out in September in this market. So, I think that the net effect will look a little bit little softer as we go forward. With regard to these cost savings, Andy is describing what? Andy how many millions of dollars a year would you say we took off?

I think it's been close to $100 million.

Yes, 100 million. That’s an interesting thing to do because it means that as volumes improve, we will have much better operating margin. So, there is a silver lining to the cloud you'll learn how to run your business better, which is not only a good thing in anytime, but is particularly important, when you open a brand new hotel. I mean we took the facility from a 2700 to 4800 room. So, we're much bigger operation now and we’re going to get the benefit of that as the weeks go buy. I want to add this, let suppose that my group ask the people, those of us that are here, the family, let suppose we could jam another $50 million to $20 million out. I have a very close relationship with a major shareholder of this company. The institutional share holders along with myself and my partner, that control over 80% of this company shares. There is a very real question here. Is it intelligent to ruthlessly grind every last dime out of this place, when it involves dislocating groups of your employees? Yes, the quarter looks better and you have one of these fancy phone calls, what is that good business? I think not. At this point, I don’t care about that last money, if it means interfering with the employees and their lives. Because that’s our franchisee, that’s our future and I’m in the mode of protecting our assets now, which is one over $1 billion in cash, we’ve got. Number two the biggest asset of all my employees. So, when it comes right down to it. I’m not going take the knife to the last buck, when it comes to payroll. That is the kind of company we are and I think that I have the support of few with the men, with whom I have a closer long-term personal relationship that own large chunks of this company. I think it has to be said, there comes a point in these companies in hard times. When you make a decision, is it the money or is it the people? Speaking for Wynn Resorts and you can hear me loud and clear, it’s the people, not the damn money. Next question.

Ian, do you want to address Macau?

Sure. Along very similar lines to Andrew, we kicked-off cost savings initiatives in Macau on a smaller scale because of the size of our property. In the second quarter, we’ve realized near $50 million in comp savings. Looking ahead on an annualized basis, it can climb to as much as $66 million and its ramping up as we go. What we been doing is trying to protect our EBITDA margin in the second quarter with that 28.5%. As Mr. Wynn referenced it’s not at the expense of our employees, the maintenance of our assets, and also development going forward. So, we have been very careful to protect that. However, looking at FTEs year-on-year, where 900 FTEs is lower than we were at the same time last year. So, we kept quality. We are a mobile five star. We continue to drive business. We have become much more productive, and we have been containing costs very effectively.

Your next question comes from Steve Kent of Goldman Sachs.

Could just talk about, Steve your strategy going into MGM City Center is opening in December or so. If there will be change in pricing for sure. It's obviously sounds like you are not going to make any changes in quality of brand or experience, but I did want to understand a little bit more on the pricing side?

Steve, we can only make money in this building. Here's what happens when a place like that opens up. This is always the same. You understand, when doing as 40 years and I had Mirage and here comes MGM at Treasure Island and all the hotels and here comes Luxury, here comes Mandalay Bay. Here is the story. Somebody does an awful lot of PR, beats the drum, uses a lot of hyperbole, as they should and tells the world that the greatest thing since sliced bread is coming down your pike, greatest hotel of all time. This has been said by all of us including ourselves. Now, the place opens up and all the people, who come to Las Vegas are very grouped, repetitious group. They want to try it. Now the first group to try it, they’re obviously the closest to the people, who go to Bellagio, are close to the management. So, Bellagio and Treasure Island and Mirage customers are all shuttled over to this place, and so are some of the win customers, who are very familiar with Bellagio, because that's what they used to be, before that there were Mirage. Everybody said oh let's go check out [Aria]. Is it everything that they’ve said? Well, I’m sure the building is dramatic and people walking, and go ooh ah, and look at this fancy shopping center, and look at these all the familiar brands like Louis Vuitton, Chanel and the rest. Look at this lobby. Look at this pool and then if they have been properly shepherded and led, they say, let's stay here. They check into the hotel and the minute they do that when they stop being lucky loose and they turn into a guest, then the rubber hits the road. Then the ability of management to deliver a happy joyful experience to the guest becomes the only factor that matters, not price. The hotel Aria has to charge top prices or they will vanish financially. They can’t compete with Excalibur they have to charge, when the Bellagio, Wynn, Caesars and Venetian kind of prices. They are up there at the top end of the food chain. Now today delivered the top end of the food chain service and they got a workforce that feels good about themselves. The trust management they had the time and the money to do the training and to deliver to the public in the face of the new building, which is always a bit of a problem, because the system is sometimes are scratchy and not shaken down yet. Does that enterprise have the ability to create a positive guest experience? On these phone calls I have said over and over again that the only thing that matters in our business is guest experience. To the extent that any hotel offers great guest experience, it gets repeat visitations from happy customers, who also share that information with their friends and the only method that matters word of mouth begins to build the franchise. If on the other hand, they have not had the time or the money to train. If they have not seen into every detail, separate showers and tubs, two sinks, the proper amenity package, the right sheets, the comfortable mattresses, the perfect pillow cases, the thoughtful and caring housekeeping staff, the hip and together telephone operators, the friendly warm dealers, the charming people that they encounter as they move through the space. That the people, who were there trying it out turn around and go back, where they were comfortable, which leads us to the answer your question. I cannot change our program, if I want to compete with the other fellows, whatever the names are on their, signs maybe. I can only create the franchise and the joyful experience with my own guests and that probably is refrained. I'll go to right back to my last comment on why I'll do anything to press, protect the workforce. That's where the battle will be fought. It won't be over some internet price that Bellagio puts up or somebody else puts up. We did that, when we opened Encore just to show the place how to put a lot's of people in. It's not an exercise that matters. What's the point of putting someone into an expensive room that can't afford your restaurants? These places are balanced organisms and the hip bones connected to the thigh bone, the thigh bones that also are connected to the knee bone and if they are nothing else. They have to have an organic, unified, single personality. That keeps a promise to the people from top to bottom, from check-in to asking for your car's valet. So, the guys running the City Center are my employees, my former employees and colleagues, Bill McBeth, Bob Baldwin. Do they know all this? Sure do. They opened up Mirage. They opened up Bellagio and they got the tools to open up this one. Are they hamstrung or advantaged or disadvantaged, I don't know. We're going to find out quick enough. Did they do a good job laying the place out? We will find out soon enough. Personally, I can't wait; I always get kicked out of these moments.

Your next question comes from [Cameron McKnight] with Buckingham.

Quick questions. First, on the cost outs in Macau, was there any reversal of the bad debt provisions you took in the third quarter of last year?

No. Our policy on bad debt in both Las Vegas and Macau remain the same as the March quarter, the first quarter.

We didn't give ourselves any help, if that is what you are trying to find out.

The one back in the promotional expense in Vegas, that simply driven by a slightly better operating environment, better occupancy, and no brand recognition for Encore?

It's more reflection of getting more focused on, who we should have in the hotel. Occupancy actually was down in the second quarter relative to the first, because all those things that we did to show up the place, when we opened up Encore. We kind of work through and decided which ones we needed to discontinue and so promotional expenses were down even though hotel revenue in the second quarter relative to the first was down. Our cash based revenue was up nearly $3 million.

You can't buy business in our industry. Now there is two kinds of people, ones who know that and ones who don’t. The young ones don’t know it. The older ones find out.

That probably leads into my last question. Steve, would you be able to comment just on how you are thinking about Macau and the Asian region going into 2010 and what's happening now on and how you see things panning up perhaps in the second half and into next year?

I look forward in Macau. I’m loving the place. I have always loved it for the past seven years. It has been wonderful experience after another. I’m looking forward to having some of the most exciting opportunities of our lives and developing Cotai. We are going to do ourselves proud, when everybody gets to see Encore. I’m going to say something, it sounds particularly self-serving and developer speak, but I've never been more serious in my life. The Encore hotel in Macau is the prettiest building of its kind in the world. I don’t believe there is another hotel tower remotely close on this planet to that 415 suites and villas that we are going to open up this spring. It is quite stunning. The smallest room is a thousand square feet. Even the spas, the eight spas, each one is an individual spa. As if you had your own spa. The villas have their own little casino rooms. Everything about it is a result of all the wonderful lessons and experiences that we've learned these past seven years. I know it was very difficult being brand new in Macau, as some of our friends are finding out. It’s not quite as simple just to slide into town and build a big hotel. You need more information. When we had information, then we did Encore. I am very, very proud of the way we took advantage of it. I think that the Encore tower when it debuts in a few months it is going to give people a really clear insight as to what we will do next and the level of which will be operating in China. It’s a great place to do business, really wonderful and none of the anxiety we have at present time in America. I've been self-assuring my employees up to 40,000 of them for four years and everything I am reading about Obama Care is a train wreck and I say that there is an insurer of train wreck.

Your next question comes from Andrew Berg of Post Advisory Group.

We've read some article recently about government agencies and traveling to Vegas, is there anything that you are doing individually or probably CVA is doing on behalf of the city to proactively go back to government agencies to market the value prospect that is gaming, or that is a convention in Las Vegas.

Well our senior Senator is a son of a majority leader. You think that we'd have a leg up on this. He's a democrat and he's a son of a majority leader. We got the government on our back, not just us in Las Vegas but all business, they are on our back. There is an attitude that, there is a very definite bias in this administration that business is bad. Haven’t you noticed. I don’t know how long it is going to take me to get over this, but it’s awful. You know we call Harry on the phone and ask for help, and he is very sympathetic. It is always a question how much reach you have in these matters. The President of the United States has his own office and he has his own group of little cadre of people that agree with him and look at the world just the way he does and they don’t listen to anybody from what I've heard from my business friends. They invite people down to Washington and tell them what they think, they don’t ask or listen to anybody.

Okay, but at this point there is nothing you want that’s an individual program that LVCVA may be doing to proactively trying to address it, that they may want to do.

No. No. Andrew, Andrew is on the Board of the LVCVA. I think may be you should answer that.

For months, the LVCVA was actually very quick to respond and they organized a multi facet effort focused on PR, advertising, political outreach. They came around to all the various operators and worked with each of us to refine our messaging and identify what it is that we could do in order to kind of support people coming back and recognizing that Las Vegas is a legitimate place to come and do business. The LVCVA, I believe, has done a terrific job and responding to these issues. So, I think some of those things have made the difference and that continue to so.

Your next question, it comes from Janet Brashear of Sanford Bernstein.

Thank you. I wonder if I could ask about your growth plans. Specifically if you were to raise money in Asia. How would you plan to reinvest that money and is that money necessarily limited outside the US? Secondly, what opportunities are you considering right now that you might not brand Wynn, and what is your strategy about growing without the Wynn brand name?

This is Matt Maddox, Just on the first question, we are actually in a quiet period, and we can't provide any comments on that filing that we put out about 30 days ago. On future developments and other opportunities, I'll turn that over to Steve.

It is the policy of our company to do one thing at a time and try and do it well. Consolidate that thing, and then move on to the next thing, having hopefully learn something to make the next thing better. And that is what Encore represents, both in Las Vegas and Macau. We are participating with enthusiasm in the process in New York. I came back last night with my colleagues. We’ve been there heavily for the past several weeks and months we designed this. We put ourselves forward, hope with respect, hopefully its an alternative, its create a new experience and now put a grace way. To take the concept of the [Racino], as it is currently understood to be, which is basically a large clubhouse or room full of video lottery terminals; into something beyond that, a place that integrates food and beverage and retail and entertainment and makes it fun to go to even if you are not a video lottery terminal player. A place that is compliment to its neighborhood, a fun and exciting location to have recreational activities with and hopefully at the same time to give the aqueduct environment, at least a club house with aqueduct. A chance to be a place where people will also be able to go and watch the races by because that's close integration into our new facility that we designed and shown the government. We have been given the opportunity to make a presentation, to make a submission and as a matter of fact I spent the day, the last several days in New York doing exactly that with my top management associates. So here we are trying to see if you can get our flag up in the big A and be a good neighbor and do something constructive and helpful and have people think that they are glad we came, after we have there for a while. This is a same attitude we got in Macau. How could we possibly get ourselves to the point where people say, we are glad they came here. They have been good neighbors, they have built a nice place. It's fun to go there. The restaurants can all be attended by children without walking through casinos. The recreational facilities are accessible to people without having to deal with rows and rows of slot machines or something. So we are taking that idea, a completely new idea to New York and we may not win. We may be -- someone else may be selected there such as seven others, very aggressive groups of folks and they are trying to do it, but we are taking the pass in the New York anyway, up or down.

Can I try the first part of my question in another way and just ask what your growth plans are in Asia?

We are lucky enough to have a very large parcel of land in Cotai and clearly that represents our next move in China. There is no other jurisdiction available in Asia that would warrant a Wynn resorts focus. If someday Japan would consider a destination resort we would be on it in a heartbeat. Taiwan would be a place that would require at least some examination, but at the moment we are thrilled to be where we are. We were so concerned about doing a good job in Macau, that seven months before the opening in Macau, on thanksgiving weekend, Macau opened the following September. As much time as I had spent in Singapore and as I read it, I regarded that community. I regretfully withdrew from Singapore in a letter to the government and in that letter I explained that Singapore was entitled to the best efforts of a first rate developer. That those the best efforts meant that there had to be focus and concentration. That we were a company that feared that if we were doing two things at once we might dilute our focus and that our concentration might be less that what it should be and then we would shortchange Singapore and our own shareholders. So, regretfully because of the commitment I had made in Macau I had to withdraw. Hopefully someday I could come back and they had done a great job and may be someday we would be part of that scene. I was drew from Singapore, when at the time we were a very active participant, a very active participant, because I had made a promise in Macau and we keep our promises. Well, I think that isn't much. That was a decision made by my Board of Directors, everyone of them, the men and the women on the Board were of a single mind on this point and I don't think anything I that and management as well. I don't think that Linda Chen is on this call and Allan Zeman, they are both in China at the moment. Oh, Linda is traveling but Allan's is somewhere in the audience listening and Allan, I am sure we are speaking for the Board. Everybody is, I would say, our position hasn't changed at all. If you know how to do a thing, it only counts if all of your experience comes to bear like a karate chop on a single moment. If you know how to do the thing, but you're trying to do five of them at once, that delusion makes you totally ineffective. I think, in a competitive environment that we live in today and all the other factors we have to deal with, you better have your act together. You better really have you ducks lined up, because you are going to loose sight in a minute? Take a look at some of the competitors up and down the gaming industry. Almost any of them, would have been loose focus, what happens if we forget fundamentals? Trouble, trouble, trouble. We wanted to avoid that. We have so far and we are continuing to do it. That's my answer to your question about tomorrow.

Your next question comes from Susan Berliner of JPMorgan

Thank you. Just two quick questions. One, I was wondering if you could comment what your competitors are doing on the promotional front in Vegas. I know you had said you have pulled back some. Steve also the timing that we will learn, who wins Aqueduct?

Good question, to win Aqueduct. The Aqueduct process the schedule is a bit unclear. The end game of that is unclear. A decision will be made by the Governor’s office, the Senate, the representative of the Senate and of course the Assembly. The process that they are going through, now they had 16 or 17 of their staff going through the proposals and questioning the applicants this past week. I think it concludes of Friday. For how long and what form the deliberation will take and whether there will be second request for conversation has not been made finally clear to us. I think that the Governor and the Senator and the Assembly Speaker are waiting to see what it is their staffs report back to them. So I cannot give you a definitive answer to question one. Andy do you know of anything about our competitors? We don’t much attention to our competitors except what we read in the paper.

How do we look at all of their promotional offers. It’s all the stuff that traditionally everybody else does. They are deep in discounting rates, they are providing all kinds of other services as packages to try and entice people to come. We tend to focus more on what works for us and the kinds of customers that we are attracting and how it is that we can get them to come more frequently or stay a bit longer and spend more money while they are here. So beyond that I can’t comment on that.

Your next question comes from Dennis Forst with KeyBanc.

Good morning. Mainly I, wanted to ask about capital expenditures. There were a $125 million in the second quarter and wanted to see how that was divided between Macau and the US and then going forward where those numbers are going fallout? The large majority of that was the Encore. So, about $50 million was retention payments for Encore Wynn Las Vegas just finalizing that job. Another approximately $50 million for Encore at Wynn Macau and then that remaining $25 million, we are doing a lot of renovations in Macau, a new Chinese restaurant, a couple with VIP rooms.

Really, part of that thing that we are opening next spring.

Yes. All really part of our Encore. That’s the large majority and that over 100 million of that are embedded in the Encore budget and in terms of maintenance CapEx, the numbers remain $25 million to $30 million in Las Vegas on an annualized basis and about the same in Macau.

Okay and then how will the spending go on Encore Macau? If that should be ramping up right as we speak I would have seen?

I am sure you noticed, that our budget over that was actually revised down $50 million from last quarter. We are not $700 million, we are now looking at closer to 650 million. We spent approximately $310 million to date and you are right that’s going to ramp up between now and when we open, which is in early spring. Then you have 90 to 120 days of construction cost that come after opening of course.

Yes.

So, that additional $300 million will probably be spread over there in almost the next year.

Yes, the next four quarters as you said with Las Vegas Encore, you are still paying off the bills?

That’s exactly right.

Okay, good enough. Then can you give us a tutorial on the tax rate. I have never been able to understand how you calculated. My understanding was you don’t pay any taxes in Macau. So its basically 35% of income from the Las Vegas properties, offset by the interest expense that you pay in the US borrowings, which would mean no taxes?

Yes. I will tell you what. We had about 42% or so effective tax rate this quarter. I'm sure you can read in any literature, quarterly tax provision are pretty much, is they are hard to calculate because you calculate taxes on annualized basis and then you have to back those off. What happened was we made more money domestically than we had initially projected back at the beginning of the year, and so that caused our effective tax rate in the second quarter to be higher than what we initially projected though we had provide for a larger provision.

Okay and if I remember in the first quarter, there was a positive tax provision also ,wasn’t there?

Yes there was.

What was that related to though? That was not…

If you remember we had made $32 million in EBITDA in the fourth quarter of '08, $43 million in the first quarter of '09, so we are projecting quite a large loss domestically, on a very conservative basis. I think things picked up and so what you found was the loss that we were going to achieve was a benefit and as we made more money, we actually didn’t had to back off that and report a provision.

Okay.

So, that was picking up on a forecast that was much more conservative back in December.

Your next question comes from Bill Lerner of Union Gaming Group.

Thanks. How are you guys. Two questions, the first is regarding, hey can you here me Steve, I'm sorry.

I said hi.

Hi. The first is regarding Danny Gans, obviously and fortunately, I'm sure there was a direct and an indirect impact of his absence in that theatre in this quarter, I don’t know if Andy or Matt could quantify that opportunity cost and I’d like to hear your thoughts on what generally you might do there going forward. Obviously we know you had Garth there and I am sure your doing it with Beyonce temporarily, but any thoughts would be helpful and I have a follow-up.

The entertainment policy that would be related to the use of the Encore Theater is a work in progress at the moment. Beyonce is a very special kind of event. We have $65 million worth of cash, front money and credit in this building, in the next four nights. This is what to, we put Beyonce in here on the toughest weekend other than December 19 of the year. We did it on purpose. Conventions and stuff like that start first part of August. We picked a real trough in the traditional revenue seasons. She is a special event as opposed to an ongoing entertainment event and a remarkable, and as I said, lovely, lovely lady. Danny Gans provided sort of a four-show a week staple that backed up some of our restaurants, the tickets made money, not a lot. It was more of a four-wall deal. We couldn't lose any money and we made ourselves $1 million or $2 million a year on the showroom and then we got the benefit of the people coming through the place. So that when you take, pick that away, it isn't a cataclysmic event by any means. It is personal loss, but it is not something that hit our P&L very hard. It's better to have Danny, of course, for a whole bunch of rather nonmaterial reasons, then to not have him. What we do with that showroom is very interesting. I should tell you that we own the life rights to the Bee Gees. We are working on a show about that. Garth Brooks was here as a friend. He didn't charge. That was just a buddy singing. As a matter of fact Garth has come here tonight to watch Beyonce, with his wife, Trisha Yearwood and his three daughters. They are going to sit with me and I think that god probably wants this stay at home dad and takes his kid to school every morning. He really does this actually, take his children to school every single morning. An extraordinary fellow, really extraordinary and so we are looking to use this showroom intelligently. It's a perfect space, it has perfect acoustics and there are number of people we are talking to, we haven't made the deals, so we keep our cards as close to our vest. So we talk about deals we made as opposed to deals we haven't made. Andy, I don't know you have anything to say about, Andy, no, I think that's pretty much story about it.

Okay, thanks

Entertainment isn't what it used to be Bill. Entertainments is not the moving factor in this city anymore as important as it was for Siegfried and Roy, [and Mystere]. As lovely it is to make $2 million a month with $25 million with Mirage. I must said you that the movers, the things that are moving this town now are food and beverage, hotel accommodations, service, the public is getting very sophisticated. And rather than watch a show they want to be part of it. Maybe that will help explain the $700 million in night club revenue that has appeared in this city, maybe $800 million since the millennium. An entirely new phenomenon, in every city in America including Las Vegas and might add every city in Europe. The idea that kids go out at nights, adults and kids alike and then want to dance and hoop it up in a nightclub with their part of the action, as opposed to sitting in the chair watching someone else hoop it up. So we had a sea change here. The late shows in Las Vegas have been impacted by the nightclub scene. Las Vegas at the moment is the center of the nightclub universe. Harvey Nash travel magazine said the hottest club on earth is XS at Wynn. I’m delighted that they said it. Just in four nights last year, in four nights did $41 million, open from 10 till 4 in the morning with a 70% profit margin.

Four nights a week so?

Four days a week, excuse me Thursday, Friday, Saturday and Sunday, $41 million. What an incredible thing that is. I think we made $28 million before we made Victor Drai, my god that is as good as Siegfried and Roy were. Working six nights a week. I mean it is amazing, but those things change and we have to be agile. That is why I worry about my workforce being agile. So that is what is going on Bill, things are changing.

That’s great thanks Steve and I just had one follow up and a quick one on Macau just trying to gauge whether there has been an opportunity cost of not having the new Encore until the spring. In other words have you been capacity constrained at VIP at all in any facet of Wynn Macau you'd say?

What do think, Ian?

I understand the credit dynamics there, so that is fluid?

My own instinct would say no.

I think as business ramps up towards the end of the year we are opening at the perfect time. So I think right now we could do with more rooms on the weekend for sure and more gaming space, but next year we will be a telling year and business will be back to a more normalized level. So we are opening at the right time.

Your next question comes from Robin Farley of UBS.

Great thanks. I wonder if you could give us a little more color on what drove margins in Macau outside of the cost savings and then can you talk a little bit about cost savings, was there an increased level of direct VIP business, Andy, can you put a color on that?

The revenue mix was fairly consistent with the last quarter. Ian pointed $166,000 a day, that's $15 million just for the quarter. So, I think if you're trying to compare the first quarter versus the second quarter that's really the margin difference. That was all in the things that the operational people implemented.

Andy, are you saying that's a mix of direct VIP was the same in Q1, Q2 or…?

That hasn't really changed that much, the mix of direct versus junket business.

We have reached the allotted time to take questions. I hand the call back to you for closing remarks.

I hope we have been responsive. If we haven't, everybody knows our phone number. If it's based upon what we published today, so it was nice to talk to you all. Have a nice week and if you're in the neighborhood give us a call. If you're an investor, we will get you in to see Beyonce.

This concludes today's conference call. You may now disconnect.