Wynn Resorts, Limited (WYNN) Q2 2010 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Wynn Resorts Second Quarter 2010 Earnings Call. Joining the call on behalf of the company today are Steve Wynn, Marc Schorr, Linda Chen, John Strzemp, Matt Maddox, Andrew Pascal, Scott Peterson; and on the phone, Ian Coughlan and Robert Gansmo. [Operator Instructions] Now I would like to turn the call over to Mr. Maddox. Please go ahead, sir.

Thank you, and good afternoon, everyone. Before we get started, I just need 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. With that, I'm going to turn it over to Steve Wynn for opening comments.

Not much to say that isn't explained on our press release except this. Business is slightly better in Las Vegas. We're noticing a little improvement because we've been working on our hotel mix. And we opened up the Beach Club on May 30, which was right in the last section of the quarter. But that's helped and been profitable and is ahead of plan. And it also has a related nightclub called Surrender. It had a minimal impact on our other clubs. So that segment of our business is quite incredible in Las Vegas. And that's in sharp contrast to the softness in the market, the nightclub and younger-person recreational market represented by Tryst, Blush, XS, Surrender and the Beach Club. That's a business that could do over $150 million for us, with a profit margin in the mid-40s. So we're really happy about that. We opened up Encore on April 22 or 21, so we had the benefit of it for all but 40 days. Its impact on our operations in Macau was, interestingly enough, accretive. There's a number that I mentioned on these conference calls in the past that I consider to be the critical number in understanding the gaming industry in any given jurisdiction. That number we refer to as fair share. And you measure the percentage of equipment you have in a market like the Strip or Macau, and then you measure the percentage of revenue. If you have the same percentage of revenue as you do of equipment, then you have your fair share, and that's a one-to-one. To the extent that, that number is less than one, then you are a dormitory for your neighbors and a net donor to the neighbor. And if it's more than one-to-one, then you are a net receiver, and you've made a dormitory out of your neighbors. Prior to the opening of our Encore facility, we had 8.5% of the equipment and 10.5% or -- and 13% of roughly of the revenue. After, we didn't add much equipment, we went to 10% of the equipment, but we went to 17% of the revenue or 16% or 17%. Our ratio before Encore was 1.6. And I think that was by far the best in the market with our 500 tables now. Interestingly enough, we would have been very happy if we dropped down to 1.5. In fact, we went to 1.62. So not only do we add more equipment, but it increased our fair share ratio slightly. And that meant that our tables and our facility were well received. And that's, of course, gratifying for us. We're on the way to having the biggest year in the history of this company or any other company that I've been involved in, in my 42 years. So we're very happy. We had a board meeting a few minutes ago in this company. And after months of work, I was very proud to show the board of directors the Cotai project, which is now assembled. We now know what it's going to look like, what its components will be, where its romance and excitement will come from and how it will attempt, and I think very successfully attempt, to gain the upper hand competitively in a very competitive market, which is Cotai and Macau. So all of that, we’re underway now. We're finishing the back of the house, and we'll be starting the drawings for the foundation now almost in a matter of weeks. So we're a little ahead of schedule in where we thought we would be in Cotai. The design development period went much faster than it's gone in my career in the past, when we did all those other hotels, like Golden Nugget, Golden Nugget of Atlantic City, Beau Rivage, Treasure island, Mirage, Bellagio, Wynn, Encore in Las Vegas, Wynn in Macau and Encore in Macau. This was the best job, and it went the quickest, so -- and you can count up all those properties. But maybe the combined experience that our -- all of our design team has spent together all that time. And this time, interestingly enough, we used a different approach. We included in the design process the key operating executives in the casino and other departments, not just consulting them but having them at the table making the very meticulous A/B decisions. Designing one of these hotels, these massive places, is a whole myriad endless chain of A/B, yes/no decisions. And without them, it wouldn't be possible to get where we got as quickly as we did. And it was a very satisfying process. So we're excited about our new project. And we're all deeply involved with the next stage of getting it ready for groundbreaking. Those are my observations in general about what's happened in the last 90 days. We hope for continued improvement in Las Vegas. Or let me put it differently. We hope that we'll get smarter in Las Vegas in dealing with the peculiarities of this market and this very, very mercurial national economic economy that we're living with. The national economy and the political environment in the country as we head up to the elections is very, very touchy. And it is impacting all businesses. Today, we got a report at a -- various of our board committees meetings about the impact of the bill, the Financial Reform Bill that the President signed, with its hundreds of new committees and regulations to be formed, bodies and government bureaucrats to be created who will then tell us what we should be doing or what standards we have to live up to, both at the SEC and in other bureaus that have been created by this Financial Reform Act that the President was so enthused about. There isn't one single person in the United States of America that has a clue of where the Financial Reform Act will lead and what it really means. In spite of the fact that there are undoubtedly some good things in it, it has the potential of being a catastrophic interference with business, very much like the Healthcare Bill. So we're living through this along with the rest of America. And you can decide whether you want to be pessimistic or optimistic. You can decide whether the glass is half full or half empty. I'm at the point where I hope we just don't tip the glass over. So let's take questions.

[Operator Instructions] Your first question comes from the line of Shaun Kelley with the Bank of America Merrill Lynch.

I guess, Steve, my first question is really it's such a notable inflection, your comment about Las Vegas. So maybe you could give us a little bit more color on specifically what you're seeing. And are you seeing the ability to maybe actually begin to raise room rates at all in the market?

Andrew Pascal is here, and that's exactly what he's doing. You want to talk about it, Andy?

Sure. So I think we've been looking at every segment in the market, and we're finding some modest improvement, and we're able to actually start to improve our rates. We've become less dependent on the Leisure business and their Promotional segment. That's the segment where we're aggressively out there marketing and stimulating demand. And we're trading that business for a little stronger kind of Convention and Group business, which last year averaged somewhere around 12.5% of our mix. And it's trending closer to 17%, 18% now. So I don't know that this one data point is something that we can rely upon yet as a trend, but we're a little bit encouraged. And we hope that we’ll continue to see some modest improvement through the balance of the year.

Linda Chen is here from Macau. As I say, she’s been working on the design of our new hotel. And Linda can talk to you about Asian business that we've experienced in Las Vegas and what she thinks that's all about.

Well, I think Asian business has decreased, but probably sustained the best among all segments of our business. Same for, too, I mean, in Asia, in China and the cross-marketing that we experienced. And because of the new customers, we also be able to meet, because of the Macau, so we get the benefit of that in Las Vegas.

We're getting referral business?

Yes.

And also the brand owning, besides just the referral. We're getting our name out in, not just in Macau, in all of China, all of Asia, that people want to come and see the Las Vegas property. And they have a long enough break.

Well, those are the nightclubs, better room rate, sustaining interest in our casino by the Asians as helped us. We began -- this is more a third quarter than second, but we began the remodel of the 2,700 rooms that is Wynn Las Vegas because they're five years now since it opened. And thank goodness, the rooms were fully utilized, with high-90s occupancy. And it's time to remodel them. And consistent with our personality, we've upgraded them. And I think between the regular rooms, the suites and the villas, we’re going to spend $99 million between now and January and February -- Andy?

April. April.

April. We'll be done by April. And the way we do that, is we take out several floors at a time. And then each week, we release one floor back into service, completed, and we take another floor into service. And this slug of rooms that are under refurbishment moves up the building or down. You start at the bottom, John?

You start at the top and move down.

Start at the top and move down, yes. We're also remodeling the baccarat game starting in October. It’ll be ready for Christmas, New Year's. And we're making our baccarat pit much sexier. And those are the...

Lake of Dreams restaurant.

Oh, and we've also -- creating a new restaurant experience at a place called the Lakeside Café, which is on the Lake of Dreams, that heretofore has been known as Daniel Boulud, but we've decided on a concept that we think is very cool. And that restaurant will open up by October. And those are the capital expenditures that are underway. And the Wynn is going to be all spruced up, from the golf course all the way to the Strip, by the spring. And it was right. One of the things that's happening here as the market softened and many of these companies with very bad capital structures neglected their properties rather severely. And the properties are all showing the wear and tear. They're showing the lack of capital expenditures. And the public, of course, takes note of this immediately. There's no secrets. The minute the place is not clean or it's getting threadbare, it has a very bad effect on your clientele. We go in the opposite direction, take advantage of our capital structure and make sure that we're pretty and all fluffed up all the time. Yes...

Obviously, Cotai is a huge, important project for the company. Any sense on just when you might be willing to -- or ready to share that design and development with the investment community?

Good question. And I didn't expect to be able to say this, but I'm hoping that we will have a lot more to talk about at either the next quarterly meeting or the one after. I would say in the one after, we're going to have some pretty -- we're going to have numbers and maybe give out pictures or something. But we know what it's going to be now and how it works. We have some technical issues to resolve about back of the house and cab queuing and energy plants and stuff like that, that make the building work. But it turned out to be great. And it left us, after we're all done with our best shot, with a second site that we didn't think we were going to have on the property. That's my answer.

Your next question comes from the line of Joe Gerff (sic) [Greff] with JPMorgan. Joseph Greff - JP Morgan Chase & Co: It’s Joe Greff from JPMorgan. Two questions, one is on Las Vegas, and it's great hearing you're raising room rates here. Are you seeing any improvement in spend per occupied room outside of room rates?

I'm going to let Andrew answer that, but I want to point out that at the time when we decide to raise room rates and it’s happening successfully, within three weeks after making that decision, we also reduced the available inventory associated with this remodel, which gave us a perfect opportunity to do it. Because under normal circumstances, we're going to take 15% or 16% of the inventory out until we're done. And so that gave us some more leverage why we could lean on the rate. Andy, you can talk about the spend per room.

And the short answer is no, no material change. I think we're just going to see just the benefit of a better mix. So we're displacing promotionally oriented or leisure and more kind of value-conscious customers with people that hopefully just spend a little bit more. So we're not seeing by segment an increase in spend per room night, but we're going to see some improvement just because of the shift in mix.

With one caveat, Andy. I would have to say that we have a little trouble attributing all this extra money that falls in around here from the nightclubs with our rooms. And I think Andrew is hesitant about giving that a big break when it comes to revenue per occupied room night. But I think there probably is some relationship there. Joseph Greff - JP Morgan Chase & Co: And Andrew, it sounds like from your comments that we should be taking out 400 rooms...

That’s right. Joseph Greff - JP Morgan Chase & Co: ...per period between now and April? Okay.

That's correct. The standard rooms will be done in January, and then the suites are going to take a little bit longer, and they'll extend into April.

We didn't start the suites yet.

So come mid-January, you're right, you lose about 400 rooms through January. And then we'll start to phase back from there, but that's a safe number. Joseph Greff - JP Morgan Chase & Co: And then on Cotai, Steve or Ian, maybe you can enlighten us, what exactly is the process, especially with respect to government approvals and maybe a timeline there? And then, Steve, your comment earlier about a second site on the property, so we should be thinking about Cotai as having a Phase 1 and then a Phase 2 component?

Well, the process with the government is underway and long-standing. And communication is complete and perfect between us. And it’s just the grinding of procedure. And it won't interfere with our timing. We've got several months to go before we can break ground and -- on the foundation. And I'm anticipating support from the government, as we have in the past. As I said on a previous call, and I did say also when we opened Encore, because this question is asked of me repeatedly, freezes on games, freezes on casinos, how does that impact you? And I said, the way it works in Macau and The People's Republic of China, the government decides what's best for the country. And they use people and experts and companies of various description to get what they want. When they develop a program and a plan, they give complete support, and they give direction to the people that they use to execute the program. My company, and although it's mostly Chinese and has Chinese ownership, our company is such a company. We are agents of change to make Macau a more suitable place, in governmental terms. If we were not to do this project, we would be discouraged at the very outset, and you would know not to proceed. If you're encouraged to proceed, you're always given the support that you’re needed to be successful. And we are being given that support. What was -- was there any other part of your question? I don’t... Joseph Greff - JP Morgan Chase & Co: Just your comment...

Oh, the other site, the property site. Joseph Greff - JP Morgan Chase & Co: ...on the property, Phase 1, Phase...

When we finished design development, we found out that we had on the corner of our property, streets on both sides, 12 acres left over, that we could use... Joseph Greff - JP Morgan Chase & Co: So is it still a 52-acre site or is it a 64-acre site?

It’s a 52 -- I don’t know. Is it 52 or 54?

51.5.

Yes, so there's 12 left over. Thank you, Ian. And it’s a very, very -- it's critically situated. It's right across the street from MGM, MGM's site. So it gives us a chance to expand and add other things that will make Macau more attractive. And we'll explore those now that we’re finished with our primary design.

Your next question comes from the line of Mark Strawn with Morgan Stanley.

Two really quick questions, one on Vegas and one on Macau. First, on Vegas, talking about the room mix, I was wondering if you could share any details on what the cash occupancy looks like in Vegas. Basically, your paid occupancy less any comps rooms to the casino and how that's been trending. And in Macau, wondering if you could just share any color what July trends have looked like.

Andrew?

Yes, so we don't break out kind of the composition of cash- versus comp-based business. I'll just generally tell you that our cash-based business is up year-over-year. And as far as the trends we're seeing in July, we see some further strengthening. So again, it's a modest improvement. But I think we've already spoken to it.

Same thing true in China.

Your next question comes from the line of Steven Kent with Goldman Sachs.

First, maybe Andrew, on -- if you could talk just a little bit of how you're looking into the end of this year and into 2011 on holding off on bookings or holding back some volume, given some of the pricing increases you're thinking, and sort of how you're handling filling rooms with maybe holding off a little bit and getting better pricing. And then, Steve, just on Cotai, could you just tell us a little bit more about who the target audience would be? Would it be more toward mass market, more towards a more affluent market? And then finally, just round numbers on the cost on Cotai.

Not prepared to give cost numbers yet until I budget it and until the board of directors hears about it and thinks it's okay. And I don't want to get ahead of the people that run the board. As far as what the place is in terms of its market position, I was in China for half of June. And having worked on the hotel for quite some time, I thought it was time for me to check myself. And I got everybody that had anything to do with customers and the business in a big conference room and went around the room one person at a time and asked the very same question that you ask. Who are we? And what are we doing in Cotai? Where are we going? How are we going to present ourselves? Where do we fit in? What should the public expect? Because consistency and -- is very important to business, just as it is in life, so -- and I was really excited and very gratified that there are very diverse personalities in the group. And they were relaxed and comfortable enough to express themselves. And what was really fascinating was that to the man and woman that were in the room -- there were men and women. Every one of them, in their own way, said the same thing. Dance with the girl that you brought to the party, or dance with the guy that brought you, whatever that old anecdote is. We know who we are. We know what we do best. Stick to what we do best. Take advantage of Cotai, and do it better than anybody's ever done it, including us, in history. And that had been what Mr. DeRuyter Butler and I have been doing in our design development exercise to date. And when I went to the people that I work with there that really run the place, that was their advice as well. So that did it, and that ended the conversation. We are going beyond what we've been before in appealing to people of good taste and judgment. And we're going to just build the most amazing hotel that anybody’s ever seen. And it will be -- it will accommodate a lot of people. It will have between 1,500 and 1,600 rooms. Each of the rooms caters to a different segment. But in each case, the rooms are bigger and more beautiful than any we've ever built. And that's saying a lot, if you see Encore in Macau or Encore in Wynn. But we've gone a notch up in every respect. And we also were able to take complete and total advantage of our experience. Even when we built Encore in Macau, I made the point that, that tower was built as a result of our experience in Macau and therefore was really pointed right where it should be pointed. And the results since it opened proved that. But we still had to live with our urban environment and the land that we had downtown on the avenue, 24 July. Or June, 24 June. I always get that wrong. And this time, we had a blank sheet of paper. We could do it from scratch, armed with the experience and the knowledge gained from that experience, and, oh, boy, was it fun. And the choices we were able to make and the kinds of things we could offer our customers are truly scrumptious. So we're very excited. But that's who we’re going to be. We're going to be Wynn Resorts, Cotai. Wynn Cotai. We're not going to look like Sheraton or a Hilton or a different company. We're going to look like us. And you know what to expect when I say that.

I'm going to take the question on do we hold back inventory. I guess, first, I want to make sure that my tone hasn't been misinterpreted. I’ve spoken to some modest improvement in Convention segment, but again, I don't want that to be misinterpreted as our being overly optimistic. So to answer your question directly, we don't hold back inventory. We look at the pace of demand by segment, and then we price our hotel in order to capitalize on what we think’s the opportunity. If the demand’s not there, then we tend to reduce the price and try and stimulate some demand. And if it is, well then, we’re able to yield it up. But as far as just generally holding back inventory, that's not our practice.

And is it still -- are you booking, essentially, in the quarter for the quarter or in...

Yes.

Or the third quarter for the third or...

Yes.

...fourth quarter? Is it still pretty short-term?

No, no, we're booking through, looking out anywhere from six to eight quarters, so -- and there's a long tail on that. But we've had good healthy bookings in the year, for the year, not what we would have liked to have seen coming into the year, but in the Convention segment, particularly, we're seeing some strengthening going into next year.

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

Question for Steve, and then Andy, just a follow-up or a quick second follow-up. The first one is, Steve, you, of course, talked about the beginning of the room remodel in Vegas. What about the new rooms or the design of the new rooms in Vegas do you think will encourage folks to pay more per night, besides you charging them more, ultimately?

Yes, it’s a good question, simple answer, Y-E-S.

Yes, meaning...

Well, they’ll like it more, they’ll pay more.

And that’s a -- there’s nothing structurally changing about the rooms, it’s just...

No, no. It's reragging, reaccessorizing.

And then the follow-up, Andy. What's going on during the -- or after, I suppose, the Beach Club day parts? I know it's not the same demo that necessarily you’re used to outside of the -- Victor’s places, but what's going on in other elements of your property and Food and Beverage and Retail and so forth? Is there anything -- is there any lift there as a result? I know in a vacuum, those phases are doing extremely well, anyway, but...

Well, I want to correct you. When you say Victor’s place, you're talking about our colleague Victor Drai.

Yes.

Please remember that unlike our neighbors on both sides of the street, we don't lease anything. The excess belongs to Wynn Las Vegas. Those are in-house clubs. We make arrangements for incentive compensation for management. But those clubs are owned by us. And the revenue belongs to us, and the bottom line belongs to us. And then we take a valued colleague like Victor Drai and give him a percentage of the profits. But those are our clubs. Those are our employees. That's our inventory. Those are our internal accounting people, and our cashiers. So I want to make that very clear. There are no leased clubs in this company.

I know that intimately.

Oh, okay. I didn’t want anyone to think that we rented out anything. The State of Nevada has had a fussy position about accountability. And I just want to keep us on the right side of that line.

As far as the ancillary benefit, we’re seeing some lift in Food and Beverage, and we’re going to try and capitalize on that further. That's in part why we're reinventing and created the Lakeside Grill. We’re also doing another outlet, Le Cave, in partnership with Michael Morton, which is going to be a great new addition, and I think it's going to appeal to -- both those outlets are going to that market that we’re now attracting.

I forgot to mention that.

Yes, so again, were seeing good, solid lift in the Food and Beverage outlets over at Encore, and I think with the...

There’s two new ones now. I forgot, the Le Cave and the Lakeside Grill. I left one out. When does Le Cave open, Andrew?

Early November.

The last one here, and maybe this is for Andy. What are you seeing -- are you seeing anything reflective of the euro weakness? By that, I mean the currency now? I know, of course, those trips -- Europeans book trips further out than folks from regional places around the U.S., of course, and I would think that strength in the euro over time takes some time to play out. What are you seeing, if anything, Andy?

We're not seeing anything. It's not materially affecting our business in any way.

There was a period when the euro was really up there around $1.58. There were some guys from Europe that were coming over here and thought they were playing with pesos. They were playing with dollars. And I can’t say that we didn't get a little lift from that. Some of the Europeans really liked the cheap dollar when it came to gambling, because they were paying off at -- they thought $0.67 on the dollar. Now that wame [ph] (0:43:10) has tamed [ph] (0:43:12), I don't know that it will hurt us or anything. But we had a lot of customers from the United Kingdom, so we get the pound sterling as an item, now and then.

Your next question comes from the line of Chris Woronka with Deutsche Bank.

Could we maybe get a little bit of color just on the directional ramp-up of Encore Macau throughout quarter, kind of both on the revenue and in expense side, and if you ended the quarter on any kind of imbalance in terms of revenues not being where you think they can get to, but expenses being a little bit elevated just with pre-opening and things like that?

Anybody got anything to say about that?

Well, we were carrying most of the expenses going into the quarter, so our expenses weren't affected at all, and we’re meeting all of our projections.

Yes, we had everybody on payroll in the first quarter, so it was just a nice fat pickup going on forward.

And if you look at the win per table in Encore, it actually outpaced Wynn Macau, so there wasn't a dilution in the revenue because Encore opened. It actually -- it was ramping up quite nicely.

And we’re getting longer plays.

Yes, we did a thing on the corner there by Arc and MGM. And we call it the Diamond Club. But it's really like Las Vegas, a high-end pit. It's not non-redeemable chips. It’s not a junket room. It's two dozen games, and a -- oh, a hundred slot machines, I guess. And we put a little noodle kitchen in there and a little high-limit slot alcove in there. It was sort of a mini-boutique casino. Well, we opened the damn thing one evening at 6:30, and within two weeks the players made us raise the limits. And remember I talked about our fair share going up? It all came from that room. They really loved it, and it’s like a Las Vegas high-end pit. And I think we’re dealing HKD $500 to HKD $1,000.

Yes, a minimum of HKD $500. The average bet’s, what HKD $2500 limit?

About that.

So we got an average bet that’s $600, $700. But we got a minimum bet of over $50. That's a pretty good table limit, even in -- anywhere for a non-junket room.

And the rate of play has gone from 61 minutes per player to 88.

Yes, Mark Schorr is always into this, but our length of play went from 61 minutes to 88 minutes in that casino. Little things like that sound sort of petite, but when you can go from 61 to 88 minutes on length of play, all kinds of good things happen. Whole percentage gets more powerful. A lot of things happen. People stand at the table longer, that means they’re more apt to be eating in your restaurants or shopping in your stores. That means that something’s happened to make them like the place. Either it's an interaction with -- it’s the environment, the lighting, the colors, the mood, the music, the interaction with some wonderful employee. This is the nitty-gritty of the gambling business. Something happens, and one of the places where it's reflected, if you’ve got your act together, is in the length of play. People don't stay at the table if they're not happy. And once they're happy in a place, then there's a tremendous amount of ancillary fall-off from it. So that's what Encore gave us. And it's all a result of having learned lessons and profiting from your experience.

And one thing that I follow is the fair share that Steve talked about of 1.6x. But if you look at our EBITDA share or our net income share, so how profitable is the business coming in the building? Wynn Macau generates 25% of the EBITDA in the market and 40% of the net income. So each one of our table generates 4x the profit of -- relative to each spheres [ph] (0:47:26). So we're not buying the business. It's quite profitable business that’s coming in.

Your next question comes from the line of David Katz with Jefferies & Company. David Katz - Jefferies & Company, Inc.: While I have pretty much the whole team there, as we progress through the rest of this year in Macau, I'm getting a sense for what the dynamics are in that market and how the carry-through will be from the strong growth we've seen so far this year and started last year. Whatever thoughts you can share with us about what you may be looking at or what trends you may be looking to get a sense for how the rest of this year is going to roll. A top line perspective would be really helpful.

The one thing that we don't have in Macau are forward-booking trends like we do here in Las Vegas. So to sit here and predict how future gaming revenues are going to be six months from now is actually quite difficult. It gets very tied to the macro situation in Asia. All of the things that I track appear to be holding up quite well. It looks like a lot of the macro issues have come in for a soft landing, people were worried about. So for what it's worth, to me, it appears to be very stable. I don’t know, Linda, do you have any comments?

However you look at quarter-to-quarter...

We’re coming against strong numbers.

You’re comparing to a strong quarter last year, so...

Oh, the comps get tougher...

Right.

...in the back half of the year. So the question is, sequentially things continue -- they appear to be stable.

Hey, Matt, a minute ago, you made a statement about our share of the revenue and our profitability.

Yes.

Repeat it, will you?

So we generate about 15% to 16% of the revenue in the Macau market on 8% of the product, 8% to 9%. But more importantly, we generate 25% of the EBITDA and 40% of the net income. So the one thing you'll find about Wynn is from our EBITDA to our free cash flow, we capture between 50% and 75% of the EBITDA for our shareholders, going to the equity.

Now there was one of our neighbors, who's got a great ambition and doing a big job is Sands. They released earnings yesterday, and they had a $300 million number in for three or four places in Macau, three places. And we had $215 million or $216 million. EBITDA has as much meaning as snow on top of Mount Everest. It's a worthless number, because you've got to pay interest, you got to pay taxes, and depreciation’s as real as the payroll. I just got through telling you what it cost to change the rooms and keep them fresh. So you ask yourself, what really is going on? So you subtract the cost of ferry boats, subtract the interest payment on the first quarter of both companies, subtract the...

Depreciation.

Whatever the depreciation is that both companies use. And just make it equal, whether it’s on a forty-year schedule or a ten-year schedule. Makes no difference to me. And you'll get to the fact that the money left over afterwards is greater with the smaller company, in terms of Macau. Bigger ain’t better. Better is better. Because when you borrow all that money, you got to pay it back. And when you build all of those facilities, you got to depreciate them and take care of them. So you better damn well make sure that they carry their weight. Now I'm a big fan of the development in Cotai and the things that my competitors have done. And they're making the future bright for Macau, and I'm proud to be part of it and proud to be their neighbor. But when you're analyzing what's going on, don't get confused. So we're a younger company than the Sands and MGM. And we are a little bit more, oh, steady, or a little slower. And it's the old hare and the turtle story. We're a little bit more like a turtle than a hare. But at the end of the day, we're going to build Macau, and it's going to be the Cotai project. And it's going to be a big increment to the wealth of our company. And we'll go somewhere else at that same time. And when you take the four- or eight-year difference in age between us and the Sands or the 20-year difference between us, 16-year difference between us and MGM, we'll catch all those guys. We'll catch all those guys. But we'll do it in a very steady, processional way. And each of our properties’ll have the kind of characteristics we're describing now. And we wouldn’t do as well if it wasn't for them. Don't misunderstand. I'm not deprecating them. But I am pointing out that we’re a different kind of company. And we’re going to stay that way. And maybe we don't move quite as fast as the other guys, but we don't borrow money quite as flagrantly. We don't take on projects that we can't really control down to really fine point. And maybe that disadvantages us competitively on occasion. And I'm willing to accept that myself in exchange for having security for my employees, predictability for my investors. I’m willing to make that exchange. I'm willing to take longer to get where I want to go. And where I want to go is where we dominate the gaming industry in terms of quality and performance. David Katz - Jefferies & Company, Inc.: And if I may say, you set up my follow-up question quite well, because when we look at your balance sheet, which obviously compares very favorably, beyond the Cotai project, which lies ahead, what other financial strategies, and maybe this is something more for Matt. Can you talk about where would you like your ultimate aggregate leverage to wind up? Where are you most comfortable? And what other uses for your capital do you have?

I'm not sure that, that's a strategy that is appropriate today. We're in a competitive environment. You know the shape we're in. We can go wherever we want and do whatever we want. That's clear enough. And I think we'll leave it at that for the moment. It is -- I think it's enough information. I'm sorry, I don't mean to make it tough on you, but I'm going to stop right there and take another question.

Your next question comes from the line of Dennis Forst with KeyBanc.

Andrew, I wanted to ask about the cost of the room remodel. I must have missed it when Steve gave it. How much is that going to run?

$99 million.

$99 million?

It's $45 million for the typical rooms, $46 million for the suites and for the villas another $10 million. That’s about...

Great. That adds up. And then secondly...

And then add a little something for baccarat, and that's all we're doing.

And then Steve, given your perspective on Macau, which is probably clearer than anybody's, and the Cotai strip, when you build on the Cotai strip, you're going to have a great location. Who else new is going to be there? Clearly Sheldon’s going to open sites five and six...

I hope. I hope they -- I hope so. We're counting on that.

Do you think there's a possibility they won’t open them?

No, no, I'm just saying, I -- it depends on timing. No, no, he’s got two of...

Okay, do you think anybody else will open out there before you do?

Well, no. The Studio City is a hodgepodge of lawsuits and confusion and was since its inception. So maybe the biggest break they get is if they don't start, in that case. Stanley Ho has property. And MGM and Pansy Ho have property there. Pansy and -- the MGM and Pansy Ho combination is right across the street from us, adjacent to City of Dreams, in particular the Hyatt corner of City of Dreams that faces us. And then Stanley has property out there, doesn't he, Linda?

Yes, the Galaxy.

Galaxy is opening in March.

The Galaxy is opening in March, but they'll be right away. And then that'll be it at Galaxy, won’t it? I mean...

Yes.

They’ve used their property.

Right.

So I think it's Stanley Ho and SJM, that company, and then the Pansy Ho -- Does Pansy and MGM have a name? Do they operate under a name?

MGM.

MGM? Oh, they use that name? Okay, so MGM -- it's MGM and SJM. Those two companies and again, whatever Studio City is. It's hard to tell.

So -- but they're likely to be behind you in opening?

Absolutely.

And will there be competition...

Excuse me. Excuse me. They'll be behind us. But this is important. If they get their act together and they start while we're building, they still won't know what's inside our building. So they're going to have to build it without the advantage of an education on Wynn Cotai.

Right. And that would probably, between the properties that are already under construction, yours, that probably doubles, maybe more than doubles the capacity on the Cotai Strip. You're going to probably lead the market like you do on the Peninsula. Do you worry that there'll be enough business for everybody there or that there could be fallout?

Because we studied that. We studied that. We're going to have 500 tables. We're not going to be any bigger than we are in the Peninsula in terms of gaming. We're smaller, not bigger, in terms of the other places. I mean, I don't know how many tables they have at Venetian. It's enormous, the slot machines.

Oh, it’s 3x us.

3x us. I mean, the overlay on equipment is staggering. We -- again, bigger ain't bigger. Better is better. But we won't have that kind of casino size. We know what size our casino has to be to get all the money. And we’re going to -- and I'm telling you what it is. It's 500 tables and 1,300 slot machines, more or less, give or take a handful. That’s where we’ll be. That includes all the private rooms and the junket rooms and everything. So I don't know what SJM would do or MGM. I think MGM’s learning a lesson. To build an unlimited amount of general casino tables is a misguided notion. It doesn't add up at the moment, even though the margin’s better in the general casino, there's a limit to how many tables you can spread. As far as the growth of the market, even slowing that growth down to half as much as what it is now, we believe that the market will be ready for the capacity that Cotai represents. Sheldon Adelson and his colleagues have made that point. And I think they're quite correct.

If I could ask one quick question of Andrew. I've noticed the hold percentage on slots in Vegas going up pretty dramatically. Is that intentional? Or are you changing the mix of the machines?

When did you notice that?

About the fourth quarter of '09.

Yes, I mean, some of it is -- yes. We're changing the mix on our floor. And we've increased the complement of participation product, which as you know, carries a higher hold percentage. And some of it is also the composition of play shifting down in denomination, which also carries a higher hold percentage.

You’ve been paying attention.

Your next question comes from the line of Robin Farley with UBS.

Yes, I got a question on Vegas and one on Macau. In Vegas, I wonder if you could give us a little color on -- your table drop was down slightly after being up nicely in Q1. And we've seen a little bit of others in the market, that Drai [ph] (1:00:02) talking about table drop being up as well. And so if you can reconcile sort of what's going on with your table drops. And you mentioned that expenses were up because of higher customer acquisition costs. And just were those acquisition costs things that would have borne fruit in Q2? Or were they for future quarters?

Robin, the reason the table drop is off is because there's so many more tables around here, even though they're not doing a very good job for their owners. And secondly, the reason our customer acquisition cost is up is that when companies, namely, our competitors, get desperate, there’s two things happen. They stop taking care of the building, and they increase their promotional allowances, to no avail, I might add. It's a one-way street to oblivion. But that's the natural knee-jerk reaction when they get desperate. They don't take care of their building, and they grasp for customers. And then it has an effect in the marketplace, and it takes everybody down. The person who starts this kind of stuff doesn't do themselves a bit of good. It takes awhile before they wake up to it, and then they get new executives or something. It's been the oldest story in the history of Las Vegas. We go through this cycle all the time with inexperienced help and unsophisticated management. They spend too much. They over-comp. They do all this stuff. This is as old as Methuselah around here. Maybe I'm getting old. I've been doing this for 42 years. But I’ve seen this about 11 times. And then there's a new group of young, inexperienced managers. Again, they fire the other guys, and the people, okay, well, we can’t do this anymore. Stop -- we can’t comp people that don't play that much. We can’t afford this. There’s no margin in this business. They got Blackjack at some of these hotels down to where the game isn’t worth it, the space it takes up on the floor. But what the hell? They got the tables. They got the dealers. They want to protect the jobs. They go and give the joint away. If their rooms are empty, they figure they've got nothing to lose, even if they’re new rooms.

It sounds like that's continuing into the second half here, that situation?

Pardon me, ma’am?

In other words, the competitive situation that you saw in Q2, it sounds like it's continuing here into the second half of the year in terms of customer acquisition costs and table drop being down.

Andrew?

Yes.

Yes. Yes, Robin.

Absolutely.

In a word, yes. But we've got these nightclubs, and there, we're able to get an advantage because it's the management of atmosphere. And so there, knowledge and experience really matter. A Blackjack game’s a Blackjack game. Unfortunately, a slot machine’s a slot machine. They're all a commodity. When we get into the areas where there's a difference that matters, like the way we treat people, how beautiful the places are, the management of environment, then the competition can't run with us, and we're safer. And that's where Linda's customers come in. They're brand-oriented. They’re very conscious of the little things, the quality of their experience, how clean the place is and how they're cared for. Nightclubs, believe it or not, in a strange way, it's a similar kind of thing. So those are the two segments where we hold our own.

And then my -- a question on Cotai. I was interested in your comment about the second site, the 12 acres you have left over after the design. Is that something that you would design and develop sort of concurrently? Or is that something you're saying kind of several years from now you would do design work for?

I just -- since we just finished this phase, and there's the piece staring us in the face, and we're delighted with it. We haven't gone any further in our thinking.

So would it be just -- to understand what you're saying, call it a site, would it be an expansion? Or would it just be a -- just a kind of a feature or an amenity on the existing property?

I don’t know.

Do you have any comments?

I don't know, Robin. I'm saying we just finished the design, and it turns out that it was on 40 acres, 39 acres, not 52. So we had this lovely site left that we can use to augment the whole Cotai profile with something that will make Macau a better place and make money for us, too. So we have to think about that. The site didn't get created till we finish putting in the hotel that we're going to build. So I can't answer your question because it's too soon. We done?

Your next question comes from the line of Robert Shore (sic) [LaFleur] with Hudson Securities.

It’s actually Bob LaFleur. Just one quick question. I noticed that your slot performance was very strong in Macau, up 21%. And Las Vegas Sands also had very strong slot performance in Macau. There’s nothing really to talk about much. It’s a small part of the business, but I was wondering if this tells us anything about the evolution of the Macau market and where the slot business in that market can go, going forward.

Ian, yes, Ian, you’re there.

Yes.

What do you say about that? The slots are picking up. Sands had strong slots. We had strong slot performance. What do you think about that?

There’s definitely big growth in the slot market, and I think all operators have been very pleasantly surprised over the last 36 months at how slots have taken off. We’ve managed to grow our business very well at all levels of slots. We have a very, very highly productive high-limit slot market, where we give very personal attention to our customers. We watch it very carefully. And the advent of Encore for us has allowed us to take that to another level. So it's not a small part of our business. It's quite a big part of our mass-market business, and we watch it very carefully. It's been very rich and rewarding for us. And we believe there's still great potential for growth there.

There you are sir, from Hudson Securities. Have we exhausted the curiosity for everybody, including our competitors that are on the call? If I said anything that upset anybody, I apologize. We love you all and enjoy talking to you. And you can all rationalize our results as best you see fit. And I will say thank you to everybody. Talk to you in 90 days.

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