Wynn Resorts, Limited (WYNN) Q2 2012 Earnings Report, Transcript and Summary

Matt Maddox - Chief Financial Officer, Principal Accounting Officer and Treasurer Stephen A. Wynn - Founder, Chairman, Chief Executive Officer, Chairman of Wynn Macau Limited and Chief Executive Officer of Wynn Macau Limited Marc D. Schorr - Chief Operating Officer, Director, Member of Gaming Compliance Committee and Director of Wynn Macau Ltd Linda Chen - Director, President of Wynn International Marketing Ltd and Chief Operating Officer of Wynn Resorts Macau Maurice Wooden - Executive Vice President of Food & Beverage Operations Robert Gansmo - Vice President and Chief Financial Officer

Joseph Greff - JP Morgan Chase & Co, Research Division Shaun C. Kelley - BofA Merrill Lynch, Research Division Carlo Santarelli - Deutsche Bank AG, Research Division Steven E. Kent - Goldman Sachs Group Inc., Research Division Felicia R. Hendrix - Barclays Capital, Research Division Robin M. Farley - UBS Investment Bank, Research Division Jon T. Oh - Credit Agricole Securities (USA) Inc., Research Division

Good afternoon, and welcome to the Wynn Resorts Second Quarter 2012 Earnings Call. Joining the call on behalf of the company today are Steve Wynn; Marc Schorr; John Strzemp; Matt Maddox; Maurice Wooden, COO of Wynn Las Vegas; Scott Peterson, CFO of Wynn Las Vegas; and on the phone, Linda Chen, COO of Wynn Macau; and Robert Gansmo, CFO of Wynn Macau. [Operator Instructions] I would now like to turn the call over to Mr. Maddox. Please go ahead, sir.

Thank you, everyone, for joining us today. Before we get started, just to remind everybody that we will be making forward-looking statements under the Safe Harbor Federal Securities law, and those statements may or may not come true. So with that, I'm going to turn over to Stephen for an introduction.

Hello, and good afternoon, everybody. I appreciate Linda staying up so late in Macau. I think we have everybody here to answer questions. I'll make a couple of summary remarks. First, Las Vegas. Last year, we -- I've mentioned before, we enjoy a great deal of very high limit Baccarat business. And that high play tends to be volatile. In the long run, not so much. But in the short run, it can be. For example, last year, during the 6 months, the first 6 months of the year, winners. That is to say, people who won money from the casino were outnumbered by the losers. The losers were outnumbered by the winners. And that is to say, the amount of money we paid to people who beat us, compared to the amount of money of folks who lost money to us was a positive for the company of $150-odd million. This year, the people who won money in the casino were much more, and the people who lost money to the casino were less, and the delta was $38 million. That is to say, there was $112 million difference in 6 months in the win of the casino associated with high limit Baccarat. Last year, we held 37% or something like that. And this year, it's 17%. Normalized, it's about 26% for that gain. So when you normalize everything, the trend in Baccarat, Marc will remind me, in 2010, high limit Baccarat won how much, Marc?

$111 million.

$111 million, and then if you normalize a whole percentage...

$125 million.

Pardon me?

In 2010, if you normalize it...

2010 was $125 million...

Normalized.

Normalized.

Actual was $111 million.

And what was normalized last year?

$145 million.

And this year, if you normalize it?

$174 million.

$174 million. We actually have more business. So all of that is academic in a matter of speaking but, it does shed some light in understanding to the kind of shifts that can take place short-term in businesses that have this kind of high-end gambling. In terms of the rest of the business, it's about flat or slightly up in Las Vegas in terms of noncasino revenue. And so, if you normalize everything, we would have had a better result than we did. Last year, we had a premium result because we had abnormally high hold percentages. But our business levels this year in Las Vegas are slightly better than last year, except for hold percentage. In Macau, for the first 6 months, business was flat. We were slightly ahead. The market has gotten more competitive. Two new hotels opened up in the second quarter, operated by the Sands. And those 2 hotels added more games to the marketplace. And generally speaking, business was flat for the market, the high limit business and the VIP junket business and the total casino win. But we suffered on the top line, an adjustment of a couple of points on revenue, but we didn't seem to have the problem on the bottom line. As a matter of fact, the basic challenge in Macau, we have our share of the business, is to preserve margin, the bottom line. And that is of course, difficult when we have been able to hold the percentage we pay to junket operators, to 40% plus 3% or so for complementaries and our competitors are about 5 points ahead of us in terms of what they give the junket operators. Now ordinarily, that's not an unusual thing. That happens all the time in competitive markets. A hotel like Wynn or before Wynn, the Bellagio was always facing the challenges of hotel -- of other properties who to tried to buy the business away from us by increasing promotional allowances and other customer discounts of one form or another, or player benefits. We believe that we give away about as much money in terms of promoting our business, in terms of sharing revenue with junket operators or discounts, complementaries, and stuff like that. We believe we give away as much as we can consistent with good solid business thinking. And because we're really concentrating on keeping the bottom line. It's the reason why on almost any metric of return of investment and stuff like that, we still are very happy with our position in China. And so it -- but that doesn't lessen the fact that the challenge is continuous, the market is constantly moving and changing, both in terms of the amount of volume that comes into town. It's been a rock 'n roll, rollicking several years, and that growth rate has slowed down as the base has gotten bigger. And because Asia is feeling much, to a much lesser extent, the kind of uncertainty and economic stress that the rest of the world, Europe and the United States are experiencing. But I'm hoping that we can be agile enough to adjust to those changes. For example, we're improving our high limit slot business in China physically in the current period. And one or the other, if I can just extend these comments for another moment, it -- when you're in a competitive market like Macau, and a hotel B or hotel C increases the incentive to the junket operators to get the -- more business from them. They can do so by increasing the percentage of participation. They can also increase it by extending extra credits to them, using credit as a marketing technique. Now we know from 40-odd years of experience that, that is a very dangerous path. Using credit as a marketing tool is a big mistake in gaming and has proven to be so over the decades, which is not to say you shouldn't give the right kind of people, the right kind of credit, but you can't just try and buy business by extending credit. That ends up poorly. We are very conservative about credit, I said that on these kinds of phone calls before. And we were so conservative that when the economies of Europe and the United States and China were being questioned, we were very tight in our reserves. It turns out that in the past 6 months and before, we've been too tight. Our collections have improved, I'm happy to say, beyond our expectations. And so we've made that adjustment this month in order to correct it and be more -- and be a little less conservative than we have been. And I think you can see those adjustments. It really -- they really are -- it really does represent real earnings that we had, but for the first half of the year, we're suppressed because of our conservatism. And we've restored that upon the advice of our auditors and based upon our own experience, primarily. So one last comment. If the competitors increase promotional allowances to slot players and to VIP players, what can you do about that? Can you just sit there and lump it? Watch your market share be eroded? And market share being eroded doesn't bother me so much as the bottom line being eroded. That's quite something else. So there is a counterpoint to all of this. The structure in Asia is that junket operators have sub-junket operators and some of these sub-junket operators who feed and support the main junket operator are aggressive and resourceful and energetic people in their own right. They have aspirations and ambitions of their own. We take advantage of those aspirations and ambitions by offering key primary agents the opportunity to be the primary junket operator. Because that, in effect, increases their percentage of participation because they're not being part of a larger group, they are now the head junket guy. That's the counterpoint and we're using that strategy successfully, I think. And as matter of fact, we're introducing, and we've built some new space, and we're introducing some new junket operators as we speak that will be obvious in the quarters ahead. And so, that's basically my comments on the existing situation and counterpoint strategies to deal with such a competitive market, whose growth rate has seemingly slowed. We are underway in Cotai, with a very ambitious and far-reaching project that will have the same effect on the market there that Bellagio did, for example, and Wynn did here. I want to remind everybody that it's okay not to be first sometimes. If you recall, and I'll use a little history as an example. When Bellagio opened, everybody thought that Mirage was the number that couldn't be topped. And then we won $600 million -- we won $600 million, $500 million, $600 million with the casino alone at Bellagio, which set a new a record. When we opened Wynn in 19 -- in 2005, for the first time in Nevada history a casino once stepped $700 million, which was a Nevada historical mark. And then last year, in 2011, we broke our own record and did $774 million in casino revenue. So if you build the right product and you have a concomitant parallel organizational professionalism, you can take the market up, and we're hoping that our Cotai property will do that. Naturally, we have to wait until it's finished, and everybody's hard at work doing that now that we've been granted our land concession and we can proceed. One other thing, if I can change the subject. I'll cover my observations today and then open this up so that you can question my colleagues. We wanted very much to be first in the marketplace with the financing of Cotai because there are, after all, going to be a couple of new hotels built in the next few years on the Macau Cotai Strip. And thanks to Mr. Maddox and company, we had a terrific response and we've basically done $2.3 billion in a revolver and a -- we're hoping to close in 10 days. But generally, the expectation is that our revolver and our term loan will be $2.3 billion and the interest rate will be under 2%. So we're very happy about that and expect that to be finished in the next couple of weeks now that we have the commitments. So I -- unless anybody at the table has any general comments to offer, I'm sure there'll be specific questions. Linda, do you have anything that you want to add at this time about that -- about the overview on China?

I think you've summed up very well that it's more important you preserve the margin. It really proves that you issued [indiscernible] and promotional allowances, so that -- exactly right, it's not about the market share and the top line only.

Maurice Wooden is here, both Ian and Marilyn are on vacation, as customary this time of year. But the super competent people like Linda, who's really the COO there, and Maurice Wooden is here today. And Maurice, you have anything to add to the general description of things?

No, I think there's specific questions when they come in.

Okay, then let's start with the questions, everybody.

[Operator Instructions] Your first question comes from the line of Joe Greff, JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: Just a question for you on the count, perhaps one that you can chime in. On the recent Macau gaming revenue deceleration, obviously, we've seen a number of Mainland China economic measures, like GDP growth slow, and that's certainly a reason for the recent market-wide performance. Actually my question is this: To what extent is that recent performance driven by noneconomic factors, say, political ones, such as wealthy VIP patrons, maybe visiting Macau less and waiting for the government change over later in the year? Is that a factor, how big of one? What are your players or junkets telling you in this regard?

Nothing in regard to that, Joe. Unless Linda has something to say, I don't think we felt that kind of a -- Linda, am I wrong or would you take that?

You're correct, yes. I definitely don't think any big slowdown is caused by any of the political or other issues outside, like you say, outside economic issue, I think some of it is intentional. Their junkets are being responsible by controlling credit, and so are we. So part of the slowdown batch, I think, very healthy controlled growth. You don't -- I don't know if you can really expect 20% growth year-to-year to be reasonable. And really, I mean, Macau is growing at 7% to 8%. I'm just -- compatible to the China GDP growth. Joseph Greff - JP Morgan Chase & Co, Research Division: Okay. And there -- has there been a mix shift between direct and junket in the VIP segment in the second quarter?

No, I don't think there is as much of a change between direct and junket. There is actually a growth in the mass market, if you will, and that’s compared to VIP, because we do have more mass that selling [ph] that open in the second quarter. Joseph Greff - JP Morgan Chase & Co, Research Division: Great. And then I have a couple of quick modeling questions. How much of the cash balances is Macau?

Of the $1.9 billion, around $500 million of the parent and $500 million or $600 million in Macau and the rest at Wynn Las Vegas from the bond deal. Joseph Greff - JP Morgan Chase & Co, Research Division: Got you. And then how much CapEx in the second half of this year related to the Cotai development?

In the second half of this year? Well, it looks like we'll probably spend somewhere in the neighborhood of $150 million of...

On foundations.

On foundations over the next 9 months or so.

By the way, in remediation, as we mentioned the last time, Joe, as we drive that property out and start to sink foundations.

In the second quarter, we spent $58 million in Cotai, $50 million of which was land related. And we spent about $140 million total on Cotai so far, $112 million of that has been related to the land, another $27 million on the land remediation and there's probably $150 million to go over the next 9 to 12 months.

Your next question comes from the line of Shaun Kelley, Bank of America.

Matt, just a follow-up on 2 more housekeeping questions for you. We were kind of calculating something like $30 million to $35 million of EBITDA impact from kind of a hold swing to normalize it in Vegas. Any chance we’d get you to comment on that? Sometimes I know you like to or not like to.

Yes, well, I will this quarter because we only held 9% in the second quarter in Baccarat, which is almost 18 or 19 points lower than it should have been. If you normalize everything, including the adjustment, this quarter would have come in around $116 million because of the Baccarat, as Steve pointed, out in April 26.

In April, for the first time in 45 years, I saw Baccarat go minus for a month. I never saw that before. But on the other hand, last year, I saw a 37% hold. If I was a customer, I might have asked for an investigation. But those are the kind of swings that can take place. I guess April this year was in answer to April last year, or June or July last year, where all we did was win. And actually, that makes me uncomfortable because I really don't like the customers to bump into such terrible bad luck. After all, this business is about amusement, self-indulgence on a very special level. But basically, the people that come here and do these things, they are here because they like that more than they like the money. They like the game. It's their hobby, so to speak, it's an indulgence, like some people buy bottles of wine for $20,000. I mean, these are people that like to gamble. And what's best for them is to have the normal ups and downs and normal swings. They don't expect to win, but they like to get lucky once in a while and have fun with the house's money. The last few months it's been extreme in that regard. But last year was extreme in the other regard, in the first 6 months of the year. So I really don't like it when we win too much money from the players. We get way ahead of the statistics. It has a stultifying effect on the psychology of our customers.

No, I appreciate that. And then I guess the second housekeeping one I had was just on the credit provision or the benefit that you guys had. Did that fall all in Macau, Matt? Or kind of where did that show up? Did it hit the P&L?

No the -- 2/3 Macau, 1/3, Las Vegas. So after the first quarter, we did a full hindsight analysis of all of our collection history since opening and determined that we were over reserved and needed to change our estimate. So the good news is, our collection trends have been quite strong.

Okay, but that is benefiting the property level EBITDA numbers that we're seeing in the quarter?

Yes.

Okay. And then the kind of big strategic question I had was, and Steve, you hit on this in your prepared remarks. Just the promotional activity, as the gaming revenue growth has really kind of flattened out here. I guess the question is, has that gotten really any worse, quarter on quarter? So have you seen both at the opening of Cotai Central and then probably more importantly, what you saw in May and June when we really started to see gaming revenues decelerate in the market? Did you see kind of real significant increases or changes in behavior by some of the other operators, whether they're on Cotai or just around the market? And just kind of how do you characterize that environment?

The answer, in a word, is yes, we did. When they opened the Cotai Central, you can imagine that the folks that operate those places had to develop strategies that would justify revenue for all of their places. And so they got more aggressive than usual. And I'm not criticizing them by any means. But you asked the question are we seen -- are we seeing more aggressive activity and the answer is positively yes. And does it affect us? Sure. Do we have to react, you bet. And the choices that we have, there are choices that we have, but I don't think one of them is simply to increase the discounts or to increase the incentive payments to junket operators. Because when we look at that number in a common sense and straightforward way, we cannot justify by an expectation of increased revenue, any increase in the discounts or the promotional allowances of participation given to the junket operators. If we could share more money with the junket operators intelligently, we would do that because they are, in fact, an important part of our business. So we go out to the red line, so to speak. Now if our competitors see that line somewhere else, all the more power to them. We are paying attention to the numbers, and we don't agree that we can go higher, and so we don't. Linda Chen spends all of her waking hours worrying about such things. And if she has something to add to this, I think she should.

No, I think you said it. And the difference also is not just the VIP business. The actual price war has extended into the mass and the slot market. I think we already spoke about how much junket commission that's giving up. But we are actually giving out a lot more incentives now in slots and mass-market to also buy back business.

To me, in this room, Linda's voice is muffled. I'd like to ask the person who asked me the question, could you understand her okay?

We can understand. We also get a little static. But we can understand.

I'd like to repeat what Linda said, because I knew what she was going to say because of the numbers that we study. The aggressiveness of our competitors has spilled over into the slot machines, and they are being very aggressive in slot promotional allowances to the players. And they've also built very beautiful rooms that are attractive and cleverly designed. So everything gets stepped up. Competition has made everybody sharpen their knives. It's healthy in the long run, challenging in the short run. But we understand this. We've only been in competitive markets, all of my 45 years, and most everybody in this room has been with me a long time. And so we understand this. We don't overreact, so we wait until we see something real and then we deal with it, which maybe makes us a little slower sometimes. But not -- we're not sleepy, we're just careful. Next question. Was that answer okay with you?

Your next question comes from the line of Carlo Santarelli, Deutsche Bank.

Steve, when you look out at China right now, and you think about the big picture macro, and you think about the growth in this market over the last few years, how do you kind of reconcile the way you want to handle your balance sheet going forward in light of the backdrop and kind of the great unknown that is China right now?

Well, Carlos, you know we've kept very respectful ratios of debt to equity as we've launched the properties, even on day 1 in Las Vegas, when we built Wynn and it was $1.7 billion in debt and $1 billion in equity, hardly a highly leveraged business. We haven’t followed a model that many of our competitors -- I remember when Shelly Adelson did his deal, he held on to higher -- high interest rate notes for a long time in order to play the market just right, and he did it beautifully. I, on the other hand, temperamentally, didn't want to live with that kind of pressure. So we increased our equity at the very beginning of the company's history, and maintained those equity debt relationships that were conservative by any measure. We have done that in China as well, as you know. And I think that horses ran true to form most of the time, unless it's a very wet track. And we're going to do the same thing going forward. So we'll be mindful of having a lot of room, a lot of cushion in our equity, on our balance sheet, to handle the vicissitudes of a changing market. We came through this whole last '08, '09 thing. We opened up Encore at exactly the wrong time, right smack in December of '08 into the jaws of this economic turmoil. And although it was painful in terms of return on investment, we didn't have any crises or any real heartburn about it. We just sort of sucked it up, went straight ahead, took very good care of our properties, took very good care of our employees and had the kind of reserves financially that it would take to protect such things. I think we should do the same thing going forward. This is a world in which no one can predict tomorrow -- with long-term, is -- this next quarter, you have to be ready for all kinds of things to happen because most likely they will. I think China, incidentally, is more stable than any place else. Europe and the United States are tricky. I think that China represents, at least to our family, a more stable environment, even if things are a little edgy than anyplace else. They seem to have cool leadership. And they are term thinkers. So we'll behave accordingly.

Great, Steve, that's helpful. And just really quickly, if I could, on Macau. It seems to even if you kind of back out, obviously, the promo and the debt, that you guys seem to do a pretty good job managing costs in Macau. Is there anything maybe Linda could expand upon as to what you're doing there to manage some of the other OpEx?

Well, I think -- is Robert Gansmo on the call?

Yes.

I am indeed, Steve.

Rob, what do you think about that question?

Well, as everyone knows, the primary tasks are, it -- revolve around payroll. And so we, like all the operators, have had salary increases on an annual basis. And we also keep up with the market to remain competitive in our salary offerings. However, we also try to offset that to some extent, with operational efficiencies, try to make sure our processes are as smooth as they can be, and try to minimize the number of FTEs. And so consequently, I think we've done a pretty good job. We're running at about $1.3 million, just under -- between $1.3 million, $1.4 million per day before we take into account commissions or bad debt or anything like that. So -- and I expect that to continue, but there will be continuous cost pressures because primarily driven through the pressures on payroll.

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

I was just wondering about the new program for the sub-junkets, whether they would be -- whether that would cannibalize some of the existing business with the main junkets, in the sense that other terms to those sub-junkets' the same as that you offer to the main junkets. Is there a difference there?

Steve, what I said that our counterpoint to pressure from the big junket operators to increase their percentage is offset by the fact that some of their agents wish to be promoted to main junket status. That is to say they want to go off on their own, sort of like Internet companies do. And we understand that Chinese ambition, that entrepreneurial spirit. And we can take advantage of that entrepreneurial spirit by offering a junket arrangement, a primary junket arrangement, to someone who may have been a key sub-junket operator or agent for somebody else. And we do that when we find our main junket operators spreading themselves very thinly. What they do in Macau is, the main junket people will be in almost every hotel, and because they have to be. The customers want to be serviced wherever their yen for luck takes them. So someone walks from SJM [ph] across the street to Wynn, if the junket operator doesn't have a room in both places, then some other junket operator will pick up the customer. So the junket operators are forced to have outposts in each hotel. That -- they couple that with their natural yen to grow and to be part of every new property, it gets spread around. And sometimes, they shortchange one location in favor of another or least it appears that way to us if it does. And then we say well, you don't need the tables that we've given you. We're going to remove those tables and either put them into a more profit, they're unused, we'll put them back in the general casino where the margin's good, or we'll create another junket room and give it to someone who's up and coming, who's very aggressive. And very often that maybe someone who was a sub-junket operator for someone else. But now, instead of getting a piece of the pie that they used to get from the main junket operator, they get the pie itself. That in effect is an increase in their participation without it coming out of our hide. Steve, am I clarifying that?

Yes, that's actually very helpful.

Yes. And the cost is the same to us regardless of sub-board.

We just eliminate one of the middlemen. But we don't do that in an adversarial or menacing way. It's just the normal course of human ambition that, listen, they exploit competition among the hotels by saying, "I got a better deal at MGM than I did from you," or "a better deal from Venetian than we got from you. Why can't you give us as good a participation as -- why can't you give us 48% if they do?" We say, "We can't afford to give you 48%. "Well, I just got to take my customers because I give so much money back to the customers as a junket operator. I'm hamstrung Mr. Wynn. I can't help myself." They say to Linda, "We got to go next door." And Linda says, "Well, I'm sorry, you got to go. We've had a good relationship. But if you're going to go next door, then -- and you've got 18 or 24 tables, maybe you don't need these other 6. We'll take them back." And that's the price they pay by hijacking business from us to someone else. Hijacking is a pejorative term. That's the price they pay for spreading themselves around. Again, I say that's normal and admirable and understandable, and we have no hard feelings about it. But we can react to it. And our reaction is to say, "Okay, we'll take back the tables. You don't need 8, you don't need 24, we'll give you 12." Well all of a sudden, that's 12 tables available for allocation to a new junket operator, who is very happy to accept 43, because he was only getting a percentage of the money that the other guy was getting. Now he's getting the 43. And he's happy as a clam, and he gets his own room. Oh, we put it back in to the general casino where the margin is good, but maybe the volume isn't as high. I'll tell you counterpoint to all of this, and that's both sides, the junket operator as the salesperson, so to speak. And the casino as the home base. Those are the 2 sources or the 2 dynamics that we -- both sides, exploit. And I'm sure it will continue in good faith and with the warm and fuzzy relationships all around.

Steve, if I could just shift to another question, which is, given the very compelling loan characteristics you just laid out, which are incredibly favorable, and also giving -- given the incredibly strong existing cash flow, the financing for Cotai now seems very, very secure and you'll have excess cash. Can you tell us a little bit about how the board is thinking about special dividends, annual dividends and share buybacks and how they balance those 3 opportunities to return cash, given the financing relationships, financing that you just locked in, which are so compelling?

I can't resolve that question in absolute terms. I can tell you that, that is the order of business before the board when we get together. And it comes up at this time. The board was naturally waiting to see how the financing would go. Matt has been very busy for the past few months. And when my colleagues and I get together, that will be one of the things we do discuss, Steve. So I can't speak for the board today because I'm not authorized to do so. And you, I think, if you would change seats with me, you could make an argument for several different approaches to our very favorable posture. And we're going to measure all that and toss it around. And I’ve got a -- we've got probably the fanciest board in gaming. I mean, think about it. Al Shoemaker was Chairman of First Boston. Russell Goldsmith is Chairman of City National Bank. Ray Irani is Chairman of Occidental Petroleum. Governor Miller, as you know, who’s – was 10 years Governor of Nevada and Chairman of the National Governors Association. The man who directed fiscal policy for the State of Nevada successfully for 10 years, and also the guy who started the investigation of our former shareholder. Boone Wayson. Boone Wayson is on our board, was on the MGM Board after the merger of Wynn, of Mirage and MGM. And Boone ran Wynn, the Golden Nugget of Atlantic City when he was 28 years old after being in charge of cage and credit. That's how experienced he is, and he's 60 now. So there's an awful lot of experience on my board. For example, the -- Allan Zeman runs an enterprise that spans all of China. Shenzhen, Hong Kong, Quanzhou. He's in 5 -- 4 or 5 different provinces, not to mention running Ocean Park. He's got a lot of perspective on the Board. John Moran from Dyson-Kissner-Moran, the original leverage buyout company. We've got a lot of experience. And this conversation is really juicy. Not to mention Elaine and Linda and Marc. Everybody gets into this variance.

What about our board in China?

Yes, and the Chinese Board. Bruce Rockowitz is the Chairman -- is the President of Li & Fung, the largest sourcing company in the world with offices in 275 cities and won Baron Magazine's 30 Best CEOs in the World. Nick Sallnow-Smith was head of Hongkong Land, the Jardine Matheson subsidiary of the great English trading company that's so much a part of the history of Hong Kong. And Jeffrey Land [ph] was a legislator. We've got a lot of firepower on the board. This is going to be a subject, now that we know about the financing, this is going to be a very interesting subject. We’re going to take into account the economy in China, the economy in Las Vegas, so much depends upon the upcoming election in America. No news to everybody. So we're going to measure everything.

And your next question comes from the line of Felicia Hendrix, Barclays Capital.

Steve, I was wondering if we could talk about Cotai, about Wynn Cotai for a moment? And can you just walk us through the permitting that you still need there? And when do you expect to get your construction permit? And what has to happen prior to that?

Oh, you mean the permitting process. It goes in stages as you build in China. First is the foundation permit, which is currently under consideration as we polish up the presentation, I guess, it went in already. That will be forthcoming. We'll be driving pilings and digging, and excavating with augers the great caissons of the high-rise this fall. Once we get out of the ground, that will take probably the better part of the year as this from now. And then it goes very fast because it's just another pour in place building. It's pretty quick. The building permits are issued in stages as you submit final working drawings, specific construction documents that have very detailed stuff on them. And that's scheduled along with the rest of our construction schedule, to go along in stages and phases that match the moment. And it results in about a 46-month schedule. I can't tell you the date that you get a permit for one part of the project or another. But I can tell you this, that once you get to where we have been in the spring, then everything after that is pretty automatic. It's a technical schedule. I'm sorry, that I can't answer the question month-by-month. But the reason I can't answer it is because it's not important at this level of the company. It's handled. We've been through it before. It proceeds in a very orderly, predictable way.

Okay, great, that’s helpful. And then as you think about the continued potential for Wynn Macau, just wondering if you could share with us some of the plans you might have to continue to drive incremental revenues there? I know you're always tweaking things, but do you have any specific plans to reconfigure public spaces, tweak the mix of your gaming floor…?

Good question. I'll give you an example of how delicious it gets over there. We have 52,000 feet of retail that's going to push $1 billion in sales before we're done this year, $900-odd million. Our profit on that, may be $170 million or $80 million, for a shopping center with was 52,000 feet. Think of what I just said, that the rental income is that high, and the profit margin on the rental income is 70%. We have -- have you been to the property, ma'am?

Yes.

You know the Esplanada Café is right there in the lobby by the elevators. As a 24-hour restaurant, it's a little bigger than we need. The path of it is the buffet and the windows and the tables along the pool. The front half is a square that's 2,000 feet. The entrance is in the middle, between the front half and the back half. We decided that we didn't need the front half, that we could handle the business with the back half. So I went to a couple of our famous retailers, and for the moment, I'm not going to mention the name. But I said to them, 2 of them in particular, we had a little tennis match going. I said, “Look, we think that the 2,000 feet's going to do $40 million. I want 15%, or $6 million for the space. Would you take it or leave it?” Well, there was some bickering and some jockeying and offers and counter offers. At the end of the day, 1 of the 2 major international retailers paid us $6 million fixed for 2,000 feet. $1.5 million a quarter. $500,000 a month, fixed rent. Guaranteed for 2,000 feet. Those are the kind of options that you get. Now that's being done this summer and fall. And they'll be open, I hope, by Christmas or something like that, maybe a little later. We built a new junket room that's going to be open for Christmas. Another retail space by the -- a small one for jewelry at the entrance of the casino. We -- oh, yes, we opened up in -- late in the last quarter, we moved Tiffany across the hall where Fendi used to be, because they were underperforming. Tiffany paid to move themselves. And then, Louis Vuitton, that was doing $100 million in 28 feet or more, has now got another 2,000 feet since April 1, where Tiffany used to be and their store's become almost twice as big, and the sales are booming at Louis Vuitton, in spite of the economy in China. And so that will show up in the next few quarters as incremental income to us. Graff, the jeweler, opened up last week or 2 weeks ago, where our host area was, by the Wynn Club. And I saw Laurence Graff last week in Europe and he was thrilled with his store. He's never seen -- he told me, he said -- I saw him at lunch. He said, “I've never seen like it, and we've only been open a week." So, you now, we tweak the space, and the game that's really adorable is the one with the retail. That is nothing but fun. And then Cotai, we're going to have 120,000 feet, not 52. Where -- I think we're going to get up to about 58,000 feet in this year, in retail. We're going to increase by 10%. But sales are really rocking there. And so is our rent, because we -- in all of our new leases we get 15%, which is terrific for us. Those are the kind of tweaks -- then we take tables away from junket operators, and give them to new junket operators. We take tables, add them to slots or take them away from general casino and vice versa, and try and maximize our income. But it's the kind of thing that the team over there does on a monthly basis.

That's really helpful. I appreciate that. And then just a final question on the gaming side at Wynn Macau. On the direct VIP side of your business, I know you commented earlier about the junket side, but on the direct VIP side of the business, are you seeing any change in creditworthiness or liquidity from your direct customers at all?

Linda?

I don't see any change in terms of creditworthiness. But the collection, I have to say, it's a bit slower than before. So that could also be caused by the, like obviously, a slowdown economy. And the other part is, we are more cautious. We're definitely more conservative on issuing credit on the direct program side.

So there's no credit for -- if you don't collect. You got paid 39% tax anyway. I think you're conservative. If you got your head screwed on right, and you going to pay a 39% tax, you better make sure you know what you're doing credit. Because it's very painful if someone jumps the fence.

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

I have a question on the position for doubtful accounts and then one on table mix. On provision for doubtful accounts, I know that the amount, the credit is $17 million. But can you give us a sense of what the full delta would be? In other words, that's normally an expense, so the full amount would be more than just the $17 million? If you kind of -- if you hadn't gone back and revisited your reserve level ?

I understand the question. It's a -- the charge under the old methodology would have been $14 million. So the delta's $31 million. And that's split 2/3 Macau and 1/3 in Las Vegas. The $14 million is really not a number that you should focus on though, because what you found in the first quarter in Macau, we had an $8 million incremental charge that reversed itself right away in April. So what we were fully reserved in Macau at 150 days and we found that was just overly conservative. So that got extended out to about 1 year, which is what caused the change. So while Linda said, collections has slowed a little bit compared to the way we were reserving, collections are still very, very good.

We, in other words, to put it another way, Robin, we always thought that in China, that after 150 days if we didn't get the money it might be gone. It turns up, it shows up anyway. Much more if it shows up than we thought later. So they slowed down, but they didn't get bad.

That's right.

In Las Vegas, we used to say, after 1 year, we're going to be 100% reserved if someone doesn't pay us in 12 months. Now we see money showing up so that we've extended that by several months.

To 18 months.

To 18.

What triggered you to revisit your reserve policies and reserve levels this quarter versus given that you've seen – that you’ve gotten more cautious about extending credit?

We have been -- at every quarter, we talk about how conservative we are. And our auditors and ourselves, after the first quarter charge of $8 million in Macau, which reversed itself after 1 week, determine that we needed to do a full hindsight analysis of everything we've collected relative to everything that we've issued. And when that analysis came back, we had the information on hand that made us change our reserve policy.

Robin, one of the things that made us be so tight-fisted was that, all during these last 2 years, there have been rapid expansions of junket and new hotel rooms and new junket rooms in the market. At the same time, as the new hotels open up – I’m doing Galaxy, the Sands' various operations, the expansions of their operations at the Four Seasons, the introduction a few years ago of City of Dreams. Everybody got very, very aggressive. And we sort of -- and they were using credit as a tool. And we said, oops, this could be very bad. The amount of outstanding credit in the marketplace ballooned. Ballooned. And we looked at that more than we did at our own books and said -- and Linda said, “Steve, I’m there once a month.” And she said, "Steve, I'm a little concerned about this. The amount of money they -- we were playing the other guy's hands, really. The amount of money that these other guys are giving out is so big and these are our junket operators as well as theirs, they're the same guys that go from hotel to hotel, the junket operators.” The amount of outstanding paper that some of the big junket operators have is staggering. I remember Marc Schorr looked at the books of one of the companies one day, who shared the numbers with him, and how much did he have outstanding in those days?

$250 million.

Yes, one guy had USD $250 million outstanding. Well, that story gave us the willies. So we started tightening up, not based about -- so much on our own experience, but on an expectation that this could turn sour. Well, it didn’t. And this hindsight analysis that Matt just mentioned has revealed that our worst fears were not realized. And therefore, we could resort to a more relaxed approach. And when I say more relaxed, less conservative than the extremes that we had gone to defensively in the past.

And Robin, just as a quick example. At the end of 2011, on a gross basis, our bad debt reserve was 44% -- 42% of our accounts receivable. At the end of June, after this adjustment, our bad debt reserve was 44% of our accounts receivable. So even after we made this adjustment, our reserve is still higher, relative to our receivables, then it was at the end of 2011.

And I wonder how that compares to our neighbors. Do you have any idea?

That's helpful, those reserve percentages. The other question I had is just looking at your mix of VIP at mass tables in Macau, because some of the wording in the release seems to suggest that some of the decline in mass table drop was due to fewer mass tables. And I guess I'm just curious what your thoughts are about shifting from back to mass, given the...

Yes. Robin, you're very, very -- that was a very clever observation. You have perceived something that we share with you, and we are going to do exactly what you said.

Your next question comes from the line of Jon Oh, CLSA. Jon T. Oh - Credit Agricole Securities (USA) Inc., Research Division: I have a few questions. I'll start with the comment that Linda made earlier about some of the weakness or some pockets of weakness we have seen in our collection. Are there any distinct or, I would say, anecdotes that Linda, that you could share with us if it's coming from a certain segment of your direct VIP play on the very high end or on the mid or low-end? Or any specific geographies in China where you're seeing a bit more difficulties in collection?

She didn't say that.

Okay so -- yes, I didn't, exactly. I was just going to say I didn't say that. Actually, I said, collection is a bit slower. The reason that we reversed on what we service is, we're still collecting. Now the first, obviously, I guess straight game collection is giving good credit. So when we are conservative in giving credit, we know that it's credit that's worthy the that we gave out that eventually we'll collect. The reasons sometimes the collection becomes slower is there are many reasons. One is obviously, the bit of slowdown in economy. The second is, because many could gain on more junkets are competing for the business. So when you have one player who's playing maybe, instead of 1 or 2 casinos, they're playing 5 or 6 casinos, then it takes a bit longer for them to turn around their receivables. So at the end of the day, they're not doubtful. They're not bad credit. But we're still collecting them, even though instead of taking 1 month, it might take us 2 months.

Or to put it another way, the reason they're a little slower is because they can be. I mean, what's our defense? As long as they pay us. It's pretty hard to turn them down. The guy says, "Well. I didn't pay you in 30 days, I paid you in 60 or I paid you in 75, but I paid you. So I'm back again. I want to play." "When we -- you used to pay us in 45 days. It took twice as long this time." "Well, I'm sorry, but I've never not paid. Can I have my credit or can't I?" That's how it comes down. And when you take a look at his history. You say, "Okay, go. But, please try and pay quicker." He says, "I will." And then he doesn't. And I know you want to be in my -- our business. You want to change, you want anecdotal information, you want to sit in our -- stand in our shoes. That's what happens, just like I told you. Jon T. Oh - Credit Agricole Securities (USA) Inc., Research Division: Okay. And just a follow-up on -- just to try and understand the advance commissions that you provide to the junket operators on your property. Matt, could you share with us some color as to what's the average number of months outstanding right now and perhaps any trends that you've seen? Is that number increasing, given the competition of new supply?

Sure. We settle by the fifth day on the following of every month.

Yes. You asked the question about how many months.

Yes.

None. We, unlike our competitors, we're out at the end of the month by 5 days later. We have held that line to our -- and it's caused some stress. What we do is we advance the guys during the month. And usually, we used to give them as much as we owed them. We settle with them in terms of what they received at the end of the month on -- at the first week of the following month. And they settle with the credit at the same time. Well, we started a few years ago saying, "Okay, halfway through the month, we'll give you what your expectation is for the rest of the month." That's sort of thing. We're zeroing out.

That's right. And you don't get 30 days from that midmonth advance. At the end of the every month. We -- you -- it's closed out.

Yes, it's 15 day credit on the 15th of the month.

We don't have a rolling program.

Yes, we don't use a rolling program. I'm really glad you asked that question. That's one of the main deltas between us and the other guys. That is still a conservative bias at Wynn Macau. Our exposure is limited.

And we have reached allocated time for questions and answers. I'd now like to turn the conference back over to management for closing remarks.

Anybody in the room have anything they'd like to add to what they've heard today or expand? I invite everybody speak up. Scott? Maurice? Robert Gansmo or Linda? Marc? Matt? Well, then, thank you, everybody. We'll talk to you again next time. Bye.

Thank you for your participation on today's call. You may now disconnect.