Is the economy trending well for the Las Vegas casino industry, or is it just a mirage?
Top executives from the major locally based casino companies don’t agree on the answer.
At one end of the spectrum, Wynn Resorts CEO Steve Wynn has made it clear that he views the local economic outlook through a sharply critical lens. But other big companies have gravitated toward the opposite end, expressing a much more positive reading of the financial tea leaves.
Wynn’s pessimism came to light April 28, when his company relayed quarterly earnings results that bore some tough news for shareholders. Net revenue dropped 27.8 percent from the year before, the company reported a $44.6 million net loss and it slashed its quarterly dividend to 50 cents from $1.50 in the previous quarter.
Much of the company’s poor performance traces back to Macau, which has seen 11 straight monthly declines in gaming revenue. Wynn told analysts in a conference call that it’s unclear when conditions there will improve.
He didn’t have anything sunny to say about where the Las Vegas market is headed, either.
“If you were to ask me, since we’re making forward-looking statements, what will the second quarter look like in Las Vegas? Weak,” Wynn said, stressing the final word. “Do you hear me? Weak. So, I’m trying to lower expectations here — this notion of a big recovery is a complete dream.”
Wynn said on the call that he thinks the Las Vegas market is “still very patchy.” He said his company’s noncasino revenue — of particular importance as customers shift more toward areas other than gambling — was flat in the first quarter, and he will be “thrilled” if it is flat again in the next quarter.
Other Las Vegas casino executives painted a different picture as they reported their first-quarter results in the weeks since Wynn’s remarks. Caesars Entertainment CEO Gary Loveman, who has a background in economics, told analysts that he saw nothing discouraging in the macroeconomic atmosphere.
Similarly, MGM Resorts International CEO Jim Murren said in an interview that he does not share Wynn’s views.
“Steve Wynn is a legend here in Las Vegas. He has created so much and I admire him a lot. I just don’t see what he sees,” Murren said. “We just don’t have the same view on this topic.”
Murren noted that, unlike Wynn, he does not expect his company’s noncasino revenue to be flat or down in the immediate future, and MGM would be “sorely disappointed” if that turns out to be the case.
Executives from Boyd Gaming and Station Casinos, two companies for which Las Vegas residents are an important customer base, also expressed positive views about the local economy in their first-quarter earnings calls.
Las Vegas Sands, meanwhile, reported its first-quarter earnings before Wynn made his comments. CEO Sheldon Adelson wasn’t overly enthusiastic about the local situation when he said on his earnings call that “there is significant opportunity to improve our performance here in Las Vegas.” He said the Venetian and Palazzo’s new president would be an important part of accomplishing that goal.
Both sides have good reason for their positions.
“The reality with all this stuff is somewhere in between,” said John Restrepo, principal of Las Vegas-based RCG Economics. “You cannot underestimate how great an operator Steve Wynn is and how smart a guy he is in that industry. Yes, there’s probably nuggets of truth to what he’s saying — there’s still some headwinds out there, some challenges. And there are some nuggets of truth to what the other guys are saying.”
Restrepo characterized the current situation as a “moderate recovery.” He said some indicators, such as visitation and taxable retail sales, are doing well in Las Vegas. Others, such as certain segments of the gaming and employment figures, aren’t as robust, he said.
“We’re not seeing a V-style recovery,” Restrepo said, evoking what a sharp increase from the worst of the financial downturn would look like on a chart. “It’s kind of an elongated, Nike swoosh recovery.”
In his earnings call, Wynn shed light on where his cynicism comes from. He indicated that a stronger U.S. dollar — which makes stays in Las Vegas more expensive for international visitors — was one factor, as well as reduced play from Chinese gamblers. International customers are important to Wynn’s company, which runs the luxurious Wynn and Encore resorts on the Strip.
Underlying all of this for Wynn is a fundamentally skeptical stance about the state of the U.S. economy. He said on the earnings call that the country’s economic recovery has been “jobless” and also “grossly overstated.”
Wynn doubled down on those remarks later in a television interview with political journalist Jon Ralston.
“The idea that America is in the grips of a great recovery is pure fiction,” Wynn told Ralston. “It’s a lie. It’s not true.”
As far as his business in Las Vegas goes, though, Wynn is in a bit of a different position than some of his fellow resort operators, and that likely factors into why his outlook is so different than theirs.
“Steve Wynn’s property is very focused on one particular segment of the economy: the upper end of the equation,” said Union Gaming Group analyst Chris Jones.
Union Gaming made a similar point in a report released the week Wynn made his remarks, stating that “we firmly believe that the comments are largely a reflection of Wynn’s current experience in Las Vegas and not of the larger Las Vegas market.”
Caesars, for instance, has more of a mix of high-end and middle market-focused properties in Las Vegas. Others are also less focused on international customers — Loveman noted in his earnings call that Caesars is “certainly more domestically focused than Steve is.”
Yet observers have reason to be mindful of the comments from Wynn, a widely respected figure in the casino industry with a reputation for being forthright.
“Mr. Wynn has been more often right than wrong, so you have to take what he says pretty seriously,” Restrepo said.