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"Innovation distinguishes between a leader and a follower …"
– Steve Jobs
This month marks a year or more since the resignation of the CEO of Wynn Resorts Ltd. (WYNN), Steve Wynn. More than any other leader / entrepreneur in the casino sector, Wynn was widely regarded as sui generiseven by its fiercest competitors. Was he essentially the indispensable man of his company? Or is one of my former colleagues clearly skeptical, rightly, citing General Charles de Gaulle, who said: "Cemeteries are filled with indispensable men …"
So, when charges of serial sexual misconduct with employees surfaced in a the Wall Street newspaper article last March, the title took 165%, reaching 10%. Among the major macroeconomic trends that have started to shake the casino sector, it's just a headwind. China's trade and economic difficulties continued to produce 30 to 50 percent declines in the gambling world. But the allegations against Steve Wynn went far beyond what she envisioned without the charismatic genius of the society. Easy and unjustified comparisons were made between the loss of Wynn's services for his company and that of Steve Jobs for Apple (NASDAQ: AAPL) after Jobs' death in 2011.
My view centered on the industry
I've known Wynn at the time, both as a colleague and competitor of the industry. I was also a happy holder before transferring my portfolio into a blind trust in 2006 when I became an industry consultant. My estimate of his presence over 30 years was that it represented, at any time, a premium of 20% on the price of the security. So, when the shares reached their maximum of $ 202 at the end of last spring, it was for me a $ 160 share with an asset of 20% that did not appear on the balance sheet. In fact, I believed that even at this high price, Wynn's stock was still undervalued, largely because I knew that the company pipeline would still be filled with new innovative and productive projects generated by his fertile imagination.
Steve Wynn. Source: Joe Raedle / Getty Images
That's not to say that Steve Wynn was the only management engine that drove the company to its long-standing success. His management team had been trained on his mantras. He was a difficult boss, subject to tantrums. And even though colleagues have said that he's been a little relaxed since they've been working for him, he has remained a fierce seeker of perfection in everything he's done. had built. And it shows in the gains.
His management team has imbued this culture over time, who are strong performers of its goals, vision and customer service ethos. Many of them have now disappeared, along with many prominent members of the Wynn Board of Directors. In what can only be described as the disappearance of "Wynn Baggage", the new board now presents a "Wynn clean" management headed by its new president, Philip Satre. The former CEO of Harrah's (CZR) is an industry veteran of the highest order and irreproachable. Matt Maddox, former Chief Operating Officer and now Chief Executive Officer, has an excellent stewardship rating in my humble opinion.
We are now about a year or more away from Wynn's resignation. We now have an idea of how the company has managed since without it. More importantly, what can investors expect in the new direction? As in all these events, there are advantages and disadvantages. Unknown macro winds or headwinds are still waiting for society and the casino industry as a whole.
Of course, we have the financial performance of fiscal year 18 to serve as a guide. But that's not the story here. However, to put in context, here are some highlights of the 2018 performance:
- Price to write: $ 124
- Turnover: $ 7.68 billion
- VE: $ 20.12 billion
- Tail Shot: 22.80
- EV / EBITDA: 11.43
- Beta: 1.29
- Cash: $ 1.95 billion
- Market capitalization: $ 13.54 billion
- Total debt: $ 8.93 billion
- EPS '18: $ 6.26
- Projected Analyst EPS 2019: $ 7.75 on average
- PT one year: $ 135 (In our opinion, see below.) See our call further in this article to reflect a performance before "without Steve" for the second year.)
The deviation of Maddox & company
New CEO Maddox: A good steward to date. Source: Cathleen Allison / Las Vegas Review-Journal
First, we need to evaluate what the new Wynn team did or did not accomplish in that first year without Steve Wynn.
- Settling outstanding legal issues in Okada's lawsuit with Japan's Universal Entertainment.
- Status quo agreement with Wynn's former wife, Elaine, who holds 9.2% of the outstanding shares.
- Appointment of Phil Satre as new president. New board with more female members, changes in several key frames in Suite C
- Canceling Paradise Park Paradise Park, a $ 1.5 billion "Steve-ish" Paradise Park project located on the grounds of the company's golf course area. Savings estimated at $ 1 billion in investment expenditures.
The Scrubbed Paradise Park project will become an upgraded golf course. Source: Chase Stevens / Journal of Las Vegas Review
Wynn Convention Center project. Source: Vegas Convention and Visitors Authority
- Comprehensive convention center trial, a 400,000 square foot facility located in the $ 500 million BT parking strip. It is expected that the average RevPar will increase by 4% and increase EBITDA by 2020.
- The Boston Encore project, worth $ 2.6 billion, is expected to open quickly this summer.
- Management is very confident in the positive outcome of the investigation into a license in Massachusetts. Imminent hearings.
- A repositioning of the Wynn Macau property aimed to emphasize the high-end mass player. Complete overhaul of the interior, adding 10,000 square feet of retail space. Change in marketing focus in premium mass. Outgoing rank 2 operators that bring warm yields.
- Wynn Palace: addition of crystal pavilion with 670 rooms in phase 2 of expansion. The occupation of Wynn Palace is almost 100%, almost all attributed to VIP players.
- The modernization of the Wynn Golf Course is now seen as an equipment generating high revenue potential and greater value to society than what would have been Paradise Park.
Source: Transcript of Wynn's 4th quarter earnings call.
(Note: Galaxy Entertainment Group Ltd. (HK0027) purchased 4.9% of Wynn, or 5.3 million shares, immediately following the sale of its position to two institutional investors.The implications of this purchase by a gaming giant are numerous, but none at the moment, specifically public. Source: Wynn Resorts Ltd. publication)
Clearly, Wynn's management was not spared, nor was the famous and terrified management of the Walt Disney Company (NYSE: DIS) in 1966 after Walt's death. A former colleague who was working there at the time once told me that they were sitting around their nails and pondering every decision with the prologue sentence: "What would Walt do?"
We do not really know if Wynn's people marvel at a decision, asking themselves, "What would Steve do?" But his shadow is long in some senses and a welcome demise in others, according to our Vegas interviewees.
Maddox and his henchmen have mostly harvested fruit at hand. But they also proved to be very skilled harvesters. They are gone, but time will tell. We are seeing the beginning of lowering the hurdles in the US and Asian markets, so our outlook for the stock remains optimistic. We are reasonably confident that the new "Wynn-less" team will generate profits in the range of US $ 7.85 to US $ 8.15 for 2019, based on the 10 policy changes noted above, the reduction of barriers in Asia and the absence of major recession in the United States.
Our industry panel weighs in
Picking fruit at hand is one thing, but finding fertile ground for planting, planting, maintaining and maturing new orchards is another. And it is at this point that the link between a "Wynn-less Wynn" will eventually become clear.
We do not think there are as many figures yet as to how the company will move forward. So many contrary winds persist outside the control of the direction, whether they diminish or not. We can expect stock spikes to the north if trade talks between Trump and Xi go anywhere. Clearly, a positive result at hearings in Massachusetts will also move the actions forward smartly. But these are elements of 2019. The way to earn money over a long period of time Wynn has always been to tie the industry's belief to personal genius – yes, we do not use this adjective lightly – Wynn himself. Our 20% premium factor has been proven except in cases as rare as when Steve himself has crushed a very expensive toe. In 2000, Kirk Kerkorian surpassed him and took control of Mirage Resorts for MGM Resorts (MGM).
The best assessment of the upcoming track for the company without Wynn himself is to be looked for, in my opinion, by industry peers. To that end, I conducted one-on-one interviews with a panel of 10 executives in Las Vegas, Atlantic City and Macau. All are former colleagues, former Wynn executives or long standing competitors within the company. None are used by Wynn, nor in the last 15 years. All share what I believe to be first-hand information about man and the possible longer-term impacts of his absence from society.
What follows, I say, are the opinions of those people who have all asked to participate, but who are not identified for obvious reasons of discretion and current professional status.
Their answers are presented here in a question and answer format. The questions were all the same. The answers here are widely shared among the 10 to build consensus, and they are presented in this context.
Q: It was clearly necessary for the company to separate itself and its management from any alleged adverse behavior of Wynn that could adversely affect its regulatory or business interests. Once Wynn left, what do you see, if any, as losses for the business prospects of his business?
A: The majority of our committee members agreed that the pipeline would be the primary victim – including the prospect of a property in Japan that would "stun officials", in the words of a defendant. With Steve, the consensus was that his chances of obtaining a license in Japan would be equal, if not better, to those of MGM or most other bidders, with the exception of Las Vegas Sands (LVS). All agreed that it was obvious that Wynn would have had no chance of getting a license for Japan if Steve had decided to stay and fight the accusations of his accusers.
One participant, a longtime Wynn leader in the 1980s, pointed out:
You do not replace a Steve Wynn with a Matt Maddox. This is not a blow for Maddox or current leaders. But he's basically a financial guy. He has a decent operation mentality. But neither he nor anyone else instead can imagine where the company is actually going beyond what the data tells him. These are numbers. It has become a matter of numbers for sure. But that's not where the instinct to flourish with new ideas and out-of-the-ordinary concepts comes from. And always.
Another respondent added:
Steve found that you needed a lot more than slot machines and tables to move people to properties. It was about telling people what they wanted before they knew it themselves. It's a clear mentality of Steve Jobs that motivated all his big decisions. This is missing now.
Q: If there had been no revelations about his behavior and had he stayed in the company, do you think the Paradise Park project would have been implemented?
A: Our panel, to a person, agreed. Their thinking was: the project was a perfect example of Wynn's thought process. A panelist summarized the situation well and it is a textual transcript of his answer:
Here he was sitting on a "meh" golf course, earning at best $ 5 million a year. It was a strip of land that was worth the gold. He saw the band become as dense and populated with people and buildings as downtown Manhattan. The idea of building a lagoon, a wooden boardwalk and creating an active aquatic function like nowhere else on a competing property was pure Steve. It would be a dramatic contrast to the noise and crowds of all places. It would be like putting a coastal presence in the middle of the dessert. He would have built the place so that the rooms could operate with a convention space, restaurants and outdoor sports, one only.
Q: To be fair, given the sluggish growth of Las Vegas, theatrical offerings and the prospect of new downstream casinos, did not the investment seem questionable? Is not that why his successors killed the project?
A: Our panel thinks that it would definitely be worth killing Paradise Park from a financial point of view. Repositioning capex on convention development is not the worst idea as a substitute and a good return.
Again, a direct panelist quotes here:
But that's the difference between Steve and the next guy. He was able, in his own brain, to see how the place would unfold in the public mind. It was instinct. Difficult to calculate by algorithms that provide comfort to the financial brains. He knew by the way that he would ask his team to design the venue. He knew what the Vegas visitor wanted before he knew it. He just knew. Although he was a hard researcher and a very good reader of numbers, his decisions were still based on his guts. This gut is missing, sad to say. It is not fatal. To say that it will not affect the future of society is naïve.
Q: The management that took over made good decisions on many of the issues that escaped Steve's bazaar. Do you see any bad decisions that they have made that could have a negative impact on performance?
A: Our panel agreed that the leadership of his successor had inherited a huge tin can on Steve Wynn's behavior problem. They did not make any criticism of the 11 points mentioned in this article and praised those who were related to Okada 's settlement and Elaine Wynn' s offers as very positive. Another panelist noted:
Look, the Boston property is all Steve. And it will be huge. My question is that few people understand its influence on properties after they open. He is a development guy who is A-one only. But he is also a marketing genius. He recognizes problems faster than most people, acts to correct mistakes faster than his own people and, when he changes his property, he almost always focuses for the better. This could be a missing element in Boston. He will have good people there. But none of them is him.
Q: So, is it fair to conclude that Wynn's so-called "engineering guide" personally, now lost by society, will only affect new pipeline projects? Wynn is getting closer to his late 70s. Did he have an arsenal of new projects to go to the drawing board?
A: We had an intriguing answer to this question in that everyone, especially the former Wynn leaders, thought that "Steve would have been bored after Boston and Paradise Park were launched." already been pregnant in his brain. All of our panelists said they heard rumors that Wynn was working on a concept to "reinvent the art gallery industry" by creating a brand new way to make quality shopping a unique experience. .
Bottom line
Without Steve Wynn, we believe that the pipeline that is being reported here should guide the company until at least 2020. Beyond that, we are seeing a propensity for more cautious and step-by-step projects on the existing footprint. We believe that the benefits generated by these investments, combined with a reduction in current headwinds, will move stocks forward. We maintain our budget of 185 dollars before the end of 2019. Nobody can predict the outcome of macroeconomic events such as the trade agreement between China and China, the economy Chinese, the recession outlook in the United States, etc. Wynn Resorts will come out well.
We also believe that prospects for a merger or acquisition as a forward-looking strategy are higher than ever without Wynn at the helm. It seems to us that when there is no Steve, there is no potential conflict between the ego and a conceivable partner. We and our panel agree that a transaction could take place earlier than expected.
But on the basis of what exists and what is planned for the next two years, we are seeing a recovery of the company's profits in relation to the sector as a whole. The only missing ingredient will be our belief that the 20% Wynn bonus associated with the founder's creativity has disappeared. If there had been no personal misconduct and had stayed at the helm, our PT would be between $ 215 and $ 225.
I'll end with a souvenir of a lunch with Wynn at his former Golden Nugget Chinese restaurant, Lilly Langtry, in downtown Las Vegas. We discussed the company. After a long and lively discussion of trends, I remember cracking him on a carrot stick and saying, "This is a very simple case." He spread his arms to measure a length of time. air. "It's enough to build a joint that brings people here," he said, shaking his head with an outstretched arm, "and asking them to spend the time and the trouble of going here," he said. he says shaking his head from the other arm. .
"And not the other guy's joint."
Disclosure: I / we have / we have no position in the actions mentioned, and we do not intend to initiate a position within the next 72 hours. I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose actions are mentioned in this article.
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