Wynn Resorts, a major player in the luxury casino industry, has faced significant challenges due to an economic recession, impacting occupancy and profitability despite maintaining a relatively stable position in the market. The company has implemented cost-saving measures while exploring strategic alternatives for growth, particularly in emerging markets like China, and enhancing marketing efforts to boost brand recognition. Despite the current economic climate, Wynn possesses strong financial liquidity and cash reserves, positioning it for potential recovery and growth once conditions improve.

1. Paige Hannah
BUS 465D
April 24, 2009
Wynn Resorts: Can They Take a Gamble?
Introduction
When it comes to luxury casino destinations, Wynn Resorts, Ltd. is doing
something right. An international developer, owner and operator of three luxury resorts
(casino and hotel) internationally, the company has exploded onto the luxury resort
scene over the past 7 years. However, despite the company’s success, the current
economic recession is resulting in the entire industry taking a hit. While Wynn’s balance
sheet remains fairly stable, the economic conditions in general have generated the
suspicion that Wynn (NASDAQ: WYNN) will underperform at least for this quarter, if not
longer. Ultimately, the problem facing Wynn is, how do we stay competitive The
purpose of this paper is to show the company’s history, analyze where Wynn is today,
and to identify key areas where the company can implement strategic decisions that will
result in a sustainable competitive advantage. By pinpointing areas of weakness, as well
as areas of opportunity, the goal is to be able to form several different strategic
alternatives for Wynn to adopt, analyze the pros and cons of each, and finally suggest an
alternative and implementation.
Background Information
Wynn Resorts, LTD was formed by former Mirage Resorts Chairman/CEO Steven
Wynn on October 25, 2002, who currently serves as the Chairman of the Board and CEO
of Wynn. His knowledge of the gambling and casino industry is indispensable to Wynn
Resorts, as he is accredited to turning the luxury casino industry in Las Vegas into what it
is today. Wynn’s mission is: “A commitment to providing an elegant environment, high‐
quality amenities, a superior level of service and distinctive attractions for our
customers.”1 The company currently has operations in both Las Vegas (headquarters)
and Macau Peninsula in China. Wynn Las Vegas, the company’s first development, was
opened on April 28th, 2005. A year later, the company broke ground on an extension to
Wynn Las Vegas, to be called Encore Suites. While the project was initially envisioned as
an expansion of Wynn Las Vegas, after it opened December 22nd, 2008, the hotel and
casino quickly took on a life of its own and became a full‐scale resort, and is connected
to Wynn Las Vegas by a shopping arcade. Between the two resorts, there is an 18‐hole
golf course, multiple restaurants, bars and nightclubs, nighttime entertainment options,
an on‐site Ferrari and Maserati dealership, over 120,000 square feet of retail space, and
of course all the usual casino amenities, but with a layout that is unique to Wynn
Resorts. Today, the company competes closely with Bellagio, Caesar’s Palace, Luxor
Hotel & Casino, Mandalay Bay Resort & Casino, The Mirage, Paris Las Vegas, New York‐
New York Hotel & Casino, Treasure Island, The Venetian, The Palazzo and Genting
Highlands Resort. Despite the current conditions and having lost nearly 80% of its stock
value in a year, Wynn is maintaining a strong position against its competitors (see Chart
1), not seeing their share prices dip below $14.502. As of April 24th, the closing price was
$39.533. While stock valuation is not necessarily the best measure of Wynn’s

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performance, in comparison to other luxury hotels and casinos, it is apparent by the
nearly $20 increase in stock price from the end of March (price as of 3/31/09 was
$19.971) that Wynn is not ready to crumble just yet.
Wiki Information
The Wiki Website for Wynn Resorts, Ltd. provides a decent overview of the
company, including background information, financials, a SWOT analysis, a Porter’s Five‐
Forces analysis, and some potential strategic alternatives.
Financially, Wynn Resorts, Ltd. is doing well, considering the current economic
situation. In terms of liquidity, Wynn is well equipped to pay off debt obligations using
current assets, even when using very conservative measures, as evidenced by a Quick
Ratio of 1.9 (2008), a Cash Ratio of 2.17, and a Current Ratio of 2.13 (as of 2/24/09)1.
While some of these ratios have declined from previous years, the fact that Wynn has
double the current assets to pay current liabilities leaves a fair amount of wiggle room
for the company. However, Wynn is experiencing diminishing profit margins, which
suggests problems managing costs. From 2006 to 2007, Wynn nearly doubled their
revenues, while only making a third of the previous year’s profits. It would be wise to
look into cost control measures, as operating costs increased 6 percentage points over
the course of 2 years. Comparatively, Wynn falls in the middle of their competitor’s,
experiencing a net profit margin of 9.61% in 2007, between LVS’s ‐3.73% and MGM’s
margin of 20.6% for the same year1. In addition to decreased profits, Wynn is
experiencing increased debt with an almost 5 percentage point increase in the debt
ratio. Wynn is relying heavily on debt to finance its operations, and while this may be
short‐term debt to fund projects, it is important to understand where this reliance on
debt is coming from.
The SWOT analysis for Wynn reveals more about where Wynn stands
organizationally. There are several key highlights for each category. In terms of
Strengths, Wynn is expected to have an 8.3% revenue growth for the year, as well as the
fact that they currently have over $1.7 billion in cash (as of 9/30/08)1. With a strong
balance sheet and a unique approach to activities, services and overall appeal of the
hotel and casino, Wynn certainly has a great deal going for them. In terms of
weaknesses, much of what makes Wynn weak has to do with the current economic
situation. For example, Wynn is currently experiencing a huge drop in occupancy (now
at 79.7%1), likely due to the fact that it is a luxury brand, and therefore is an expense
that many forego when cutting personal costs. Many of Wynn’s opportunities currently
lie in new markets, such as China. With a rapidly growing middle class and the spread of
luxury goods and services, China presents an entirely new set of markets for Wynn to
tap into. The biggest threats for Wynn lie in competition and the economy. The
gambling industry, particularly in Las Vegas, is incredibly saturated with luxury casinos
and hotels. Wynn constantly faces the threat of something “new and better” coming
along and debunking their position as one of the most well‐known luxury resorts on the
strip. Furthermore, the economy is, again, threatening occupation of the hotel. Wynn is
going to have to work to attract and retain customers, or face the threat of seeing
constantly falling profits.
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In terms of Poter’s Five Forces, it seems that the threat of new entrants is
somewhat high, with easy access to suppliers and willingness of customers to switch
casinos/hotels. Furthermore, in the gambling industry, the buyers have a fairly high
bargaining power, while bargaining power of suppliers is relatively low, with the
exception of controls by the Nevada Gambling Commission. The threat of substitutes is
very strong, as even Wynn Resorts offers a variety of other leisure activities on their
resort properties. This plays into the intensity of rivalry. Las Vegas is known for its
casinos and luxury resorts, so the ease of finding a substitute is high, making the
competition fierce. Regardless, the company and the industry remain fairly attractive1.
Alternatives
With the current state of the economy, Wynn Resorts, like most companies have
had to take cost saving measures. Wynn has focused on many ‘efficiency initiatives.’
Rather than firing employees, Wynn is striving to keep a full‐time staff employed to
avoid costs of hiring/firing, etc. These measures include reduction in employee’s
salaries, reduced weekly hours for full‐time staff, and a suspension of employer‐match
to company 401K plans. As a result of these initiatives, the company will save around
$75 ‐ $100 million this year alone.
While these initiatives will be helpful, these are more short‐term oriented
solutions to current issues. My first suggested alternative is that Wynn concentrates on
new markets, particularly in Asia, and even more specifically in China. The middle class is
becoming bigger and bigger each day, and is expected to increase to over 700 million by
20201, with luxury spending increasing from 18% (today) to 32% by 20151. Additionally,
the five‐year compound annual growth rate from 2007‐2012 is expected to continue to
increase steadily to 4.4% in Asia‐Pacific1. So in the time it would take for Wynn to
develop a few new resorts, the market would be ready with the disposable income
available. Furthermore, gambling is growing in popularity overseas, presenting a wide
range of opportunities for Wynn to expand. Competition in China is probably not
incredibly stiff, but is rising so it would be wise for Wynn to establish themselves in a
rapidly growing economy now. Wynn has already broken into the Chinese market with
its Wynn Macau resort located on the Macau Peninsula. There are a few key issues to
remember when deciding whether or not to invest in China. The first is real estate in
China. While in rural areas this may be relatively inexpensive, locating the resort near
cities (where the middle class is more likely to be located) is going to prove to be more
challenging (lack of space) and more expensive. However, with developments in Las
Vegas, the cost of real estate is likely viewed as the most important investment to make
Wynn centrally located. Wynn may also have to invest a great deal of money into
developing an entirely different look, feel, operations, marketing plan, etc. for future
international Wynn Resort locations to accommodate for cultural differences.
Furthermore, while China’s middle class is on the rise, it is hard to say how they will
respond to the luxury hotel and casino industry. Chinese culture tends to be fairly
simplified, and while their mindset seems to be moving westward, Wynn cannot just
assume that their resorts will take off immediately with anyone other than the
international business crowd. Wynn also must be cognizant of the fact that the Chinese
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market is going to follow the American market, or at least for now. So even with a
growing economy, Wynn must pay careful attention to their financing and also keep a
close watch on the US markets.
My next alternative is for Wynn to increase their marketing and advertising
efforts on a national scale. Rather than cut the costs of marketing, Wynn as a luxury
resort should be able to recognize that, particularly in this industry, exposure to the
market is everything, which is the largest benefit of increased marketing and advertising
efforts. Of course, there are several other benefits to increased marketing and
advertising efforts that go along with exposure. Brand awareness and recognition is
incredibly important, particularly in an area such as Las Vegas where competition is
particularly cutthroat and substitutes are plenty for luxury hotel and casinos, which
often appear to be on every corner. If brand recognition can occur on a national level
the way it is with some competition (The Bellagio is often a well‐recognized name), then
the status of Wynn Resorts goes up, and as a result, occupancy rates. As customers plan
their vacations, if the Wynn name is on their minds, it is likely to be the hotel and casino
they look into first, and thus end up booking. This would combat Wynn’s current
problem of managing their properties so that both Wynn Las Vegas and Encore have
customers. Wynn has the advantage of setting themselves apart in the luxury category,
by providing high‐end shopping, dining, and even an on‐site Ferarri and Maserati
dealership. While Wynn’s occupancy has been affected by the economy, luxury goods
tend to have a fairly consistent consumer base, simply because high income individuals’
spending habits don’t tend to change as dramatically when the economy is not doing as
well. Though, with the current recession being as difficult as it is, this may not
necessarily hold completely true, further increasing the need to make Wynn’s name as
recognizable as possible, especially for new customers. Wynn currently has a stable
balance sheet and about $1.7 billion in cash1 as of September 2008, so there is cash to
be invested in marketing and advertising efforts. Of course there are also drawbacks to
investing in marketing and advertising, particularly in the current economic climate.
Again we face the high bargaining power of buyers and the threat of substitutes, and
this alternative does leave Wynn vulnerable to some large weaknesses and threats
faced by the company right now. No amount of advertising or marketing can control
what people spend, even those with incredibly high incomes. Steve Wynn even said
himself, “hotel occupancy is back over 90% but that room rates are lower and the guests
‐‐ including the wealthiest ‐‐ are spending less freely than they did in the good times.”4
Furthermore, other companies are cutting budgets and taking less corporate trips,
meaning less occupancy. Obama’s recent slam on corporate vacations in light of the
economy is putting a serious damper of the amount of companies willing to publicly
shell out for a Vegas vacation for executives. So, regardless of advertising, there are
many spending habits that cannot be controlled. Should Wynn decide to increase
advertising and marketing, they would need to be more strategic than ever in terms of
what they implement and how they implement it. These measures would be very costly,
and would take cash away from other possible opportunities such as hotel and casino
expansion, so Wynn must allocate these funds carefully.
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A final alternative with the current state of the economy is to essentially do
nothing, keep business as usual, continuing with the current strategy of cutting certain
costs. Wynn is not necessarily trying to “hold on” quite as tightly as some competitors
(such as Las Vegas Sands) but the recession has had its impact on Wynn Resorts. A major
benefit of riding out the recession is that once the economy settles down, they will likely
be in a relatively good position to jump out ahead in the industry when the market has
settled and is back on the rise. Wynn’s cash position, balance sheet and income
statements all look decent for the most part, but taking the opportunity to pull back
may even result in strength down the road, as they won’t necessarily be damaging their
cost structure at this time. With weak expected first quarter earnings for 2009, a calm,
back‐seat approach for Wynn might be the necessary opportunity to take time to
breathe and re‐evaluate. Again, there are of course cons associated with any strategy.
The biggest con is that this leaves Wynn incredibly vulnerable to any competitor in the
industry. Wynn must keep in mind the concept of first mover advantage. By doing
nothing, Wynn could lose out to competitors who, despite the economy, choose to
surge ahead and make bold moves. This could, unfortunately, give the competition the
upper hand and provide a competitive advantage that would belong to Wynn had they
chosen to move first. Wynn has a good thing going for them right now, as they are
staying in the middle of the competition and still seeing positive returns, so one might
question why ruin a good thing? What’s more is that with a potential loss of competitive
advantage and a lack of exposure to the market (due to staying stagnant), Wynn risks
losing its customer base. In Las Vegas in particular, it is often about the newer, better,
flashier place to be, and if Wynn doesn’t keep up, they will see their occupancy rates
decline significantly.
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Chart 1: Wynn’s Stock 1‐year Stock Performance Compared to Gambling Industry3:
Sources:
1. http://elonstratwinnresorts.wetpaint.com/
2. http://seekingalpha.com/article/131233‐casinos‐reassure‐markets‐they‐re‐
here‐to‐stay
3. http://money.cnn.com/quote/chart/chart.html?pg=ch&symb=WYNN&time=1
yr&freq=1dy&charts=0&comp=&compidx=aaaaa%7E0&ind_compind=8677%7E
3234821&uf=0&lf=1&ma=0&maval=60
4. http://online.barrons.com/article/SB124101770125568887.html?mod=google
news_barrons
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