Macau Business

COTAI REVOLUTION

After years of waiting, Wynn Macau Ltd was officially granted a piece of and in Cotai earlier this month. The plot is nearly 206,000 square metres, is located behind City of Dreams ang Will be home to the gaming operators first Cotai property In this exclusive interview – the first since the land grant announcement – Company Chairman and chief executive Steve Wynn unveils details about the project. Only the fallout with former business partner Kazuo Okada was off-limits, since courts are handling the dispute.

EXCLUSIVE CEO INTERVIEW

Congratulations on getting the Cotai land after waiting for so long. You must be thrilled.

Steve Wynn – I certainly am. I am glad and grateful that it is finally done. But it wasn’t a question of whether we were going to be allowed to build a hotel on Cotai. From the time we got the permission for the land in 2006 and we puta fence around it, that property was intended for our eventual usage.

The government slowed things down [in early 2008 when the market got overheated and the schedule was convenient for them and for us. We were building Encore and the government wanted to see it finished before we started anything else.

Frankly, that is the way I wanted to do it anyway, because when I was building Encore here, I was building Encore in Las Vegas. So, I wasn’t anxious about when we would get into Cotai.

When the designs got really far along in the last ten months, we were ready to begin working on the soil. There’s a lot of work to be done at Cotai before you can just get into the building. So, I was anxious to get started with the ground but the process was moving along in a direction that was positive and consistent with everything that had been said to us all these years.

There were no surprises. I understand that things don’t always move at the speed that people want, but I never had any indication that they weren’t moving.

When do you expect to start work?

The building drawings are finished. We can start tomorrow but I want to negotiate the best deal with the builders. I’m going to take the next couple of weeks to pick one of them.

How much will it cost?

I’m not ready to give a budget yet. But from the terms I am getting from builders, around US$3.5 billion (MOP28 billion) to US$4 billion. We’re talking about a serious piece of money.

Can construction still start before the end of the first half of this year?

I’ll be on the ground and working before June.

TIMING IS EVERYTHING

How will you finance the property?

From our own cash, retained earnings and some borrowings. We will build it like we did Encore: out of cash flow and if we need any help, the banks are all there for us.

So cash in hand, cash flow and debt. No issuing of new equity?

No, I have no plans of doing that.

You are arriving in Cotai almost five years after the first property there opened. Is that a handicap?

I’m grateful that we got to see the competition because it has gotten better Galaxy Macau is a good job. Venetian and the Four Seasons are a good job. City of Dreams is a real place.

I want to make sure we have the upper hand and that we put up a better job. To be able to see the competition is a terrific advantage because I can take that into account. I’m happy to say we’re well over the line.

You will be opening around 2016?

Late 2015 or early 2016.

Will you only build one hotel in Cotai?

The 50-odd acres of land lends itself to one beautiful hotel. There are pieces of property on the corners that represent opportunities to add more amenities, which may occur in the future. But that property has not been set up for two hotels. It is set up for one hotel.

Several analysts say Cotai needs more affordable accommodation. Will you go ahead with the initially planned five-star hotel?

There are only four five-star hotels in China: three in Hong Kong and one here, the Wynn Macau. There is going to be one more when the next Wynn opens. The typical room in that hotel is like at Encore, with around 100 square metres. They are all petite suites.

What about the surroundings?

A lake. It will be almost 300 long. It is bigger than the one at the Bellagio [in Las Vegas]. And where the future light rail transit system stops, at the front, you will get on a gondola and go all the way down and round the lake.

The hotel will have an “X” shape?

Yes.

So it’s going to be a unique design for Macau?

Yes. [The X shape] shortens the walking distance. It makes you walk no more than 45 metres to your room, no long hallways. The building takes on a shape to suit the public, with big atrium lobbies. –

What’s the one thing people don’t have in China? It’s real estate. So, there will be five villas each with a 4.5-metre wide pool that goes out 45 metres. These are villas that have a 45-metre backyard that goes out. Luxury of a different kind.

SERVICE IS EVERYTHING

While many believe customer service in Macau’s casino industry Is substandard, the chairman and chief executive of Wynn Macau Ltd thinks otherwise.

The service level in Macau is as good as in Las Vegas,” says Steve Wynn. “The service level gap is closing very fast.” Mr. Wynn recalls that the lack of a hospitality culture in Macau was his main Eoint while bidding for a gaming license back in 2001, during the liberalisation process of the casino industry. His proposal to upgrade service quality convinced the Government and opened the doors to Macau for him.

Len years on. Mr Wynn says much has changed sum holdings Ltd, the succesSOICIInonopoly holder Sociedade de Turismo e Diversões de Macau SA, TS running entirely differently, he says-competition tends to sharpeneverybody’s game.”

Even with rivals catching up. Mrwynn still argues customer experience is the main business differentiator in the casino industry. he says that is driven by soft

ware, not hardware.

Lyou can deliver a warm and friendly environment, where people can really Lake note that they are treated better you don’t even have to have the best marble or the fanciest chandelier. If you have got the warmth and if you have got the twinkle, you got the business.”

“The Cotai project is the opportunity of a lifetime. I don’t know that I will ever be able to spend this kind of money in my ifetime again on a resort. This is the greatest opportunity of my career”

wide pool that goes out 45 metres. These are villas that have a 45-metre backyard that goes out. Luxury of a different kind.

LANDMARK BUILDING

Are you overseeing every single detail of the property as always?

I draw them with my own felt pen, hour after hour. This is my 28th month of working every single week on that building.

The architecture is what gives the building its emotion. There is so much that goes into the drawing before we go into interior decorating. By then, Roger Thomas and his design team, which is Wynn Design and Development, take over, giving me choices of carpet, stone and the likes. But the spaces, that’s my job.

Will Wynn Cotai be a Macau landmark?

I’m absolutely positive that it will. We would not spend this money if I could not say that. I have to be sure.

What about location? It’s not on the main road of Cotai.

We might have the best location. We’re the first light rail stop from the Taipa ferry terminal and the airport. How can it get any better than that? And you can come across from City of Dreams or [the yet-to be approved] MGM – we’re in walking distance.

You were not authorised to build a property higher than 120 metres.

No. We knew it was 120 from the beginning. We appealed to the Civil Aviation Authority to see if we could move it and we had to stick with the 120 metres.

Did that impact your design?

I went to 2,000 [hotel room] keys. I would like to have 2,500 but then again I wouldn’t [make the property larger and extend the hallways to an inconvenient length.

If I had more height I could have more rooms, but I won’t sacrifice customer and user-friendliness.

I want to make sure the experience you get at this hotel is deluxe. The Wynn hotel in Cotai is nothing like you have ever seen here or in Nevada. We are setting a new level.

What about the retail offering at the property?

We will have around 11,000 square metres of retail, twice as many as at Wynn Macau. We will do a similar thing. We basically surround the casino with retail.

We have 4,800 square metres of retail at Wynn Macau. The sales on those 4,800 square metres last year were US$1 billion. It’s the best Louis Vuitton store per square metre in the world, the best Hermes, Bulgari, Christian Dior, Chanel, Cartier, Prada.

Can you keep up with those numbers in Cotai?

Good question. We’re doubling. And we’re adding more retail at Wynn Macau to 5,600 square metres because some spots are changing. Our rents were US$130 million last year with 4,800 square metres. It’s unheard of.

What will the retailer profile at the new property be like?

We will have the same shops as at Wynn Macau. They all will go with us, plus some new ones. I didn’t have room for a bunch of A-brands who wanted to get in at Wynn Macau – they will come.

How many stores will you have?

It will depend on how much space I give each brand. If I was using the 280 square-metre model, I would probably have 40 stores.

ON DINING

What about food and beverage offering?

For one of the restaurants, we’ll go for a high-level dining experience as we did with the Golden Flower [at Encore]. But for most of the restaurants, we’re learning today in Nevada, and Macauis the same, the big deal is the excitement and energy of the venue. People want an entertainment experience more than they demand the finest French or international cuisine.

Think of the most popular restaurants in Macau and in Hong Kong. They are not the ones that have Michelin stars, they are the ones that are fun.

So the restaurants won’t be as high-end as at Wynn Macau?

They will. But I try to make the restaurants fun. I haven’t got a full-on French restaurant like Robuchon at Wynn Macau. I have had those restaurants in the past and I don’t have it at Wynn Macau on purpose. I don’t think it is necessary.

I am more interested in what is going on in the restaurant – fountains, shows and entertainment attractions – and making sure that my food is AA-quality. I’m more interested in the entertainment and food quality combination, than I am in drop-dead, Michelin cuisine.

Will there be any changes to Wynn Macau’s senior staff now that you are gearing up for the new property?

We will try to grow from within, as we have done in the past.

It’s clear that one person can’t run both places in the last 18 months ahead of the Cotai opening. The pressure of human resources engineering, the coordination of the end game of construction and all that is so intense on a US$4-billion hotel that you need complete focus.

There is an argument you can make that for the first year of construction, with the foundations, drying out the land, pilings and all that, there is not that much to do over at Cotai. However, we have to start deciding who is going where.

Do we have enough people now? The answer is no. We will have to add to our family. We have been interviewing new people and thinking about transferring people from Las Vegas. In the top positions, if there are new people coming, I would like to have them here just to double up for some months [with the Wynn Macau executives] so that everybody gets in the same culture.

We have time, though. It’s a 36-month job at best before we open. And I think we probably have six months to sort this out.

Are you dropping anyone from the current top management team?

I have no plans to do that.

PUTTING ON A SHOW

The new property will also include a convention centre, according to the land grant contract published in the Official Gazette.

It will be 9,300 square metres, and have high-end ballrooms and a 1750-seat theatre. We won’t have an exhibit building like Venetian.

Will the theatre have a resident show?

I haven’t decided yet. We’re working on a new show in Las Vegas. It’s a kind of thing that could be in both places.

The theatre is built to take in a resident show. I can set it up to take a production show if I want.

I consult with a friend of mine, Guy Laliberte, who owns Cirque du Soleil, and his people help me. I might take one of his touring shows.

I don’t know if a sustaining produc. tion show would have a long life in Macau. There is no evidence that this is the answer here yet. That doesn’t mean it might not be a good thing for a month or two.

I want to have stars as well, so I will build the theatre for concerts as well as for a sustaining show.

Some of the most successful attractions at the Wynn Macau property are public entertainment like the “Tree of Prosperity”. They have low running costs and are quite effective. Will Wynn Cotai have them too?

We definitely will have that in several positions in the hotel. And the fountains in the front will be the biggest of all. They will cost up to US$90 million.

Imagine the Bellagio, only newer fountains, more advanced, more exotic shapes and a much bigger scale. It will be the photo-op of China.

What about the nightclub that is also planned?

We’re talking about sensory overload. The entire club is a special effects platform, with 1,100 square metres. We are going to build it in America first. It’s called Climax. Then we are going to build one here.

Finally, the casino. How many tables and slot machines do you expect to have?

Same as Wynn Macau: 500 tables and about 1,000 slots. That is enough.

Are you worried about the 3-percent growth per year table cap that will be in place starting next year?

No.

Do you have government assurance that you will have the number of tables you want for Cotai?

I don’t have any assurance. I have a confidence level. The government has been steadfast and intelligent in regulating expansion and apportioning assets, whether it was real estate or tables.

I know that the right size casino is 500 tables. We would never be allowed to build a casino if the government wasn’t going to let us have the tables.

What will be the mass-market and VIP relationship?

At Wynn Macau, we are about 60:40 between VIP and mass. There it will be around 50:50. We will have 12 junket rooms in the new property, plus

PHASED OUT

Will you open Wynn Cotai all at once?

Absolutely. We don’t do phases. In my kind of business, everything has to do with first impressions. You start right, you finish right.

Are you worried about having enough construction workers?

You are right to worry about it. There is so much going on, between public works and the competition. That’s why I am taking an extra couple of weeks working on who the contractor is and getting commitments about who is assigned to the job and who is going to be the supervisor.

Do you have plans to build a third Wynn property in Macau?

I hope so. But it will come in due Course.

Do you think some analysts were unfair in labelling Wynn Macau’s MOP1.1-billion pledge to the University of Macau as an attempt to gain government goodwill to speed up the Cotai land grant?

I don’t think anyone connects our land concession to the donation to the university.

We have had the land for six years already. We built a warehouse there four years ago.

I made the decision about the university when I saw a picture of [former chief executive] Edmund Ho Hau Wah [chief executive]Fernando Chui Sai and [Chinese President] Hu Jintao and found that land from Guangdong province had been given to the university.

I said: ‘This is a big priority forth community, education is a thing wear into, so here is our moment.’ I would it again in two seconds.

Would Wynn Macau be interested developing a non-gaming resort at Hengqin Island?

I haven’t given it any thought. I’ve been so busy with our own stuff. The Cotai project is the opportunity of a lifetime. I don’t know that I will ever be able to spend this kind of money in my lifetime again on a resort. This is the greatest opportunity of my career.

INTO THE TIEN CHIAO DEAL

Part of the process that got Wynn Macau Ltd into Cotai had previously been unclear.

It relates to the details of a one-time, us $50-million (MOP400 million) payment the company needed to make to Macau-incorporated Ten Chiao Entertainment and Investment company Ltd for it to relinquish its rights to any development on the Cotai land.

Wynn Macau’s chairman and chief executive, Steve wynn, says this was the technique open to the gaming operator to enter Cotai Lien Chiao was incorporated in 2005 with the goal of investing in entertainment and tourism, according to its registry documentation. It has two shareholders: Hong Kong D-holder Ho Hoi, who is the controlling shareholder, and Zhang Luchuan from Beijing. There is very little other information available on the company

“I came to Cotai late.” Mr Wynn says. “In early 2006, started asking, as a concessionaire, for consideration to acquire land in Cotai for future use”.

At the same time, Wynn staff also began looking for sites that had been committed but were not yet developed. It was then the company came into contact with Tien Chiao’s lot. The land had already been “committed by the government to some people from Beijing, for a Taiwan house,” Mr Wynn says:

He said the project had been given a commitment for 10.9 hectares and would foster relationships between both sides of the Taiwan Strait.

Although the commitment between Tien Chiao and the government was never official, Mr Wynn says that was how things worked in Macau back then. “Nothing was on paper for anybody,” he says, recalling sands China Ltd only received the official land grant for Venetian Macao a few months ahead of opening:

The government suggested that I get involved with negotiating with the Taiwan House people,” Mr Wynn says.

Eventually, a deal was reached. Wynn was to pay Tien Chao US$35 million and give the company a 12-percent stake in its Cotai property. Tien Chiao would keep 2 hectares to build the Taiwan House.

“As time went by they [Tien Chiao officials] were more and more anxious about when I’d get started in Cotai,” Mr Wynn says. The gaming operator’s decision to focus on building Encore first only added to that:

Mr Wynn says that gave him an opportunity to buy out Tien Chiao by paying them US$50 million. Later Wynn was able to get a commitment from the government to expand the lot to 21 hectares.

Mr Wynn dismisses rumours about connections between Tien Chiao and any government officials. “We wetted the people in the group. we did investigations. We had them sign papers that nobody was involved with any governments.”

Mr Wynn says the United states securities and Futures Commission probed the deal under the U.S. Foreign Corrupt Practices Act, which prohibits American companies from bribing foreign officials.