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July 24, 2014

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Wynn plays it straight to investors

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What do you do when your profit is down in the double digits and near-term profits are uncertain?

If you're Steve Wynn, you tell investors to suck it up or look elsewhere to buy stock. And you say it in the kind of tone teachers use to reprimand spoiled children.

Other CEOs – likely facing similar double-digit declines in their profit columns – are no doubt working on optimistic-sounding speeches for their investors. But Wynn, at least with regard to the U.S. economy, chose to play it straight, saying he was concerned about the reduction in flights to Vegas and that there was little he could do to shore up profits during the slowdown.

"If there's less traffic, you make less money. Live with it," Wynn said.

There aren't any big secrets or innovative ways to save money in the gaming business, Wynn said. They're simple, like keeping rooms less clean, offering flowers and linens that aren't as fresh, replacing carpets less often and cutting staff. But doing such things "is a mistake" and breaks an unspoken contract with staff and customers who expect better, he said. By this point in the discussion, it was clear that he was referring to competitors that may already have crossed that line.

Overall, profit tripled at Wynn Resorts and revenue rose 20 percent in the second quarter versus a year ago, partly driven by a 50 percent increase in revenue at the company's resort in Macau, which is considered the most high-end casino in that market and is raking in big profits in spite of keen competition for Chinese customers.

And yet, the earnings report from Wynn Resorts, the first of the major Las Vegas operators to report second quarter earnings, wasn't welcome on Wall Street because it revealed just how bad things are at home. Second quarter operating profit at the company's Wynn Las Vegas property was down 29 percent compared with a year ago while Wynn Macau was up 68 percent over the same period. Budgets for both Encore resorts under construction in Las Vegas and Macau rose slightly, to $2.3 billion and $700 million, respectively.

Wynn lashed out at the media for its exaggerated coverage of the junket rep wars in Macau, saying his company didn't participate in competitors' money-losing battle to attract junket reps, who bring high-rollers to casinos in exchange for a cut of casino winnings.

"The status of journalism associated with gaming is deplorable," he said.

Wynn also belittled competitors who "chased each other in a circle", outbidding each other with ever-higher junket rep payments, while Wynn Resorts stuck to paying reps a rate close to the rate cap of 40 percent of winnings that Macau's government is expected to impose in order to settle the escalating rate war.

"It looked like a dumb thing to do, to blow your margin," he said. "Every Second-rate management team has tried to buy business."

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