Wynn Resorts CEO Maddox Has ‘Vigor’ For Japan Integrated Resort, But is Cost Conscious

Wynn Resorts, Ltd. (NASDAQ:WYNN) is among the global gaming companies pursuing a license to build an integrated resort in Japan. The operator of its namesake venue and the Encore on the Las Vegas Strip is also joining some rivals in becoming increasingly mindful of the costs associated with building a luxury gaming property in the Land of the Rising Sun.

Wynn CEO Matt Maddox likes Japan. But there may be a limit to how much the company will invest there. (Image: Boston Globe)

In a conference call with analysts and investors following the company’s third-quarter earnings report earlier this week, CEO Matt Maddox said his company remains enthusiastic about the Japan opportunity, but added that it must make financial sense.

We are going to pursue Japan with vigor, but we will not pursue it if it does not make financial sense,” said Maddox.

Earlier this year, Wynn said it hopes to build the world’s largest casino in Japan, and that it expected costs for the property to be in the $8 billion to $9 billion range, well above the $2.6 billion the company spent to open Encore Boston Harbor, its newest gaming venue

That price range could be too low of an estimate, and by a wide margin, at that. Recently, a team of Fitch Ratings analysts visited Japan and subsequently raised their cost forecast for a high-end Japanese integrated resort to $10 billion to $15 billion from a prior forecast of $10 billion.

Maddox Isn’t Alone

The Wynn boss isn’t the first gaming executive to express concern about the potential expenses tied to bringing first class gaming properties to the world’s third-largest economy.

When rival Las Vegas Sands Corp. (NYSE:LVS) reported earnings last month, COO Rob Goldstein said $10 billion to $12 billion to build a venue in Japan “does give you pause,” with CFO Patrick Dumont adding that that price range could actually be “light.”

On both the Sands and Wynn calls, it was Barclays analyst Felicia Hendrix that brought up the subject of Japan costs.

“So we’re going to be very disciplined in terms of how any structure is put together, what the costs are going to be, and what a return profile is going to be,” said Maddox. “We think that it (Japan) will be a very high revenue market. But we’re focused on making sure that it will be something that our shareholders will also like.”

Making The Numbers Work

The average return on invested capital (ROIC) in the hotel and gaming industry is 14.23 percent, according to the NYU Stern School of Business. However, some operators pursuing Japan licenses are targeting ROIC of 20 percent or more.

Maddox didn’t mention a specific ROIC goal for Wynn in Japan. But he did affirm the company’s commitment to the Tokyo Bay region.

Last month, the operator announced it would not pursue a license in Osaka. But Maddox said that was more official announcement than change in strategy, because Wynn has been “quietly” focused on Tokyo for a decade. The CEO believes Tokyo presents the best opportunity for a return on investment.

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