✌️ Can Wynn Win Big Through Fertitta?

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Wynn Resorts: Placing The Right Bet?

A billionaire disclosed a stake in casino operator Wynn Resorts Ltd. (WYNN), sending shares on a rebound for the next two days. Casino operators claim to be resilient during times of high inflation, but the uncertainties around Macau remain. Can the new billionaire investor infuse new life into the stock, which was at a 52-week low until his disclosure?

The Macau Mania

Wynn Resorts ranks among the top casino operators globally and has developed properties in Las Vegas, Macau, and Boston. It also offers mass gaming entertainment to tourists visiting Macau, Las Vegas, and Singapore.

The company operates in four business segments – Casino, Rooms, Food & Beverage, and Entertainment. Despite its origins in the US, Wynn was among the few companies generating the most revenue from Macau. Pre-Pandemic, the company generated as much as 70% of its overall topline from the Special Administrative Region.

Covid-19 has resulted in strict regulations for Macau, keeping tourists away and thereby hurting the financials of companies like Wynn, who rely heavily on the region for cash. Reports on Tuesday suggested that the SAR carried out mass testing of its 700K residents after the emergence of a few Covid-19 cases last week. Some were reported at a major casino, prompting authorities to seal as many as 1.5K people inside.

The 11 infections come after three months of no cases.

Recent data also suggests that Gross Gaming Revenue at Macau declined 10.7% from last year in October to $482M. Analysts were expecting a decline of 8.5% in GGR. Compared to September, Gross Gaming Revenue increased by 31.6% as some tourist channels from Mainland China opened up during the Golden Week holiday. The GGR in Macau has halved on a year-to-date basis.

This does not come as good news for companies like Wynn. The resort’s Macau operations reported an operating loss of $185M in Q2 due to pandemic-related restrictions. Macau’s contribution to Wynn’s overall topline is now down to barely a tenth, with Las Vegas and Encore Boston Harbor doing the heavy lifting.

In what may come as some relief to local Casino operators, traveling to Macau became easier for visitors from Mainland China due to an online visa system, which replaced the need to apply in person.

Fertitta’s Rocket!

Adding to this is the uncertainty over the future of US casino companies continuing operations in Macau. Seven operators are vying for six casino licenses, including the six existing operators, whose current permits expire on December 31. GMM Ltd., a Malaysian casino operator Genting Malaysia subsidiary, has also submitted a bid. All seven companies can bid as of date.

Gambling laws were tightened in January this year as a prelude to renewing casino concessions leading to shares of all US-based casino operators getting hammered. The new rules now say that the six licenses will remain, but their duration is down to 10 years and a three-year extension at the government’s discretion, compared to 20 years with a five-year extension earlier.

Enter Tilman Fertitta, a marquee name in the gambling and hospitality industry. Fertitta is also the owner of the basketball team Houston Rockets, the Golden Nugget Hotel & Casinos, and restaurant chains like Del Frisco’s and Bubba Grump Shrimp Co. He is said to have a net worth of $8B. After developing his online gambling business, he sold Golden Nugget Onling Gaming Inc. to DraftKings for $1.56B. He also made headlines after refusing to merge the parent company of his restaurants and casinos with a SPAC, resulting in litigation.

Fertitta disclosed a 6.1% stake in Wynn Resorts on Monday, making him the second-largest shareholder of the company, only behind co-founder Elaine Wynn, who co-founded the company with her former husband Steve Wynn and is now the largest active shareholder after a bitter legal battle. Based on Tuesday’s closing price, Fertitta’s stake is worth ~$470M.

However, the stake appears to be a passive investment from Fertitta, as he disclosed it via a 13G filing to the Securities & Exchanges Commission (SEC) instead of a 13D filing needed for an activist stake. The purchase is dated October 19, during which shares traded at $54 apiece and trading near their 52-week low.

Investors await the latest round of quarterly earnings from casino operators who have maintained that demand remains strong despite the high inflation and recession fears. During the summer, managements of these companies cited a recovery in international travel and pent-up demand, which would aid recovery in their financial performance. Wynn Resorts will report results on November 8.

Wynn Resorts shares are already up 25% from Fertitta’s stake purchase. There is only so much he could do as a passive shareholder, but investors are only pleased that a known name in the field has decided to bet on the casino chain. Will the gamble pay off is something time will tell. However, investors do not mind this Wynn-Wynn situation, at least for now!

Market Reaction
WYNN ended at $67.86, down +6.20%.

Company Snapshot 📈

WYNN $67.86, +3.96 (+6.20%).

Analyst Ratings (15 Analysts) BUY 46% HOLD 54%  SELL 00%

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Today’s Fun Fact

Unlike Vegas casinos, which makes most of its money in penny slots, most of the money generated in Macau (75 percent!) comes from high rollers making huge bets at table games in V.I.P. rooms.

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