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May 22, 2019

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Daily Memo: Gaming:

Wynn’s impetus for considering moving headquarters to Macau

Macau

AP Photo/Kin Cheung

The newest resort Wynn Encore Macau, right, stands next to the Wynn Macau, left in center, in Macau Wednesday, April 21, 2010.

Click to enlarge photo

Steve Wynn inside the atrium of Encore.

Wynn Macau

The newest resort Wynn Encore Macau, right, stands next to the Wynn Macau, left in center, in Macau Wednesday, April 21, 2010. Launch slideshow »

Encore at Wynn Macau Grand Opening

Allan Zeman, Steve Wynn, Linda Chen and Ian Coughlan at the grand opening of Encore Macau on April 21, 2010. Launch slideshow »

For some industry observers, Steve Wynn’s talk of moving his corporate headquarters to Macau is a logical reflection of his casino there generating 65 percent of Wynn Resorts’ revenue.

It’s also an acknowledgment of what many industry executives have long known: Las Vegas is no longer the center of the gambling universe.

Although many of gaming’s corporate giants and related businesses are based in Nevada, the big money is coming out of Asia. And it’s not just Macau, where baccarat tables make more than twice what they take from Nevada’s biggest high rollers.

Singapore’s two casinos — each expected to make more than any single Macau resort — will have a monopoly on gambling action that’s going to other Asian countries. Some of the world’s most profitable casinos are even more removed from the Western world and don’t get much attention because they’re in places such as Korea and Malaysia. Longer term, casino giants such as MGM Mirage are exploring growth prospects far from American shores in places such as China, Vietnam, Japan and India.

Being the first U.S. gaming magnate to establish a corporate office in Macau, a Chinese enclave would benefit Wynn politically as well as pragmatically — and currying favor with the government is more crucial there than it is here.

He opened a second property in Macau last week and wants to open a third casino there by 2014. Nevada’s casino market is mostly a product of supply and demand, but Macau’s system is one in which government regulators impose rules that determine not only who gets to participate in gaming but how much money they make.

Given the insatiable demand for gambling by the Chinese, these limits function somewhat like the turn of a faucet. Macau’s government has controlled how much money casino marketers or “junkets” can earn from the casinos, limited the number of casino licenses limit competition for operators and, most recently, capped the number of table games casinos can offer.

Besides operating under a different regulatory system, foreigners in Macau and China are expected to defer to local culture — including business methods American executives might think are questionable or antiquated.

Establishing an Asian headquarters would go a long way toward conforming to Asian culture, a positive step in the minds of government officials with the power to grant casino licenses, says Jeff Voyles, a gaming industry consultant and an associate professor of casino management at UNLV.

“There’s a different way of doing business in Macau and Asia,” Voyles says. “You live by their rules and their culture and they’ll give you the world.”

Having a corporate presence in China is important for companies doing business there because “you want to demonstrate commitment,” says Scott Kennedy, director of the Research Center for Chinese Politics & Business at Indiana University. “If you want to stay abreast of what (regulations are) considered or influence them, then that presence is important.”

Many companies, he said, have concluded that “if you’re going to do business with China, you need a substantial corporate presence, not just a manufacturing presence” in the country. Since the 1980s, most Fortune 500 companies have established either a corporate office or a registered subsidiary company in China, whether wholly-owned or in a joint venture with foreign partners. Without moving their entire companies to China, which would entail some regulatory risk, American businesses have instead set up key executives there to more closely oversee their operations and interact with government officials.

Given the low likelihood that government will move to nationalize casinos there, the gaming business should be no different, Kennedy says.

During a conference call Thursday to discuss first-quarter earnings, Wynn said he would install a new headquarters in Macau as part of the third casino and will be spending more time in Macau, along with his chief financial officer. It’s unclear, however, whether Wynn intends to reincorporate his company in Macau. On the conference call, Wynn said the new headquarters “amounts to an allocation of our time and our focus” in China, but that he wouldn’t “uproot everyone who works for me here.”

Some companies have managed to reincorporate their companies elsewhere for tax purposes by moving only a few key executives and maintaining the majority of their corporate staff in their home states.

Some experts say reincorporating in Macau could yield millions of dollars in tax benefits for Wynn Resorts because Macau’s corporate tax rate is 12 percent, far lower than the 35 percent rate or higher paid by U.S.-based companies.

A Macau-based Wynn Resorts would still have to pay federal, state and local taxes on its U.S. operations, but its Chinese casinos — now subject to U.S. taxes — would instead be taxed at Macau’s lower corporate tax rate.

Some industry insiders think Wynn could have longer-range motives for setting up a bigger corporate presence abroad. Some gaming giants are pondering the potential of Internet gambling. To set it up in the U.S., however, they would have to wait for Congress or state legislatures to grapple with competing interests that want to legalize online casinos in different ways, and contend with abolitionists. Setting up an online gambling operation based out of Asia could help Wynn bypass U.S. regulators and put it out of the reach of state regulators.

Wynn also may have personal reasons to spend less time in the U.S., having recently gone through an expensive divorce so he can spend more time with British socialite Andrea Hissom. Wynn has been spotted with Hissom on the French Riviera and on his yacht in the Caribbean, among other non-Nevada locales.

Steve and Elaine Wynn had an amicable divorce, but have been living in proximity at his Las Vegas resort. He could get a lot more personal space in Asia, while Elaine, a major shareholder in Wynn Resorts and a board member, could serve as his eyes and ears in Las Vegas.

At least one financial analyst and Wynn-watcher, Bill Lerner of Union Gaming Group, isn’t buying any of those reasons, however. Lerner says Wynn is bluffing.

“I respect Steve and I’m fond of him but I’m calling (BS),” Lerner says.

In light of Wynn’s tirades against the Obama administration over the past few months, Lerner attributes Wynn’s recent comments about wanting to install a corporate headquarters in Macau as little more than a “passive aggressive” attack on the president and his policies.

Wynn, Lerner says, “has been very visible and vocal on the political front and his threat to move accomplished what he wanted by getting people riled up and underlining his view about the administration as anti-business.”

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