No-Wynn Situation Looks a No-Win for Investors

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Is Wynn without Wynn now a winning bet? Not quite. Investors will be wise to wager elsewhere.

For the moment, investors seem to be hoping things will soon go back to normal at

Wynn Resorts
Ltd.


WYNN -1.81%

following Las Vegas impresario

Steve Wynn’s

departure as chief executive. A surge in its U.S.-listed shares on Wednesday recouped around half of the stock’s losses since The Wall Street Journal first reported allegations of sexual improprieties against the gambling tycoon late last month.

But many uncertainties remain. Mr. Wynn was known to be hands-on with the company’s day-to-day operations. Though the executive team taking over has been around Wynn Resorts for years, the founder’s departure poses significant risks.

Regulators still have their eyes on the company, of which Mr. Wynn still controls more than 20%, including his ex-wife’s stake. Nevada statutes require that anyone who holds more than 10% of a casino company must be licensed and is subject to ongoing suitability reviews.

There are also concerns about the underlying business. Almost all of Wynn Resorts’s growth over the past two years has come from its Hong Kong-listed subsidiary

Wynn Macau
,

of which it owns 72%.

High-rollers from China have started streaming back to semi-autonomous Macau, the only place in the country where casino gambling is legal. Shares of Wynn Macau have more than doubled since August 2016, when it opened the $4.4 billion Wynn Palace in Macau, a 1,706-room resort-casino.

But new casinos are coming to challenge Wynn. The $3.4 billion MGM Cotai—which sits opposite of Wynn Palace—will open Feb. 13. The Grand Lisboa Palace, owned by Macau’s

SJM Holdings
Ltd.

, will likely open next year.

Wynn Macau already generates almost twice as much profit per table there as the industry average, according to Goldman Sachs. That’s impressive, but means it will struggle to increase its future profits as quickly as its Macau rivals.

Wynn Macau’s reliance on Chinese high-rollers could be a double-edged sword. The company generates a around 30% of its earnings before interest, taxes, depreciation and amortization from VIPs, according to Morgan Stanley—higher than its competitors. But revenue from high-rollers is notoriously volatile. In 2015, China’s anti-corruption drive drove down VIP gambling revenue by 40%.

Buying the dips following the allegations against Mr. Wynn may work for now for investors. But as a longer-term gamble, Wynn Resorts will likely be found wanting.

Write to Jacky Wong at JACKY.WONG@wsj.com



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