Casino giant Wynn Resorts (NAS: WYNN) recently received government approval to build its resort-casino in the hot market of Macau, adding to the gambling destinations in the much-in-demand Cotai Strip. Here's how it'll go down.
Wynn Macau, a subsidiary of Wynn Resorts, will pay $193.43 million to the Chinese government for the use of land to develop the resort. This 51-acre development will include entertainment and retail properties, such as casinos, resorts, stores, and spas. The company will pay $1 million annually in rent for this land, and the project is expected to be completed by late 2015. This deal is valid for 25 years, with the right to renew on expiry.
Over the past year, shares of Wynn Resorts have soared 67%, mostly owing to its Asian business -- a larger contributor to the company's revenue. Wynn, which already operates two casino resorts in Macau, will be adding 500 game tables and 1,500 rooms along with other amenities in this new one.
This will enable the company to grow further in the expanding Macau market. However, Wynn is not the only player digging in this gold mine. Las Vegas Sands (NYS: LVS) is opening a new casino in the Cotai Strip next year, and Melco Crown Entertainment (NAS: MPEL) plans to start developing its Cotai property soon as well.
Despite the lucrative looks of this new development, I'm worried. -- not just about the competition in the Cotai casino market, but also about the labor problems Wynn might face. The company will soon start land development in the already crowded labor market, with competitors doing the same. This growing labor demand could cause an increase in labor prices, and perhaps even a labor shortage.
So will the company go slow with its construction in light of a possible labor shortage, or will it pay higher labor prices to complete its project and start operating its casino as soon as possible? In this case, either Wynn enters the market late and loses a part of its potential market share, or it pays higher labor prices to start operating as early as possible.
With $1 billion in cash on its books, it seems more likely that Wynn will manage to cope with the issues. Wynn also has a slight edge over competitors MGM Resorts International (NYS: MGM) and SJM Holdings, as they await government approval for property development.
The Foolish bottom line
Overall, the future of the gambling industry looks quite bright. Wynn seems to be making good progress in Asia. Even though the company might face competition, it seems well-positioned to make profits from this vast market. Fools, keep a close eye on this stock.
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At the time thisarticle was published Navjot Kaur does not own shares in any of the companies mentioned in this article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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