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Steve Wynn Discusses How Hakkasan Ate His Lunch, While Eating Lunch

By Chuckmonster on Thursday, 31st October 2013 12:30pm
  » filed under Las Vegas  comments: 20

   

On the recent Wynn Resorts earnings call, an analyst asked Steve Wynn to explain why the Las Vegas properties saw their food & beverage earnings decrease for the first time ever, specifically inquiring if the nightclubs were to blame. In between chomping on forkfuls of his likely vegan lunch, Steve got down to brass tacks about how Hakkasan has eaten Wynn Nightlife Group's lunch.

You just hit your finger on it, you hit it BULLSEYE.

They opened a place down the street called Hakkasan. And they opened a place at Mandalay Bay called Daylight or something else. Cirque du Soleil is involved. So the clubs proliferated. When they proliferated, these guys started paying 80 gazillion dollars to the DJ's as sort of a frantic effort to capture the business.

It is like a lot of the things that happen in the casino business - people go crazy for the top line, and they forget about the bottom line.

We like the nightclub business, as you know. And we've sort of led the parade, I think we still do in terms of profitability. BUT, we turned our back on some of the sort of outrageous disc jockey fees - wonderful guys that they are, and they worked for us a third or a quarter of what they make now.

So we go find new guys, and we find and keep the ones that are really perfect for us.

We protect our bottom line, but we gave up a little bit of our top line because it wasn't profitable. And so you see that reflected in some of the booze numbers from the nightclubs.

So, what else is new right? It's the same thing as when the less experienced casino companies start trying to bribe customers with credit to get them to come - buy the business. Those executives come and go. After they screw up the place, they fire that guy and get the new guy then they settle down.

Look, there's a certain amount of money you're gonna pay a disc jockey and have a business. There's a certain amount of money that you can give in comps and promotional allowances to a customer and still have a business. I hate to say it but those numbers are inexorable, they're undeniable and they live.

There's any number of idiots that will try and pretend that there is no gravity, there is no Monday morning. And that is what is going on in the nightclub scene at the moment. They'll get over it... (snickers)."



Tagged: steve wynn show   nightlife   hakkasan   light group   earnings   





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Comments & Discussion:

Personally, this Wynn shareholder is handing out KitKat bars this Halloween, no snlckers here - meow!!

Not sure if Steve is jealous and needs for Hakkasan to fail or knows that the club market has to die out sometime.

I'm interpreting this to say that the club market has saturated; at this point, joints are spending more to attract that crowd and the result is decreased profitability.

I would think that Steve (my buddy, Steve, we're on a first-name basis) would know that the dollars dropped at a club don't translate to gaming dollars, although it might fill up hotel rooms. That probably works at the Wynn, where competition for space means that the spendy vacationer types get caught bidding up hotel rooms. And Steve knows that a club has to pay for itself; it's not a loss leader.

So, yeah, maybe Daylight has stolen the spotlight, but Steve don't care.

Here's the deal...Wynn was paying the biggest named DJs (Avicii, Tiesto, Deadmau5) about $100,000 per nightly performance. Hakassan offered them $250,000 per night. Let's face it, The Steve is right, you can't pay the DJ $250k for one night and still make the right rate of return, even at $500 per bottle of vodka.

This is one case where it would have been interesting had Wynn not bought the clubs from Victor Drai. Maybe Drai would have paid those prices and Wynn would have still gotten their royalty? Don't know.

So this means Wynn sees the writing on the wall, the decline and eventual end to the hipster nightspots and he'll start a new trend of changing all his casino games to the lowest house edge in bj, VP, roulette etc. once again making Wynn the casino gaming king?
Or maybe not.

Funny thing about Steve, he's great at disguising losses and defusing alarms with charm. If you like him, you take him at face value, enjoy his witty banter and come away with a smile. However once you know that he is as masterful a manipulator as he is a developer, you realize that Steve - generally - is only going to tell you the version of the truth that suits Steve's interests.

This is why I found this quote worth transcribing and posting without comment. It is textbook example of Steve's truth. He's a ruthless businessman, most of the tenets he espouses are true, however in this example, he hasn't done the math - Hakkasan has made up the DJ cost increase by upping bottle service prices +35% and building a much larger club.

Profit = butts (units of booze x margins) - cost

So Steve snickered his way into making it seem that the new clubs are going to go bust in a few years when they realize they can't make their nut. Barring scandals or forced closures, history tells us that nightclubs fall from the bottom first, usually closed to make way for a new version of same thing in the same spot.

If Steve's theory proves right the new clubs will have to cut costs to make the numbers work, renegotiating DJ contracts and/or replacing the lower performers with lower cost performers ready to be promoted to the major leagues. You'll know this is true when the big name DJ's abruptly defect Hakkasan & Light and head back to Wynn.

Nice Chuckmonster, what an intriguing bit of rambling from the big guy! Where you're wrong is in your comment when you note that Hakkasan has made up the costs by upping the price and building a larger venue. Well sort of, all of the top tier venues have raised the price, Hakkasan isn't alone in that and while those six-figure menu packages are great for Holy Sh*t internet activity they aren't being bought on a frequent basis. Size-wise its about the same as XS, Surrender, Marquee with less tables if you take the outside decks of those venues into account.

The Hakkasan model was never economical and there was hardly a motion to pretend it would be when the opening hubbub was "financed by a sheik who was treated so badly by XS/Wynn that he doesn't care and will lose all his money to say FU." From all accounts, the top line revenue is there buoyed by bloated DJ contracts that are attracting the kids and the high rollers who want to pretend they are still kids, but the inevitable questions remain: will the bottom line revenue be there and no matter how rich said sheik might be, does he really not care about being paid back?

At the end of the day HakkaSteps isn't a very well designed venue, has a terrible location in a resort with a relatively mediocre guest. If it has half the longevity or history of profitability of XS then Steve is being typically self-focused but is there anyone that actually anticipates that happening? Looking ahead, the more intriguing prospect is the return of Victor Drai and what that means for Wynn Nightlife's reaction to further saturation of the market, but that's another discussion for another time.




When Hakkasan opened with $150M committed to construction, DJ contracts and marketing the message was well a rich sheik will only put up with so much

Supervegas - do you have hard numbers for room capacity for both hakkasan and xs? i searched and couldn't find anything. seems to me like it is probably at least 2x the size of xs and has multiple floors as well. would love to see actual capacity and straight bar menu prices.

I have the following, unofficial statistics:

Hakkasan - 65K square feet, legal capacity of 3K and 125 tables. Keep in mind that both Ling Ling (lower) and the mezzanine are not full floors.
XS - 45K square feet, not counting the pool deck which has to be (at least) another 20K of usable space - maybe even double that, legal capacity of 3K and 175 tables which would have to include the full outdoor deck, all pool cabanas, etc.

At last check, both priced out at $16 for an ultra-premium vodka cocktail.

SV - What i'd do to have access to the actual numbers and quarterly reports of Hakkasan, Light and XS.

I've never believed the "some Shiek is throwing his money away to get back at Wynn" storyline. Hakkasan is a chain of high-end restaurants in cities ranging from Mumbai to San Francisco, and they partnered with the same outfit that bought out the Pure group and runs a whole bunch of nightlife options in town. MGM used to be attached to the hip with Light Group (remember when they were going to get their own hotel in The Harmon?) but since Angel Management bought out Pure you've seen MGM giving them more spaces, too. Pure wasn't the most credible ownership, you might remember they were stuffing money in the LAX ceiling, so I'm sure MGM was grateful to see a partner they weren't fond of be bought out by someone new.

I can see Light 2.0 and Hackeysack having a hit on XS/Tryst, although his claim that DAYLIGHT is beating Beach Club makes me laugh. Has Steve been over there and seen it? They hastily did some work on the edge of the convention hall parking lot by the southernmost entrance. Sure, maybe on the inside it looks like it's the beach if you a squint a little, but on the other side of that eight foot high concrete is conventioneers.

Chuck - I honestly have no idea.

Min - Hakkasan Nightclub is not owned by the same ownership group as their international restaurants, although the owner of Angel is involved in their expansion moving forward. MGM did the Hakkasan deal because their capital contribution was zero. In fact, you will see WET Republic become Hakkasan Beach within the next two seasons. Oh snap, that's breaking news right there! MGM isn't exactly moving in with Angel either though, remember they just gave all of Mandalay to the Light Group and is doing bar deals with sbe for The Park. Pure also wasn't bought out as had all of their management either cut and run or raided by the IRS, its also in a Harrah's turned Caesars Entertainment property not MGM.

Whoops... too fast on the new keyboard.
"It is like a lot of the things that happen in the casino business - people go crazy for the top line, and they forget about the bottom line".
I agree there is a lot of Flambe'

Probably the only certain thing we know is that Steve is the only person in Vegas that uses the term "disc jockey".

@SuperVegas - the size difference is actually a bit more dramatic, even if you factor in the pool addition at XS and the vibe dining inside of HK.

XS: 13k sq ft club, 27k sq ft pool deck = 40k. (source galavantier.com)
Hakk: 77,190 sq ft. (source nevadacontractors.org)

@Chuck - I think your Hakkasan number is dead-on because the restaurant being 12k and the nightclub 65k makes some sense. However, the entirety of XS and their ability to utilize the entire pool deck absolutely gives them more than 40K. I like what Galavantier is doing in the online travel space but not really the gospel of accurate architectural information I'm sure you'd agree.

@SV yes. I agree. but they probably got the number from some where. they have 80k for hakkasan.

how often does the pool deck get filled at XS? even during cold weather too?

For whatever it's worth, most references to the square footage of XS is "more than 40K" (with some saying 13K and the 27K pool deck, and a couple of references to 16K), while Hakkasan square footage is always reported at 80K.

If XS could use much more than 27K of the pool deck, we'd probably see it in the numbers reported.

Huh, should have looked a bit closely at the search before posting. Found this link for the 16K interior square footage:

http://mobile.xslasvegas.com/private-parties/fact-sheet.html

Nothing said about the pool deck size, but I'd have to guess that if Steve could get to 50K square footage in total, he'd have those numbers out there instead of the 40K+ that exists.

All i know is that when I walked past Hakkasan to get across to Trop there was a big line that I didn't see when i started my trek back to the room at Wynn. Is there a saturation point, yes but as long as 20 year olds can drive to Vegas from California they will always seek out the hot club. Will that last? I doubt it.



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