Living large in Macau on Wynn’s dime

April 1, 2013

Casinos aren’t exactly known for minimalism. Nor are many of the people who run them. Even so, the money that Wynn Resorts (WYNN) has lavished on Linda Chen, president of Wynn International Marketing, still seems beyond the norm.

We’ve footnoted in the past about some of the excesses at Wynn (see here and here) and how Chen, who two years ago, got a $10 million retention award, has often been on the receiving end. Still, a disclosure in the proxy that Wynn filed last week surprised even us.

We refer to this disclosure at the bottom of pg. 44:

In May 2010, the Company entered into a new employment agreement with Linda Chen. The term of the new employment agreement is through February 24, 2020. Under the terms of the employment agreement, the Company purchased a home in Macau for use by Ms. Chen and has made renovations to the home with total costs of $9.3 million through December 31, 2012.

Like a lot of disclosures, this one provides 1 key fact: the cost of the renovation. But in order to fully appreciate what’s going on here, you have to flip through several other Wynn filings: first the company spent $5.4 million to buy the home in 2010 as part of Chen’s new employment agreement.  Second, the company spent $2.1 million to renovate the home in 2011 and in 2012, spent another $7.2 million, which gives new meaning to the term fixer-upper. Third, in 2012, the company spent $121,955 to cover Chen’s living expenses in Macau, more than double what it spent in 2011.

In a more perfect world, investors wouldn’t have to build a spreadsheet and flip through multiple filings just to figure out how much Wynn Resorts has spent on Chen’s house. Perhaps Wynn’s attorneys (they’re the ones who typically write these disclosures) felt that laying everything out on the table might be a bit shocking, even if it was buried in the filing.

Given that the average residential unit in Macau sold for roughly $626K in the fourth quarter of 2012, the money spent on buying and fixing up the house isn’t even on the same scale. We should also note that under her employment contract, Chen gets a 10% discount on that potential purchase of the house for every year under the agreement and at the end of the 10 years will be able to acquire the house for free.

To be fair, Wynn’s stock price has gone up roughly 98% since Chen signed that employment agreement, though it’s unclear to us how much is due to executive skill, vs the popularity of mainland Chinese to head to Macau to gamble. In the end, it’s hard for us to imagine how having a plush house, paid for by the company’s investors, adds anything that makes a difference to the casino’s performance.

If only this disclosure were an April Fool’s Day joke!

 

 

 

 

 

Posted in: Benefits, Disclosures

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