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    MARKET EDGES

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The Street tends to be way off on its Macau estimates for a variety of reasons. Direct play is an important missing variable in their models.

Direct play is better than junket play.  That is a fact for the Macau operator.  If Wynn Macau/Encore could convert the 85% of its VIP business that is junket-related to direct play, it would result in an incremental $280-325 million in EBITDA.  Obviously, if it was that easy, a smart guy like Steve Wynn would’ve already done that.  The point is there is a lot of margin out there to capture given the 0.4% to 0.5% spread between the junket commission rate and the direct player rebate.

With the opening of the predominately direct play Encore, Wynn is poised to grow its direct play business from 10% to 13%.  That number should grow over time as should Wynn’s margins.  Wynn still falls behind LVS in terms of direct play market share but directionally, Wynn (thanks to Encore) and MPEL are moving higher while LVS’s share is declining.  LVS share should ramp back up when Lots 5 and 6 finally open.  The following chart details direct play market share by company.

DIRECT PLAY – A NECESSARY MODELING VARIABLE - DIRECT VIP1

To look from a different perspective, we also track the amount of direct play volume as a percentage of total Rolling Chips (VIP volume).  LVS remains the market leader here but MPEL and Wynn look like they have the most to grow.

DIRECT PLAY – A NECESSARY MODELING VARIABLE - DIRECT VIP2

Direct play is an important factor in determining margins in Macau which is why the Street seems to be consistently off in projecting EBITDA.  Other important details that some on the Street fail to model separately are Mass vs VIP, both volume and hold, and junket commission rates.