Casino Operator Not Willing To Bet On This Economy

Casino magnate Steve Wynn caused a stir yesterday during a conference call with investors when, while answering during an analyst’s question, blasted the Obama administration for being “the greatest wet blanket to business, progress, and job creation in my lifetime.” The rebuke comes not from a member of the vast right wing conspiracy, but from a self described “Democratic businessman”, strong supporter of Senate Majority Leader Harry Reid, and someone who maxed out to the presidential campaign of Vice President Joe Biden.

Wynn went on what The Politico calls an “extended rant against Obama and his policies”, decrying the lack of certainty in taxes, regulation, and health care in the current U.S. business environment, blaming the climate for businesses sitting on cash rather than investing to create jobs. Wynn knows a few things about creating jobs. His company, Wynn Resorts International, was founded less than a decade ago yet has over 20,000 employees and has about $3 Billion in revenues.

The only things said to be certain in life are death and taxes, and neither frustrated businessmen nor policymakers are looking to the government to provide a perfect environment where all answers are pre-determined. Yet the constant rule changes, tax changes, and evolving requirements for employers have created an economic environment where uncertainty increases risk. Increased risk mandates an increased return on proposed investments. If higher returns are not feasible, an investor is wise to sit and wait for a better investment, or for more certainty to minimize the risk level appropriate to the return offered.

A national climate where the two major political parties are sharply divided on economic policy and trade majorities every 2 to 4 years does not help the problem. Employers forecasting heath care costs have no idea how Heath Care Reform will actually be implemented, or if it will be ruled unconstitutional or repealed by a future Congress. The debt ceiling debate has cast doubt on the short term and long term stability of financial markets. And both parties are beginning to discuss “comprehensive tax code reform” though neither side is close to an agreement of what that concept would look like in reality. There are a lot of reasons a prudent investor with capital to invest will sit on the sidelines and wait.

On a more local level, economic uncertainty also drives local investment decisions. Gulfstream and its 10,000 Savannah based employees await whether tax code changes to make rich folks pay more will actually impact working Georgians who have enjoyed more aircraft orders to complete since aircraft purchase stimulus was added. Companies looking at investing in a $50 Million private jet will certainly stall signing their order until they can fully understand how much of the burden they will bear for the great compromise that will inevitably come from Washington.

State decisions and inaction contribute to Georgia’s uncertain business climate as well. Georgia Power is still attempting to seek final approvals and cost recapture methods on its two new nuclear reactors at plant Votgle, yet has also announced that it will decommission 3 coal powered plants in the next few years because upgrading to changing regulations passed down from D.C. are cost prohibitive. Georgia has long had one of the most reliable electric grids with the cheapest rates, helpful in attracting large industry. With this not necessarily an economic certainty, recruitment of businesses dependent on large amounts of electric power requires extra effort for added uncertainty.

Georgia’s transportation infrastructure remains on the verge of gridlock around Atlanta, yet state leaders chose to punt the decisions on what projects to build and how to pay for them to voters, adding years on inaction to the process, and creating a system where even the ratification of the plan is in serious doubt. It is significantly less than certain that Atlanta’s traffic grid will be facing significant improvements come winter of 2013, and companies seeking to re-locate here will be taking note.

With any private sector investment, there will always be an element of risk. Government, meanwhile, should not be focused on creating jobs, but creating a stable climate which minimizes uncertainty and fosters a climate of risk. When a man who has become a billionaire in less than a decade as a casino operator says there’s too much risk, the country should listen. After all, you can’t have Steve Wynn’s record of success without understanding what is and what is not a safe bet.

22 comments

  1. blahblahblah says:

    I get a kick out of these articles that decry the plight of business in the face of the Obama administration. I’m sure there is much truth to them and how his policies have not done what others before him managed to do. But who of us has such security anymore? When any of us face being terminated at any point when we are no longer an asset, when a job in high demand this year is outsourced before the next decade, risk is something we’ve learned to accept. As a free market type, I accept this. It’s just business. Business is full of risk. Perhaps we need more folks willing to take risks.

    • Baker says:

      Dear blahblah-

      I think you missed the point. When the rules are always changing and the end zone keeps getting further out, it’s very difficult to plan out the future of your business. As destructive in the long run as I think some of these policies are, I believe in the short run, the uncertainty created is more damaging to business. The whole point of the freaking govt is to create a stable environment in which to do business so that all of are able to take those risks based on estimated guesses of the market, but it’s much harder when the govt itself is bouncing around the market rules. All of that exists outside any thoughts of trade policy and outsourcing.

    • blahblahblah,

      Perhaps we need more folks willing to take risks.

      There are reasons that people will not risk their capital under this administration. Chief among those reasons is that our President has demonstrated both his economic incompetence and his devotion to ideology a multitude of times.

      And, with due respect. there is a difference between the risk level of being an employee and the risk level of investing everything in starting or expanding a business.

  2. Three Jack says:

    before his next tee time, obama should appoint wynn as his economic recovery czar then hit the links and just stay out of wynn’s way.

  3. Casino and hospitality based businesses have far more to worry about from a recession-prone economy than most, since they depend far more on the disposable income of Americans than, say, your local date-night restaurant. Thing is, without Obama, you’ve got the exact same problems to deal with. Our economy is in the process of accepting and adjusting to some hard realities and our politics are running out of ways to cover up that fact. Americans don’t have as much money to spend on the goods and services “job creators” like Wynn expected us to.

    You’ve got it right that the instability in government at all levels can cause this type of uncertainty on the part of businesses. That’s what happens when so much of your national, state, and local economies are based off subsidies and tax loopholes and regulatory capture. That’s what happens when so many of your businesses – like casinos and major hospitality centers – are unable to get the favorable zoning, tax deals, and regulatory capture they’ve grown used to. All of that sets the economy up to become more vulnerable to political winds shifting.

    Add to that the fact that Wynn’s market studies are telling him that Americans won’t be able to patronize his establishments at the levels he needs us to do so in order to turn a profit, and his frustration is understandable.

    • Thing is, without Obama, you’ve got the exact same problems to deal with.

      Yes, but he is the main opponent to a market-based (i.e. workable) solution. President Obama inherited a bad economy, but his policies have made the situation worse and there is no signal that he has learned anything from his failures. As the train hurtles off the cliff he’ll be right there, desperately shoveling coal into the firebox and wondering why the train sped up instead of stopping.

      • Riiiight. Because of all those other market-based solutions we’ve seen over the years? One partisan’s “market based solutions” are another partisan’s “pork,” or these days “socialism.” The definition for all three boils down to: “my connections get the subsidies, tax loopholes, regulatory favors, and zoning variances, and your connections don’t.”

        Stuff like that distorts any “market” or “free enterprise” system we like to delude ourselves into thinking we have (or ever had). It is easy to cast stones while imagining that someone else might have led us to a different result, but the previous administrations, and the previous behavior of the states, counties, and municipalities show that we were headed here whether we like it or not.

        And until people, businesses, and developers figure out how to live within their own means – because until they do the governments damn sure aren’t – you’d better grab a Snickers bar because we ain’t goin’ anywhere for a while.

        • I don’t think you have seen me argue for “crony capitalism” and urge tax breaks for particular businesses or industries so I don’t know why you assume that people who want smaller government want more “pork”.

          So, Cousin Pat, I think based on the evidence (unemployment, deficits, his personal continued jawboning AGAINST the American economy and American business) that President Obama doesn’t know beans about the economy or how to deal with our current problems. He’s Aesop’s dog in the manger who can’t eat hay (provide economic ideas that work) but won’t allow the ox admittance so that he can.

          • I don’t think you have seen me argue…

            No, not you specifically. For all I know, you could be the one guy who is actually opposing Obama due to deeply held policy differences.

            But you’ve talked about “market based solutions” and “small government,” terms which, in my experience, are terms usually reserved for use by individuals who don’t actually want those things as much as they desire the acquisition of political power or the advancement of political narrative. In my experience, such terms are used to cover up the actual and very basic problems facing the economy.

            That problem, getting back to the topic of the thread, being that “job creators” like Wynn aren’t “getting into the market” because Americans don’t have the disposable income required to provide them with the return on investment they need to be profitable. And those Americans who do have that type of disposable income are able to get better deals on products and services due to market oversupply.

            Wynn can’t open up a new casino and resort in Nevada and California for the same reason it is difficult to sell houses in both of those places – you have more product than you have buyers, but no one wants to lower costs to more sustainable levels and take the short term loss that would create. Not only that, but he’s now competing with Mississippi, Louisiana, and a host of Native American establishments that also have resorts, golf, and might be closer (and cheaper) options for the limited American vacation/event dollar. And due to the economic contractions, he isn’t getting the same subsidies and favors he’s used to from the states in which he does business. His complaining about this administration is akin to Detroit complaining about Georgia getting a KIA plant, Washington State complaining about Charleston getting a Boeing facility, or Borders Books complaining about online book sellers. The complaints have much more to do with competition cutting into overextended market share at the same time anti-market protections of the status quo are harder to come by.

            But saying “BOO, Obamacare!” is much easier to do.

            For these reasons, I again put forward that the unemployment and deficits our nation is currently experiencing would exist regardless of who occupied 1600 Pennsylvania Avenue and regardless of what that occupant would be saying in front of the cameras. The problems existed long before Obama, and they will exist long after Obama has left office (whenever that may be).

            • The current administration has made predictions based on its economic model (keeping unemployment below 8% being the most infamous) and they have failed. Using a theory as a predictor is a good measure of its accuracy, especially when the proponents themselves make the predictions. Their models do not work.

              Cousin Pat, if I listened solely to you I could easily arrive at the conclusion that any president’s fiscal policy had negligible impact on our economy. I don’t buy that.

              Wynn, who is a Democrat incidentally, is complaining specifically that President Obama frightens potential investors and business people with his continual threats of “redistribution” and his attacks on business in general. Wynn is accurate and the President’s anti-business rhetoric and anti-business threats hurt the economy in all 50 (or 57) states, not just Nevada and California.

              It’s not just that Obama is not helping to fix the economy, his policies are actively making the economy worse.

              • Using my own theories and models, I made some predictions about UGA’s 2009 and 2010 football seasons, too. They didn’t turn out exactly as planned. That’s why I tend to take “predictions” with a grain of salt, because theories and models oftentimes run up against something called “reality” that often wins the day.

                Lest we forget, Hurricane Katrina was projected to hit Pensacola, the levees were projected to meet design specs, and American soldiers were supposed to be “welcomed as liberators.” You’ll have to pardon me when I ascribe lower value to a prediction that misses the unemployment rate by 2%.

                I think Presidents can have much more than a negligible impact on the American economy. I also think that the President’s imact is only one part of a massive, chaotic whole, dictated directly and indirectly by situation, state policies, municipal and local policies, technology, past policies at all levels, culture, the spending habits of the American people, the spending habits of small business, the spending habits of big business, and the lending practices of banks. I think the expectation that an American President can control or impact all of that to the point where they “own” the economy is nothing short of unhelpful oversimplification.

                Because if the economy is getting worse, how is it that so many investors and entreprenuers are opening up (or trying to open up) shop in New Orleans, maybe the most anti-free enterprise municipality in North America? Why is it I can’t get a seat at Southern Soul BBQ, Sal’s Neighborhood Pizzeria, or Crabdaddy’s on St. Simons Island because the lines are out the door? Sanctuary Cove in Camden might have had to close down when the bubble burst, but chose instead to bottom out their prices and offer killer deals; now they’re probably the best golf value in Coastal Georgia. Wynn’s political affiliation doesn’t matter one whit – he’s angry because there isn’t a market for what he’s selling where he wants to sell it at the price he wants to sell it for.

                But you don’t have to buy it if you don’t want to, that’s OK. Reasonable people can hold reasonable disagreements on such matters.

                • Using my own theories and models, I made some predictions about UGA’s 2009 and 2010 football seasons, too.

                  There is a difference. You didn’t promise a 10 – 2 season if Mark Richt let you manage the team. President Obama and his administration promised to keep unemployment under 8% if he was allowed to enact his economic plans and spending. He failed. He failed because his economic analysis is based upon theories long disproved to anyone paying attention (See Jimmy Carter, Phillips Curve, and Keynesian economics).

                  • benevolus says:

                    That’s pretty funny. As if the economic crisis was caused by too much regulation of bank loans!

                    • Too much regulation? No, but too much interference through Fannie Mae and Freddie Mac.

                      What’s funny is the abdication of responsibility of decisions by Democrats – and the ambivalence to spending more money than we have.

                    • Ah, the Fannie Mae and Freddie Mac Monsters. I put them in the same area as “BOO! Obamacare!”

                      Shady practices on the part of those two groups doubtless had a major impact on the real estate bubble. But I grew up in Coastal Georiga, and I watched plenty of private banks loan millions of dollars to developers so they could construct more luxury homes and condos than they had a market to support. Same thing happened when I was in Athens for college, and banks loaned millions in developers so they could construct more student off-campus housing than UGA had undergraduates.

                      That house of cards finally fell down because there were more units than there were buyers, and when supply far outstrips demand, prices fall. Unfortunately, the banks and developers were as all-in as Auburn fans by that point, and figured out they’d paid too much money for the goods they now had to liquidate. And if it was that bad in Athens and St. Simons, I can’t imagine how bad it was in Atlanta, Florida, Nevada, or California where banks not named Fannie Mae or Freddie Mac really went nuts on real estate.

                    • Ah, the Fannie Mae and Freddie Mac Monsters. I put them in the same area as “BOO! Obamacare!”

                      “Alex, I’ll take subjects Cousin Pat does not wish to discuss for $1000.”

                  • saltycracker says:

                    K ‘n E

                    Lots of Keynesians are pretty pissed over the waste of QE as most of the money didn’t go to increasing consumption, like building infreastructure, it went into bank accounts, to pay down things or to cover losses…..and whatever went to consumption was so weak to scare folks even more…..
                    $1.5 trillion for nothing…..

  4. Cassandra says:

    The question is not shall we send the Great Mocha Hope packing in 2012, rather the real question is who has the needed skill and ability to accomplish the many sound ideas presented to save the US from a ten year slide into a financial abyss.

    I suspect that Mitt will be the least likely to lose to POTUS, and he doesn’t impress me as a “Cut, Cap, and Balance” kind of guy.

  5. saltycracker says:

    C,

    Well said and oft expressed to deaf/dumb ears. Capital and consumers abhor governmental uncertainty. The game is complex enough and smart folks will stay on the sidelines until rules (predictability) are established. Fluid rules are for tyrants, fools, crooks and amorals.

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