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"The Revenge Of Steve Wynn"


At the hiring office for the new Wynn Resorts Ltd. (WYNN) casino in Las Vegas, parking lot attendants carry flashlights to direct applicants like jets on a busy runway. Arte Nathan, Wynn's human resources chief, says he has 108,700 applications for 10,000 jobs. Two thousand offers have gone out to employees of rival casino operator MGM Mirage Inc. (MGG), which has banned Nathan from setting foot on its properties.

The hiring boom is just the latest salvo in what's shaping up to be the biggest casino war Sin City has ever seen. On Apr. 28 industry legend Stephen A. Wynn will open the first new resort in five years on the Las Vegas Strip. At a cost of $2.7 billion, Wynn Las Vegas will be the most expensive casino in the world, boasting features such as a three-acre man-made lake, a Maserati/Ferrari dealership, and the Strip's only golf course. Wynn, 63, will be competing head-to-head with MGM, whose largest shareholder, Kirk Kerkorian, snatched Wynn's Mirage Resorts Inc. away from him in a hostile takeover five years ago. "It's going to be the revenge of Steve Wynn," says Anthony Curtis, publisher of the Las Vegas Advisor, a newsletter for gamblers. "He has put everything into showing he's the guy who makes the best resorts in the world."

Wynn began plotting his comeback just a month after agreeing to sell Mirage Resorts, when he plunked down $270 million to buy the old Desert Inn. In the past, Wynn's credo was bigger-is-better, but the new property is designed to be more intimate. With 2,700 hotel rooms and 111,000 square feet of casino space, it is about a third smaller than rivals such as the Bellagio, the Venetian, and the MGM Grand. And Wynn has learned from miscues at his other properties. The hotel's centerpiece will be a multi-media light-and-water show over the lake. But unlike attractions at other properties he has designed, the view from the street is blocked by an 18-story man-made mountain; to enjoy the spectacle, you have to eat at a restaurant or book a room.

THE BACCARAT BUNCH

Wynn has already begun an extensive marketing campaign. He has opened sales offices in 13 cities, many of them in Asia, and cut a cross-promotional relationship with Société des Bains de Mer, a publicly traded company majority owned by the principality of Monaco that runs the casinos there. Wynn also ran TV ads during the Super Bowl and the Oscars. They featured a grinning Wynn standing atop the new hotel proclaiming it "the only one I've ever signed my name to."

Wynn's timing couldn't be better. With MGM in the process of merging with Mandalay Resort Group (MBG), and with Harrah's Entertainment Inc. (HET) buying Caesars Entertainment Inc. (CZR), he'll have his pick of top managers at the outfits being acquired. By targeting high-end players with fancy new suites and baccarat tables, Wynn is likely to siphon off as much as $75 million in cash flow from MGM, says J.P. Morgan Securities Inc. (JPM) casino analyst Harry C. Curtis. Harrah's, which traditionally targets middle-market gamblers, may reduce the focus its new flagship Caesars Palace places on high-end customers, creating more business for Wynn.

In public, rival casino operators say that new properties are good for Vegas because they create more reasons for people to come to town. Behind the scenes, however, they compete fiercely for the kind of gamblers who feel comfortable betting $10,000 or more per hand. MGM may already have launched its counteroffensive. "They're throwing tons of events, shopping sprees, baccarat tournaments, fishing trips," says Steve Conigliaro, an independent businessman who hosts high rollers at various casinos. "Steve Wynn is going to take some business away. He knows what people like."

Wynn's reputation is that of a man obsessed with details. Daniel R. Lee, who served as chief financial officer at Wynn's Mirage Resorts and who now runs casino operator Pinnacle Entertainment Inc. (PNK), remembers Wynn criticizing what Lee thought had been a well-executed annual report. "He told me there was a split infinitive on page 23," recalls Lee, who immediately corrected the error at a cost of $9,000. After Lee told his boss, Wynn replied: "When you're close to perfect, why wouldn't you try for perfect?" Wynn declined to be interviewed.

As Wynn found out, though, such standards can be costly. He lost control of Mirage largely because investors grew unhappy with his prodigious spending on projects such as the $685 million Beau Rivage Hotel & Casino in Biloxi, Miss., and on a $200 million corporate art collection. Shades of those days are already apparent at Wynn Las Vegas, where design changes such as a second theater added $300 million to the original budget. But this time around, Wynn and Japanese businessman Kazuo Okada control almost half of the stock, making it much harder for institutional investors to influence his decisions.

Wynn already has his next projects cued up: a $700 million casino opening next year in the booming Chinese market of Macao and an even more exclusive, $1.4 billion casino, dubbed Encore, next door to his Las Vegas property. Such high-end resorts rarely earn outsize returns. UBS Securities LLC casino analyst Robin Farley noted in a report last year that the average Las Vegas Strip casino returned just 13% on capital -- about what Wynn Las Vegas is projected to earn in 2006. Lower-budget properties such as Mandalay's Excalibur and MGM's New York-New York earn above 20%.

Still, investors, enthralled with surging Vegas tourism and the even hotter Macao market, have bid Wynn shares up fivefold since their initial public offering in October, 2002. At a recent share price of $68, Wynn's 25% stake is worth nearly $1.7 billion -- six times his investment. Everyone likes to be with a winner.

Corrections and Clarifications

In "The revenge of Steve Wynn" The Corporation, Apr. 11), we said that a $300 million increase in the budget for the Wynn Las Vegas hotel and casino could become a concern for investors. We should have included comments from Ronald J. Kramer, president of Wynn Resorts Ltd., who said that the increase resulted from the addition of revenue-generating facilities. Kramer adds that those changes had been contemplated since the start of the project.

By Christopher Palmeri in Las Vegas


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