LAS VEGAS — Hunched over a drafting table in a high-roller suite at the shuttered Desert Inn, Steve Wynn is working on his comeback. Three years after his empire was bought out, the man widely seen as the architect of modern Las Vegas is getting ready to roll the dice once again.
Now, there's more riding on it than the return of a former mogul. The Las Vegas casino business is in a funk. After a lackluster holiday season caused two major hotel companies to slash fourth-quarter earnings estimates in half this month, the four biggest casino companies have lost more than $1.8 billion in market value over the past two weeks.
America's gambling capital is struggling to entice customers who are cutting back on travel and gambling because of the tough economy. Some say Wynn and his new project, Le Reve, or "The Dream," are the best hope for restoring the town's luster.
Twice, Wynn has launched properties that were considered revolutionary. Bellagio in 1998 was the first super-luxury attraction with Prada, Armani and fine art. The Mirage in 1989, with its erupting volcano, sparked the era of mega-casinos, complete with entertainment, restaurants and shopping all in one place.
Both tapped into families and curiosity seekers who hadn't considered going to Las Vegas before.
After building up Mirage Resorts Inc. for 27 years, he lost the company in 2000 to rival Kirk Kerkorian. Now he has launched Wynn Resorts Ltd., pitting himself against his own former casinos.
With Le Reve, set to open in April 2005 at an estimated price of $2 billion, Wynn has an entirely new tactic: He's aiming for a new crowd — younger, more-affluent business travelers who were once disdained in Las Vegas because they didn't gamble much. Now, as hotels search for new growth, their expense accounts and ability to fill rooms midweek are more appealing. At 60, Wynn is still indulging his penchant for personally designing details of his resorts, even as he struggles with a degenerative eye disease.
Anticipation of his return has already helped set off an arms race among rival casinos to head off Le Reve with bigger suites, cooler technology and private high-roller rooms. Despite flat visitor arrivals and pressure on their margins, Bellagio, Mandalay Bay and the Venetian are erecting $825 million in super-luxury hotel towers and other improvements.
In the business market Wynn will also be squaring off against Mandalay Resort Group. Its Four Seasons hotel, with a private entrance and plush rooms, is a popular destination for business travelers. It also draws conventioneers to the company's nearby array of lower-priced properties. "We own the business traveler," boasts Glenn Schaeffer, Mandalay's president.
Wynn has closely studied Mandalay's success. He's mimicking aspects of the Four Seasons by creating a separate section of 300 luxurious suites with a private front desk. To draw convention business, each of Le Reve's conference rooms will have windows overlooking gardens, water or the resort's 18-hole golf course — the only course left on the Las Vegas strip.
Beating the Four Seasons will be a test of Wynn's design skills. Le Reve is going up at the shabby north end of the Las Vegas strip on the site of the former Desert Inn, where Howard Hughes hunkered down for his final, peculiar years.
Across the street is the no-frills Frontier casino, which beckons gamblers with a $13.95 fajita feast. To block it out, Elaine Wynn sold her husband on building a landscaped mountain between the casino and the Strip. Working at their home outside Las Vegas, the Wynns sketched out a high-tech pile of concrete and steel that will include waterfalls and fog.
Behind the mountain, Maserati and Ferrari dealerships and posh restaurants will aim to lure high rollers and the middlebrow alike. The 2,700-room hotel will feel small and "cozy," says Wynn. Its high, narrow, arc-shaped tower will minimize walking distances. Its 620-square-feet rooms will come with plasma-screen televisions in both the bedroom and bathroom.
"I want to resonate with 30- to 35-year-olds," Wynn says. "Bellagio was designed for an audience that was mature. Le Reve is a navy blue blazer with jeans. But it's cashmere and Armani."
Wynn has managed to raise $2.6 billion, including private investments and a stock and bond offering last fall that raised less then he hoped. He had a tough time selling investors on his new venture. Some say they were turned off by his history of loose corporate governance and lavish spending. Bellagio, with marble floors and ornate lighting, cost $1.8 billion. "He's over the top. He overspends," says Ron Baron, who as chairman of Baron Capital Management Inc. has known Wynn for decades and is a current investor.
Wynn started out running his father's East Coast bingo parlors alongside Elaine, who he met on a blind date at the age of 18. At Mirage, he kept a luxurious company-owned apartment in New York, traveled on company jets and spent an estimated $400 million collecting fine art for Bellagio.
When Wynn overspent his budgets on Bellagio and a disappointing Beau Rivage venture in Mississippi in 1998, he alienated analysts and investors by chastising them for their short-term outlook. Mirage shares plunged and didn't recover. One evening in February 2000, Kerkorian called Wynn at home to warn he would receive an offer letter for the company.
Within two weeks, Mirage Resorts was being folded into Kerkorian's MGM Grand Inc., creating the giant MGM Mirage. Elaine Wynn calls the forced sale "character-building." "Steve was sad," she says. "It's made me realize that nothing is forever. You have to know that every day, something can happen to change your life."
At the time, Wynn proclaimed that he would never again run a public company. He now insists that he wanted to sell. "I was bored," he says. Still, before the books closed on the sale, he had cut a deal to buy the Desert Inn for $270 million — about half of the $500 million he would make selling his Mirage shares.
Wynn now admits he "had strategically mismanaged" Mirage, of which he owned 12 percent. "I didn't own enough of my company," he argues. "I was a passenger on a train." This time around, he controls 31 percent of Wynn Resorts. He further limited the influence of outsiders by selling another 31 percent of the company to Kazuo Okada, a Japanese gambling-machine maker who sits on its board.
Wynn has also built takeover protections into the company's bylaws. Common shareholders are barred from calling special meetings but cannot take action without a meeting. And directors can issue "blank check" preferred shares, or additional shares, to thwart any takeover attempt. Most of Wynn Resorts' board members are associates of Wynn in some way. They include Elaine and his brother Kenny, both of whom are Wynn Resorts executives.
Still, Wynn pledges his new company will "be a case study in corporate governance." He has countered spending concerns by leasing his art collection to Le Reve for $1 a year and he is rebuilding relationships with analysts he'd alienated. "There are a lot of people who are like, 'Oh, now he wants to see all of us,' " says Robin Farley, an analyst with UBS Warburg.
During the road show in October, fund manager Mario Gabelli grilled Wynn over dinner at New York's Le Cirque restaurant, according to both men. Gabelli asked why it would take three years until Le Reve produces revenues. "Why should I buy this stock now?" Gabelli asked. Wynn replied, "I have no answer for that, except nothing worth a damn is built in a week." Gabelli eventually signed on, though he declined to say how much he invested in Wynn Resorts.
Wynn's ambitious plans for international expansion helped some investors overcome concerns. The government of Macau, a Chinese territory, has granted him rights to build a casino there next year, setting his stake in the $5.5 billion Pacific Rim gambling market. He's sniffing elsewhere in Asia, Mexico, London, and the U.S.
Baron says that the international plans helped persuade him to buy about 3 percent of Wynn Resorts. Because gambling is so popular in China and expenses would be far lower, returns, despite the many potential risks, could be as high as 100 percent of investment, compared with 15 percent or so in Las Vegas, he estimates.
Old friends have also helped out. One of them is Stan Zax, chairman of the publicly traded Zenith National Insurance Corp., who introduced Wynn to his first big financier, Michael Milken, in the 1980s. Zax received a $3 million consulting fee when Wynn sold Mirage to Kerkorian, according to people familiar with that transaction. This year Zax, who sits on Wynn Resorts board, directed the company to buy one million Wynn shares, angering many of his own shareholders who were upset Wynn made up such a big portion of the company's outside investments. Zax explains, "I thought the stock was too cheap," to pass up.
Wynn hoped to sell Wynn Resorts shares for $21. But he had to settle for $13 in the October public offering in what he calls "the toughest three days of my life." Tuesday, Wynn Resorts closed at $13.72, up 24 cents, in trading on the Nasdaq National Market.
Wynn's re-entry into the Las Vegas limelight has goaded rival MGM Mirage to lock its top executives into new employment contracts that will extend six years — well past Le Reve's opening. "Does that send a statement that we are together and will stay together? Yes. Was that part of the reason for doing it? Probably," says MGM Mirage Chairman and Chief Executive Terry Lanni, who occupies Wynn's opulent former office at Bellagio.
In a small warehouse behind the Desert Inn, Wynn has fashioned a prototype Le Reve casino interior to survey friends and associates about the decor. For now, he has settled on chocolate drapes, thickly padded stools and a rich, low lighting. Former Nevada Gov. Bob Miller, who sits on Wynn Resorts' board, wandered in recently. "I love the lamps," commented the former governor.
Most days, Wynn works at his drafting table alongside his old design team from Mirage. With his German shepherds, Palo and Bora, at his heels, Wynn settles onto the same scruffy stool he says he's used for two decades. The table is strewn with the colored pens he uses to highlight architectural drawings to help focus his eyes, which suffer from retinitis pigmentosa.
Wynn's disease progressively attacks the eyes' rods, limiting color perception and peripheral vision. It has left him unable to see outside a narrow cone that expands in front of him. He insists his eyesight isn't a hindrance. He is often fearless, plunging into crowds and across stages, sustaining blows to his shins and kicking away obstacles. "I see like this," he says gruffly, extending his arms in front of his face like a viewfinder. Wynn's memory is an encyclopedia of project details, from distances along corridors to the placement of lighting for special effects and the choice of lampshades.
In fact, Wynn is still rethinking the designs of his former casinos. Their blueprints hang on his walls. "Thank you, Bellagio," he chuckles, citing lessons from his own errors. Bellagio's famous fountains offer the best views and regular music shows to passersby, giving the hotel's patrons the worst seat in the house. "I got it so screwed up that I put the people at my restaurants behind the fountains so they couldn't hear the music," Wynn says.