Winner Takes All

by Christina Binkley

  Mirage Resorts announced its first-quarter earnings that same week, touting the success of its new resorts. The earnings release, crafted by Dan Lee, carefully avoided discussing net income, which had plummeted to $1.5 million from $38.1 million in the same quarter the previous year due to the huge costs of opening Beau Rivage.

  Instead, the release noted that Bellagio had generated $282 million in net revenues (defined as revenues minus the value of room, food, beverage and other comps provided to gamblers). “Mirage Resorts believes this to be the highest quarterly revenues of any casino in Nevada history,” the release announced.

  Given all the special charges and restated pre-opening expenses, it was hard to tell how things were actually going at Mirage Resorts casinos. But then, no one was pressing for details. Wynn surely knew, however, when he sold the stock to Goldman, that the first heavily subsidized flight to Biloxi from Nashville had carried a single passenger in its 105 seats.

  “Nashville was a flop, and we got out,” Wynn said later. Airtran officials complained that Mirage Resorts hadn’t advertised early enough or heavily enough in target markets. The airline deal cost Beau Rivage $5 million that March alone.

  And what about all those wealthy vacationers who were expected to fly in from Houston, Atlanta, and New Orleans?

  “If you were in Houston and you consider yourself a stylish person who would go to the Ritz-Carlton, do you know what it is to say, in 1998, ‘I’m going to Biloxi for the weekend’?” Feldman asks. “What a jackass I was. In all the conversations I had with people down there, they knew I was a fool the moment I opened my mouth. But no, it would be rude to tell a person. They felt insulted. And by the way, I think they had every reason to.”

  Beau Rivage’s spa therapists struggled to sell standard massages while seaweed body scrubs and ayurvedic therapies from India languished. The ayurvedic Shirodhara treatment, which involves dripping warm, scented oil on the center of the forehead—an area known as the “third eye”—scared some customers.

  “You talk about the third eye, and they think you’re talking about some kind of devilment,” said a therapist named Karen.

  Many customers didn’t appreciate Beau Rivage’s highfalutin idea of food. Lobster crepes generated complaints from diners who expected a lobster tail. Some servers couldn’t pronounce “foie gras.”

  In Biloxi, Mirage Resorts officials were overwhelmed with workforce problems. Unlike in 1993, when the project was born, unemployment was now at record lows and job-hopping workers streamed from Beau Rivage “like a faucet,” said one manager. Workers in Mississippi hadn’t learned the ropes working at other casinos on the Strip on their way up to Steve Wynn’s place. They were less productive than their Nevada counterparts, and they weren’t as loyal to Mirage Resorts.

  “If we had known more about Mississippi, if this had been our second hotel instead of our first, we would have staffed even more, because there’s less productivity,” Wynn told investors in a fall conference call. Such comments insulted Beau Rivage’s employees. Shier was forced to apologize in a series of employee meetings.

  The situation at Beau Rivage was, in Wynn’s own words, “chaos.” The first guests waited in ninety-minute valet-parking queues only to arrive at hour-long lines at the front desk.

  Shier and Wynn had failed to comprehend local idiosyncrasies. In Las Vegas, gamblers like to park their own cars, so Beau Rivage planned valet service only for hotel guests. But Biloxi customers, spiffed up for an evening on the town, place a high value on handing their car keys to the valets, who were overwhelmed from day one.

  The guys at Harrah’s would never have overlooked the following point: Mississippi gamblers hate a stingy joint. Avid gamblers like “loose” slots that make frequent payouts in small doses. This feeds people’s need for rewards and helps their $40 budget last through the evening. These casino customers also want “comps” like free buffets or show tickets. Beau Rivage’s slots weren’t as loose as its competitors, and the casino didn’t comp as generously.

  The Mirage executives even overlooked Southern weather. Shampooing the carpets regularly, something Wynn insisted on in arid Las Vegas, caused them to mildew in humid Biloxi. The carpets had to be replaced. “It was like concentric circles,” says Alan Feldman. “We didn’t get the South. We didn’t get the Gulf. We didn’t get Biloxi.”

  Wynn again visited Beau Rivage a month after its opening, in April 1999. That first morning, the mogul called room service for his routine breakfast: two boxes of Special K cereal, skim milk, one sliced banana, and coffee with Sweet’N Low. He was delivered a bowl of oranges, one box of cereal, and a quart of milk.

  “You can imagine the panic that sets in,” Wynn said. “If they screw Steve Wynn, what’s happening to everyone else? Disaster.”

  On the second day, Wynn made the order-taker read his exact order back to him. Nevertheless he received two bananas, one box of Special K, cream for coffee, and regular milk. “Now I feel like an idiot,” Wynn recalled a few months later. “What am I going to do—have an argument with one of my employees?”

  He picked up the phone and asked to speak with the room-service supervisor. But the telephone operator was unable to put him through. “Two separate screwups for the chairman of the board,” Wynn said. “It was miserable. My perception was that we’ve got chaos.”

  On the third day, room service got the order wrong again. “This time, I called Barry [Shier],” Wynn said. “This is the kind of breakdown that tends to reverberate with your best players.”

  Maurice Wooden, a veteran of Sheraton Hotels who was running operations at the Golden Nugget, got a call from Shier and Wynn the third week of April. Beau Rivage had troubles, they told him. They flew him in two days later to look the place over. He returned home to Las Vegas, packed his bags, and moved into Beau Rivage, where he expected to live for the next eight months or so, except for the occasional trip home to visit his wife and three-and-a-half-year-old daughter.

  Wooden canceled the triple-sheeting in all but the suites—enough to keep a high rating from the American Automobile Association. He ended nightly turn-down service in standard rooms, saving $6 per room per day. He armed parking valets with scripts so they would greet arrivals with a friendly “Welcome to Beau Rivage.” He fed restaurant employees the dishes they were serving and taught them how to pronounce “foie gras.”

  By May, they had replaced every manager in every restaurant, nearly every department head, the assistant front-office manager, the bell captain, and four telephone operators. “I needed to cleanse the place,” Barry Shier said. They made the crabcakes bigger and blander, eliminated the lobster crepes and added an 11.5-ounce T-bone steak. To draw local gamblers, they began offering monthly themed dinners and weekly food specials: prime rib on Mondays and all-you-can-eat ribs on Tuesdays.

  Soft rock replaced opera in the elevators. The annual flower bill was sliced to $250,000 from $1.1 million. The horticulture department was cut to 28 from 60 employees. Staffing dwindled 20 percent to 3,680 jobs.

  Desperate to fill rooms, Beau Rivage advertised special low prices from Florida to Texas—$69 a night and for another $10, tickets to see the resort’s struggling Cirque du Soleil show, Alegría. (Tickets to O at Bellagio were selling for more than $100.)

  One honeymooning couple from Tampa paid $238 for airfare and two nights in the hotel for both of them. They were shocked to find how nice it was, given the Motel 6 price. Yet locals still complained of “Las Vegas–style prices.”

  These prices attracted a different clientele from the kind Wynn was aiming for. Several thousand bathrobes were stolen from hotel rooms in the first month, according to Wooden. The hotel discontinued offering bathrobes in its standard rooms.

  To save the hemorrhaging cash that fall, Mirage Resorts began laying off employees in Las Vegas as well. Mirage’s corporate offices cut back nightly cleaning to twice-weekly.

  Beau Rivage was unintentionally boosting business for its rivals on the Gulf Coast
. People gawked at the resort before heading to the smoky, cheap-eats casinos down the road that were reporting record numbers of visitors. Casino revenues on the Gulf Coast rose 43 percent in April 1999 over the previous year, according to the Mississippi State Tax Commission.

  Wynn ordered Shier to go live in Biloxi. By September, instead of improving, the hotel’s occupancy plummeted perplexingly. One weekend, shortly after the college students had returned to their leafy campuses, nearly three hundred of the resort’s 1,780 rooms sat empty. Casinos give away rooms for free to big gamblers. This makes it hard to excuse having more than 5 percent or 10 percent of hotel rooms empty. (The MGM Grand in Las Vegas once reported an occupancy rate of more than 100 percent.)

  Shier sat in his office staring at the results: 85 percent occupancy on a Friday night when the casino should have been bursting. He called Bill Yates, the Mississippi construction contractor who built Beau Rivage.

  “Bill, what are you doing this weekend?” Shier asked.

  “I’m going to the Ole Miss game,” Yates replied. “Everybody will be there.”

  Next, Shier called an old friend, former star quarterback Archie Manning, a Southerner and an Ole Miss graduate.

  “Archie, how big is this?” Shier asked, referring to the game.

  Manning replied, “It’s life.”

  So Shier became a student of Southern football. He kept college and professional team schedules in his top-right desk drawer and promoted the resort in cities where there wasn’t a big game. “I’m feeling my way every month,” Shier said that November. “What does Halloween weekend do to you in any other market? Nothing. Here, it’s significant. Maybe it’s the voodoo. Maybe it’s the goblins.”

  All that fall, Shier and Wynn continued to believe that Beau Rivage would gain its footing as the South’s premier gambling resort. “We’ll have the triple-sheet back,” Shier pledged. “It’s personal.”

  Kirk Kerkorian and his chief casino lieutenants sat around the conference table at the MGM Grand that spring of 1999, discussing their casinos’ growth strategy.

  The table included MGM Grand’s chairman and chief executive, Terry Lanni, Kerkorian’s protégé, Alex Yemenidjian, and the company’s new young chief financial officer, Jim Murren.

  Murren had left his $2.5-million-a-year job as a Deutsche Bank analyst to join MGM Grand in January 1998. He had left a home in Connecticut and an apartment on Central Park and had accepted a substantial pay cut ($375,000 in salary, plus a bonus and options) to take up a challenge from Yemenidjian, delivered over dinner at Cipriani: “You’re a young man, you’ve done very well. You can be on the sidelines all of your life, or you can get in the game.”

  Murren and his wife, Heather Hay Murren, then a leading consumer-goods analyst with Merrill Lynch, had recently been planning to check out of the game entirely. They had bought some raw acreage in Costa Rica and planned to move there to raise their young family, barefoot and carefree. But Heather pushed Jim to accept the offer, despite warnings from friends on Wall Street that he would be cleaning up the company’s balance sheet in preparation for a sale.

  A short time later, Kerkorian related the fable of the hungry alligator. Murren took it as his marching orders to find a way to buy Mirage. “Kirk said very early on that Mirage would be the company we should try to get,” Murren recalls.

  Murren pushed instead to acquire Harrah’s or Station Casinos Inc. Talks with Harrah’s went as far as a secretive meeting at MGM Grand’s Mansion high-roller complex, which was attended by Lanni, Yemenidjian, and Murren as well as Phil Satre and Colin Reed from Harrah’s. The talks did elicit one surprise. Satre pulled Lanni and Murren aside and told them, “The guy you’ve really got to focus on is Gary [Loveman]. He’s a star.”

  Yemenidjian wasn’t interested in buying Harrah’s. Stay prepared, he argued, and one day Mirage would come available.

  “You’re crazy,” Murren told him. “Steve Wynn will never let it go.”

  Beau Rivage faced yet another problem that fall of 1999. Harrah’s was opening a casino in the lush nearby city of New Orleans, right next to the French Quarter.

  Unlike Wynn, who thought he could bend Biloxi to his will, Harrah’s brought in executives who could weave themselves into the city’s complex fabric, figuring out the society and politics. Harrah’s executives charted New Orleans family trees, studied social clubs, and wined and dined on a nightly basis.

  When restaurant and hotel owners complained that the casino would sponge off their businesses, Harrah’s was forced to agree not to open restaurants or hotels that would compete with the locals. Imagine a major casino with no flashy limousines, no sumptuous restaurants, and no hotel rooms. In New Orleans, gamblers would have to pay cash at Harrah’s 250-seat buffet, or eat at restaurants outside the property. They would have to sleep off the premises at nearby hotels like the stately Windsor Court or at the Hilton or Westin. Even the limos had to be leased from private local companies.

  In addition, Harrah’s had to guarantee at least $100 million a year in tax payments to the state of Louisiana. Thus strapped, the casino was expected to report losses for at least its first two years of operations, according to an analysis at the time by Bank of America Securities.

  Harrah’s New Orleans wasn’t even allowed to decorate its own facade. That was handled by an eager committee of local residents. To Satre’s consternation, they picked works by two local artists, including a neoclassical figure who appeared to be grimacing over an entrance to the casino.

  All this was something of a relief to Wynn. “New Orleans Harrah’s is going to lack in the resort experience,” Shier guessed correctly that fall.

  But Phil Satre and Harrah’s executives were better poker players than they seemed. The local ownership entity, called JCC Holdings, had made all the concessions and was barred from the hotel, restaurant, and limousine business. But technically, Harrah’s Entertainment Inc. was not beholden to JCC’s agreements—a detail the Louisiana attorneys hadn’t caught. Harrah’s top executives were secretly planning to expand onto two adjacent land parcels that the company had purchased. Two hotels were planned, at three hundred to four hundred rooms each. They had even built a large space for a restaurant on the second floor of the casino.

  In fact, Harrah’s had quickly caught on to the New Orleans style of doing business, then bested the natives at their own game. Harrah’s stocked a French Quarter humidor with Cuban cigars to hand around and set up an apartment for entertaining civic leaders late into the night. Company officials went duck hunting and redfish fishing with the city’s elite. They hired well-connected New Orleans natives for key jobs and asked them to cut deals with the local gentry. These connections got them discount agreements with nearby hotels, advertising in tourist kiosks, and a turn to host an influential awards event for hotel concierges.

  Fred Burford, the president and chief executive of JCC Holdings, at the time said he gained twenty-five pounds and a double chin as he negotiated his way through the city.

  Steve Wynn could have used a fellow like him.

  Chapter Fourteen

  IMPLOSION

  Steve is a real entrepreneur. His ego has gotten to be bigger than this airport.

  —MARK GREENBERG, INVESTMENT PORTFOLIO MANAGER

  Wynn conceded he had erred with Beau Rivage.

  “God lives in the details,” he said one morning with a sigh.

  For the first time with any of his casinos, Wynn hadn’t even conducted the standard pre-opening pep rally for employees at Beau Rivage. He had left that honor to Shier, whom he now blamed. “Barry Shier dreamt up Beau Rivage,” Wynn said.

  Having placed Beau Rivage’s shortcomings at Shier’s feet, Wynn took the long view. “Sometimes you just misfire,” Wynn said that fall. “There’s plenty of time. It’s going to be there forever. The place has never not made money. The question was, how much money would it make?”

  This outlook was both correct and fatally wrong. The summer after the Mississipp
i casino opened, Wynn told investors, “We spent too goddamned much on Beau Rivage.” His surprising candor might have been better received had he promised to be more careful in the future. Instead Wynn seemed to imply that overspending was a key to Mirage Resorts’ success.

  He also seemed wholly unsympathetic to the suffering people who had bought his stock at $20 a share. He wanted investors who could weather a few bumps and hold on for the long run. It didn’t seem to occur to Wynn that many were counting on him to help maintain their meager retirement savings or to help finance their own dreams. He may as well have said “Let them eat cake.”

  On July 1, 1999, just a few weeks after shareholders bid the company’s stock up to an all-time high, and after Goldman had bought those 16.6 million shares at $25 each, Wynn warned that Mirage Resorts earnings that quarter would be between 7 and 10 cents per share—roughly a third of what Wall Street analysts had been predicting.

  The following day, Mirage shares closed at $15.25—a decline of 25 percent in one month. Finally, Wall Street zeroed in on problems at Bellagio and the Mirage. Wynn’s main rivals, MGM Grand and Donald Trump, were happy to help. “Bellagio is soft, but Mirage is dead,” Trump crowed on July 2. “First of all, the guy builds funeral parlors. The guy can’t see.”

  MGM Grand’s Jim Murren pointed out that MGM Grand casino hosts were seeing midlevel players heading for the Mirage instead of Treasure Island, implying that Mirage was becoming a low-roller joint.

  The following week, Wynn addressed a room full of analysts and investors at a Goldman Sachs investor conference. They asked about earnings. Wynn wanted to talk about his next resorts. He was infuriated at their short-term focus on the next ninety days.