Winner Takes All
Page 23
Wynn came straight home, where they stayed in the kitchen until morning, sketching a high-tech pile of concrete, steel, and hydraulics to rise between the Strip and the casino. The whole of Le Reve became a theater of waterfalls and fog, with casino customers gazing out at a stage built around them. From the street, there would be the back of a mountain. “That’s where it parts with Bellagio and Mirage and Treasure Island,” Wynn said. “They were built to play to the sidewalk.
“Mirage, Bellagio, and Treasure Island are the same idea with more or less budgets,” Wynn explained. Bellagio was just “more of everything. Like Kirk—who loves size.”
Wynn separated his shoulder that Christmas at Sun Valley. Elaine Wynn told Dan Lee—who was again living in Las Vegas, where everyone bumps into everyone—that it was the worst ski accident Steve had ever had. And that included the time, Lee said, that Wynn skied off a cliff at Mammoth Mountain and fell about fifty feet. “They came up to get him with a body bag and they found him sitting there, dazed,” Lee said. “You gotta admire the guy—he’s blind and he skis.”
Wynn’s timing was uncanny. After he bought the Desert Inn, Las Vegas began to shake off its reputation as a nursing home for failed acting and singing careers, cheesy hotels, and bad food.
This was in great part because of Bellagio and several new casinos—including the Venetian and Mandalay Bay—that mimicked their focus on wealthier and more sophisticated travelers. New cuisine, bacchanalian wine lists, shopping, and new nightclubs were doing their bit to make Las Vegas hip. This new image was showing up in gossip pages as young celebrities partied there, putting out the word that the town was “cool.”
Luxury hotel rooms, subsidized by casinos, were priced far below similar rooms in other cities. The Four Seasons Hotel in Las Vegas is usually one of the cheapest in that luxury chain. This plus inexpensive airfares made deluxe vacations in Las Vegas affordable to the upper middle class all over the world.
Cheap airfares also filled casinos on weekends with visitors from Los Angeles, San Francisco, Chicago, and New York who would fly in for a couple of days of debauchery—or just some good shopping and eating—before returning to reality. During the NCAA basketball series in the spring, Las Vegas casinos took on the aspect of Spring Break for young businessmen who went to relive their college years.
In 2002 and 2003, Celine Dion and Elton John would sign long-term contracts to perform at Caesars Palace. Barry Manilow signed on at the Las Vegas Hilton in 2004. These were huge stars with the pull to fill big theaters night after night. Cirque du Soleil continued to populate Las Vegas with its shows and opened a racy cabaret at New York-New York. With casino money to build brand-new high-tech stages, entertainers could do things they couldn’t do anywhere else. O’s theater was a pool of water. At the MGM Grand, a Cirque show called KÀ defied gravity, taking place on a hydraulic moving stage that tipped at one point to right angles with the floor, dumping the cast off into a basement below.
Eventually, even the remaining Beatles and Yoko Ono would agree to a show in Las Vegas. Naturally, it was a Cirque du Soleil production, called Love, at the Mirage.
It helped that in the early part of the twenty-first century, the public’s appetite for excess was running high despite, or perhaps because of, the war in Iraq and fears of global terrorism. To provide a thrill not readily available in Kansas, casinos sprayed jets of smoke and water on thinly clad patrons and hired performers at their new Dionysian nightclubs. Topless shows, which had become nearly extinct during Las Vegas’s family years, made a comeback. Where there had once been feathers and rhinestones, strapless G-strings were, at the MGM Grand’s La Femme, Art of the Nude, adhered with spirit gum.
The Rio’s eROCKtica—Sex, Sweat, and Rock n’Roll, starred a gyrating and greased-up performer named Gabriella Versace. Treasure Island started calling itself the TI and replaced child-friendly pirate battles with the buxom and thinly clad Sirens of TI. For the ladies, there was a revue of taut male torsos in Thunder from Down Under. In a further stroke of genius, several casinos created topless swimming pools, thereby enlisting female patrons as part of the attraction. This adult action began to draw a twenty-something crowd that had previously shunned Las Vegas.
This, by design, attracted higher-spending baby boomers, who wanted to hang with the youngsters. To accommodate their fatter, middle-aged wallets, the hotels fancified their rooms and jacked up prices until the Las Vegas Strip was no longer the bargain it had once been—though it was still cheaper than most major cities.
A celebration of all things Vegas spread beyond the confines of the gambling city to the major centers of the globe and even into the world’s financial markets. Jay Leno cracked jokes about the town’s sin-happy slogan, “What happens in Las Vegas stays in Las Vegas,” on late-night television. Queues of travelers threaded through Las Vegas’s McCarran International Airport.
Four casinos starred in their own reality television series. They butted up against fictional competition in Las Vegas, CSI, and Dr. Vegas. Poker took off as a new national sport, complete with games televised on ESPN. Plastic replicas of the famous Welcome to Las Vegas sign sold for $39.98 apiece. The whole mood of the country was retro. Cards, sex, all-night partying, skin-baring pool scenes, and booze-swilling Paris Hilton. Sin was in.
As Las Vegas’s renaissance ripened, it wasn’t enough for some people to visit the Strip regularly—they wanted to buy a place there. Million-dollar condominiums replaced the MGM Grand’s failed theme park, creating a race to build high-rise condominiums up and down the Strip.
Investors caught gambling fever and snatched up casino stocks and bonds, even going so far as to buy into Donald Trump’s latest brush with corporate bankruptcy, which involved a worn handful of Atlantic City casinos and a Trumpish plan to do a casino someday in Las Vegas.
Most any entrepreneur with an interest in the gambling world came scouting for riches in Las Vegas, and the price of the little remaining land on the famous Strip ballooned. The Las Vegas bosses—not the ancient thugs, but the buttoned-down corporate chieftains who now occupied the big offices—wiped their brows and thanked the stars that they had gotten in when the going was cheap.
In the continual hunt for growth, Las Vegas began to look in earnest for new gambling jurisdictions outside of the United States. In February 2002, another of those serendipitous moments that have graced Steve Wynn’s life offered up a new treasure. He and Sheldon Adelson—his nemesis and neighbor at the Venetian Casino—each won lucrative casino licenses in Macao (or Macau).
Macao is a tiny island region of China, located in one of the richest gambling zones in the world. A former Portuguese protectorate that became part of China in 1999, it is located along the Pearl River Delta. It is just a fifty-minute hydrofoil ride from Hong Kong, which accounted at the time for more than half of Macao’s nine million annual visitors. About a third of Macao’s 440,000 inhabitants were employed in tourism there, where eleven dingy, smoky casinos produce about 35 percent of Macao’s gross domestic product.
Macao casinos were emerging from forty years of monopoly control by business magnate Stanley Ho. The region’s governor, Edmund Ho—a former banker—wanted to clean out troublesome organized crime syndicates and turn the island into a major tourism destination like Las Vegas.
Still, Wynn didn’t initially envision building a palace. He told people he envisioned spending about $200 million on a Macao casino with no hotel or entertainment. That’s riverboat stuff, he thought.
It turned out, though, that the Macao casino played a vital role in selling Wynn Resorts shares. Investors liked Las Vegas, but they loved the promise of the 1.3 billion people in China.
MGM Mirage failed to win one of the Macao licenses. Terry Lanni was rightly stricken by this costly loss. While many have speculated that Lanni somehow stumbled politically, it has never been clear why MGM Mirage, with all its well-placed Chinese relationships, lost out. Lanni regards it as the biggest error of his career. It’s telling, tho
ugh, that he says Kerkorian—to whom the magnitude of the loss was obvious—never bothered to chide him for it.
In the United States, though, investors remembered Wynn’s behavior at Mirage Resorts. For two years, Wynn flew around the country trying to get investors to back his new casino. Aside from Kazuo Okada, he faced rejection after rejection. Despite his pledges never to borrow money from the stock market, he gave up in April 2002 and said he’d go public.
He needed a chief financial officer, and he called Ron Kramer, a New York banker, to ask for a reference. Kramer listened, then asked Wynn a pointed question: “Are you financing a project or are you building a company?”
“I want to build a company that’s gonna outlive me,” Wynn responded.
Kramer says he told Wynn he needed an unassailable balance sheet and absolutely no airplane–cosmetic-surgery–art-collecting hanky-panky. A day later, Wynn offered Kramer the job.
Kramer studied Kerkorian as he created the financial structure of Wynn’s new company. He copied the way Kerkorian had financed the MGM Grand a decade earlier, using a public company to raise construction money. Kramer went so far as to point this out in his presentation to banks, riding on the coattails of Kerkorian’s reputation for savvy and success. (In 2006, when Wynn wanted to take cash out of the public company, he would declare a huge $6-per-share cash dividend, something Kerkorian had done years before.)
Wynn filed paperwork for the initial public offering in June. Now he would need the aid of all the Wall Street analysts he had so callously insulted three years earlier.
The complexity of his corporate structure bothered the Securities & Exchange Commission. In its second round of review in September, the SEC came back with eighty-one questions—a surprising number of queries that one former SEC director called “ugly.” Wynn refiled in three days. But lacking SEC approvals, he was forced to cancel a party where he had hoped to discuss his new company. “We’re twiddling our thumbs waiting for the SEC,” Wynn griped on September 26.
The SEC was particularly concerned with disclosures about Wynn’s airplanes, which he had sold to the company, and the workings and value of the Macao casino. In its third round of review, the SEC came back with thirty more questions about Wynn’s complex corporate structure. A former SEC official who investigated offerings on behalf of institutional investors summed up the benefits of the company: “You’re making a total bet on Steve Wynn.”
Wynn did the “teach-ins” with the brokerage sales forces himself, traveling around the country to do three grueling presentations per day and giving the people who would be peddling his stock the full force of his magnetism. One slide in his presentation showed the compounded growth of Mirage Resorts—24.7 percent over twenty-seven years.
Wynn had never paid much mind to Harrah’s—a company so unlike his own. But one day, he made a comment that suggested he’d taken serious note of the revolution that was taking place over there.
“I never believed in any of that visionary shit,” Wynn said one afternoon as he tried out his lines for the brokerage sales force. “What I did worked because of the people, not volcanoes. My programs were more like Harrah’s than people know.”
Wynn built in plenty of protections against another takeover. His 31 percent stake in the company gave him more control than the 12 percent he had held in Mirage Resorts. The company’s bylaws barred shareholders from calling special meetings, but stated that they couldn’t take action without a meeting. The company directors were empowered to issue “blank check” preferred shares, or additional shares, to thwart any takeover attempt.
By October, just as he was ready to sell shares in Wynn Resorts, the market for initial public offerings bottomed out. The seven-week deal drought that spanned August and September marked the longest period of time without IPOs in the United States since 1975, according to the market-data vendor Thomson Financial.
But Wynn had construction trailers lined up on the site in Las Vegas. He couldn’t fire up the bulldozers until his offering “priced” and the stock started trading. “We’ll price and break ground the same day,” he said. He couldn’t afford to pull out.
Wynn embarked on a grueling two-week road show that October to pitch Wynn Resorts Ltd. to big institutional investors. He requested one-and-a-half-hour meetings with fund managers who were accustomed to a one-hour time limit. He did every presentation himself, without the help of a B-team for smaller investors. He handed out his cell-phone number to fund managers.
He was peppered, during these meetings, with questions about airplanes and art. Under pressure to prove he wouldn’t take advantage of the company again, Wynn agreed to lease his art to Le Reve for virtually nothing, $1, and pledged to reimburse the company for his personal use of its jets.
Mario Gabelli, a famous fund manager, grilled Mr. Wynn over dinner at New York’s Le Cirque Restaurant, according to both men.
“Why should I buy this stock now?” Gabelli asked.
“I have no answer for that,” Wynn replied, “except nothing worth a damn is built in a week.”
Gabelli eventually signed on, fascinated. “I just like Steve. I want to be in the areas that he’s in,” Gabelli said in 2002. “How does he do color when he can’t see? I have no idea how he pulls it off.”
Wynn called old friends for help. Stan Zax, Michael Milken’s cousin and the chairman of Zenith National Insurance Corp., sat on the Wynn Resorts board. He directed Zenith National to buy one million Wynn shares. A number of his own shareholders complained, saying that Wynn Resorts made up too big a portion of the company’s portfolio. Zax explained, “I thought the stock was too cheap [to pass up].”
Skeptical investors viewed the stock as a publicly traded construction loan. Few wanted to return to their bosses with shares in a company that wouldn’t have returns for years. “The directors would have been all over us,” says Larry Haverty, a managing director with State Street Research at the time. “You were buying a construction project and a dream.” But it was Steve Wynn’s dream—and they tend to come true.
The fact that Haverty was even included suggests that Wynn was exhausting every possible opportunity. Haverty’s small-cap funds were unlikely to invest in such a large enterprise. So why did Haverty and dozens of other investors waste their time? Wynn was a celebrity doing his own legwork. “I was, to some extent, there under false pretenses,” concedes Haverty. “If you have a chance to have a one-on-one with him, you take the chance.”
Wynn hoped to price his shares at around $22 a share on Monday, October 21. Given the weak demand, he was soon forced to shear back the price to $18–$20 per share. To raise the $450 million he needed in the offering, he bumped up the number of shares being sold so that each share would buy a smaller stake in the company. Okada agreed, based on a single phone call, to join Wynn in buying more shares to make the deal work.
Things were then set to go live on October 23.
Wynn was again forced to knock the price down. Again, Okada agreed to kick in more money, leaving only $300 million to be sold publicly. Okada and Wynn would each own just under a third of Wynn Resorts.
Kirk Kerkorian, always a bargain hunter, even offered to buy a big stake in the IPO, Wynn said. “He told a friend of mine. We discussed it—and we said, no, that’s really not a good idea.”
Finally, on Thursday, October 24, Wynn Resorts started trading at $13 a share—not on the Big Board of the New York Stock Exchange, as Mirage had, but on the less glamorous NASDAQ exchange. The company was highly leveraged, with a $1-billion credit line in addition to $340 million in junk bonds.
“It was the toughest three days of my life,” said Wynn that evening as he headed for his plane in New York, sounding bruised and exhausted. “I’m going to go home and celebrate in my bed at Shadow Creek.
“This company is going to be a case study in corporate governance,” he added.
The next day, Wynn Resorts shares fell further, ending up for some time in the neighborhood of $12.
“It took longer than we thought, but here we are,” said Elaine Wynn, in a black suit over a white blouse whose Louis XIV ruffles enveloped her neck and hands. “Two and a half years ago, my husband bought me a very special birthday present,” she said cutely. “The Desert Inn. It’s kind of like getting a Black & Decker drill. You know it’s a great thing to have, but you’re not sure what to do with it. Steve really wanted to play with it. I had been taught by my parents to share my toys.”
When it was his turn to address the crowd, Wynn took a moment to thank Kirk Kerkorian for the chance to buy the Desert Inn. “I’m a homeboy. Always gonna be a homeboy in Las Vegas—that’s the way it is,” said the man born in Connecticut and raised in Utica, New York. “Can you feel the ghosts of Moe Dalitz and Howard Hughes?” he asked with a grin.
Then he launched a round of fireworks.
Later, Elaine gave a sigh of relief that the new project was officially under way. “This is for keepies now,” she said.
Wynn called Kerkorian the day after the groundbreaking and pretended to ask his advice. “What do I do? I never did an IPO,” he says he teased.
Once again, Wynn set off an arms race in Las Vegas.
Call it the Wynn effect: bigger suites, electric drapes, plasma televisions, and private high-roller gambling salons. Bellagio, Mandalay Bay, and the Venetian were suddenly erecting $825 million in super-luxury hotel towers and other improvements. MGM Mirage was goaded into locking up 603 management-level employees with long contracts—particularly its valuably connected casino hosts.