This idea of building so enthused him that when Steve Bollenbach called in the spring of 2004 to propose that he buy the Caesars empire, Loveman said he wasn’t interested.
“I wanted to build on the Strip,” Loveman says.
To be sure, long ignored by Bollenbach, Caesars was in a corporate shambles, its assets as underused as any in the gambling industry. After Arthur Goldberg’s death, Bollenbach had hired Tom Gallagher, Hilton’s corporate general counsel, who proved so indecisive that Caesars empire stagnated. Bollenbach finally fired Gallagher and replaced him the easy way—by promoting Wally Barr, the company’s chief operating officer.
Barr was a solid choice to finish a sorely needed expansion of Caesars Palace, and he made a fine chief operating officer. But he was a poor public speaker and failed utterly to shine with investors, Wall Street analysts, or other parties whom chief executives are expected to court. What’s more, with such poor leadership since Arthur Goldberg’s death, Goldberg’s management system was still in place, as though on autopilot. Loveman sounded like a professor when he referred, accurately, to the Caesars operations as “de minimus corporate overhead and every man, woman, and child for himself.”
That summer, it dawned on Loveman that building one casino wouldn’t be enough. Kerkorian had changed the equation of competition in Las Vegas by the sheer size of his holdings there. Consider what MGM Mirage properties would consist of once the Mandalay deal closed: Bellagio, MGM Grand, Mandalay Bay, Monte Carlo, Luxor, Mirage, Treasure Island, Excalibur, New York-New York, and Circus Circus.
With the numbers of Harrah’s customers clambering to go to Las Vegas, and the need to keep them out of MGM Mirage casinos, Loveman said, “We’d have to build two. And nobody’s ever done that.” They would cost a couple of billion dollars each, and they wouldn’t be expected to open until 2008.
So the banker Ken Moelis’s epiphany in his study that day in 2004 was well timed. Moelis egged Bollenbach on, convincing him to take another run at enticing Loveman to buy Caesars Entertainment. This time, Loveman was ready to listen. “One thing that dawned on me—and you might argue I’m slow-witted in my timing—is the advantages of having six properties bunched together. Shame on me, but it took a while for that idea to crystallize,” Loveman said.
With Caesars, Harrah’s could complete its hub system, feeding gamblers from dozens of local casinos into Las Vegas, Atlantic City, and New Orleans.
Four weeks of discussions ensued between Loveman and Bollenbach. Loveman learned that Caesars Palace was expected that year to make $150 million in earnings before interest, taxes, depreciation, and amortization. The dowdy Harrah’s Las Vegas would make $135 million—only $15 million less. “You’ve just gotta believe we can do better with that than they have,” Loveman said.
For two CEOs who appeared to want to marry, the deal was remarkably difficult to cut. It took three weeks to slice the numbers in a way that would allow Harrah’s to keep its high ratings with credit agencies. By mid July, Loveman badly wanted the deal. “I got there. They didn’t,” Loveman said at one point during the talks. “Bollenbach and I have been negotiating this for days.”
The emotions of Caesars board members played a role in this drama as well. For Barron Hilton, grandfather of the party girl Paris Hilton, selling Caesars was the end of an era that he had loved. Also, some Caesars board members were loath to relinquish the perks of casino directorship, according to a person familiar with the discussions. These goodies, always enjoyed by the boards of casino companies, included great seats at fights, fancy hotel suites, and sharing the glamour with friends.
“The scariest moment of the Caesars deal was when I looked around the room and thought, ‘This board is gonna lose their lifestyle,’” said one person involved in the deal. “When you sell these companies, the board faces a change of lifestyle. They like going to these parties.”
As the talks stretched out over the course of a summer month, Bollenbach flew to London and Paris. All of Las Vegas was vacationing. The Wynns took a private train trip through Oregon that summer with former British Prime Minister John Major, George Bush (senior), Las Vegas liquor lord Larry Ruvo, political adviser Sig Rogich, their wives, and the Bushes’ two grown granddaughters. “Every wife and every husband had their own bedrooms,” Wynn said.
The Wynns had not joined the ranks of great philanthropists, but they enjoyed discussing the important issues of the day with powerful people. Wynn says John Major encouraged him to consider that he wouldn’t always be able to insulate himself from the world’s deep poverty. “Steve, there are five billion people in the world,” Major said. “Three out of five live on two dollars a day or less. In twenty years, that will be five out of eight living in dire poverty. Now, how big a wall are you going to build around your grandchildren?”
Despite Wynn’s pleasure at being included in such conversations, he gave no indication of changing his focus to poverty and hunger from luxury and art in the years that followed.
While everyone else was vacationing, Loveman headed with his family to their North Carolina beach house. His eldest son was leaving for college in a few weeks, and it felt like the end of an era for the family.
So the details were worked out with the Caesars and Harrah’s executives scattered about the world. The Caesars vote was, ultimately, unanimous. Bollenbach and Barron Hilton demanded seats on Harrah’s board and got them. Bollenbach approved the sale from London, and the Harrah’s deal team scrambled to get in touch with Loveman at the beach to tell him he’d be getting a bill for $9.3 billion.
Yet another “biggest deal ever in the gambling industry” was signed, this one from a fax machine at the Dancing Turtle coffee shop in Hatteras, North Carolina. The satellite feeds for network and cable news were conducted from a corner of the homey wooden Cape Cod building with a long wraparound porch and a small parking area out front.
One could almost hear squeals of frustration emanating from MGM Mirage’s corporate headquarters. Kerkorian’s big deal had been eclipsed before it was consummated. The combined revenue of Harrah’s and Caesars would be $8.8 billion, compared with MGM Mirage and Mandalay’s $6.4 billion. Harrah’s would have 96,000 employees, compared with MGM’s 64,000.
It was no vote of confidence in Gary Loveman that Harrah’s stock sank 10 percent the following three days. Wall Street, remembering the Rio’s fall from grace, feared that Loveman would run Caesars Palace down as well. “The Rio used to be a snazzy place until Harrah’s bought it,” said Jason Ader, the former Bear Stearns analyst, who had recently launched a hedge fund called Hayground Capital.
Ader saw Loveman’s move as a knee-jerk response to Kerkorian that lacked the elder’s savvy. “Do they feel pressure to do something because of MGM Mirage? Sure looks that way.… The hidden value in Mandalay was the land, and Kirk knows that. But Caesars doesn’t have that land benefit. The question is, will the Harrah’s marketing machine add value here?”
One of Harrah’s most loyal, long-term investors—and a fan of Loveman’s—harbored similar concerns. “I think the guys at Harrah’s just don’t have the mindset for the high-end business. That’s just not what they’re about,” said Mark Greenberg, a portfolio manager with Denver-based AIM Capital Management Inc. “At the Rio, they still don’t know how they got hit so hard at high-end blackjack. And I don’t know how they can’t know that. They should know.”
Loveman seemed caught off guard, choosing to stay with his family in North Carolina and doing piped-out television appearances from the Dancing Turtle rather than flying off for the press conferences and hand-shaking photo opportunities that typically accompany big deals.
With Bollenbach in Paris and Barron Hilton staying out of the limelight as always, there was no one on Hilton’s side to make an appearance either. Loveman purposely chose not to ask Wally Barr, who hadn’t been supportive of the sale, to participate. Loveman, in fact, openly disliked the uncooperative Barr and didn’t see the point in a public display of affection.
So there was no show of brotherhood between the Caesars and Harrah’s executives.
This was a key public-relations misstep and contributed to Wall Street’s impression that the deal was poorly hatched. “The market would have liked it if Loveman came out and said, ‘I don’t know that much about high-roller places, but lemme introduce you to Wally Barr, who’s integral,’” says one investment banker who worked on the deal.
Instead, Loveman announced flatly that Caesars Entertainment would be worth more in Harrah’s hands, thereby insulting both Bollenbach and the management at Caesars. “What’s that mean? It means the management sucks,” said one insulted Caesars insider. “I think they’re very dismissive of the management.”
Weeks later, when a Harrah’s executive called to offer Barr, a golf aficionado, lifetime privileges at Caesars golf courses, Barr gruffly turned it down. “I’ll never play at any of those places again,” he said, according to a person privy to the conversation.
Still, people who know him say that Bollenbach’s relief at ridding himself of the casinos—which he had never shown much interest in—was palpable. “I think Steve was like, ‘Thank God,’” says one person who worked closely with Bollenbach.
Loveman did little to dispel concerns that he would downgrade Caesars Palace into a low-rolling serf’s palace. In fact, he exacerbated them. “We’re going to review the profitability of the whale business at Caesars Palace—especially with Steve Wynn about to open his place, which is really going to raise the stakes,” Loveman said. “It’s just this constant distraction for management. They get obsessed with it.”
One thing changed in Loveman’s life in a big way, once the Caesars deal came together. Steve Wynn suddenly took great notice of Loveman, signaling that the Harvard professor had finally joined the big leagues. Wynn called Loveman one day, saying he had read something Loveman had written in the Harvard Business Review about database management and he wanted to talk some more.
So Loveman had lunch with Steve and Elaine Wynn. They never really got around to talking business, and Loveman says he never really understood the point of the meeting. But it was nice to spend time with the former, and perhaps future, king of Vegas.
“Steve is Las Vegas,” Loveman said. “We wouldn’t be here without him.”
Chapter Twenty-five
RETURN OF THE KING
We don’t want to say anything as crude as that the Bellagio was practice.
—STEVE WYNN, GRINNING
Steve Wynn peered intensely at three ancient Italian olive-oil vessels destined for his Bartolotta restaurant. The baked clay vessels, pockmarked and scraped, varied in size from huge to gigantic—higher than a tall man and bigger around than a bull’s belly.
Seven moving specialists were on hand with a “propane-motored crane thingy,” Wynn said, to hoist them from inside their necks and lower them into place a floor below. Wynn showed up to see the installation that evening with Andy Pascal, his nephew on his wife’s side. As often happens when Wynn gets involved, a tantrum ensued. “They’re too big. They won’t fit in,” Wynn hollered.
“Just let us put them in,” Pascal interrupted. “It’ll take four hours to move them. If you don’t like them, you can take them out.”
So Wynn threw his body against the jars to help lift them onto pads that would help them slide along the mosaic floor. Then he sat on a banquette and watched the show until three a.m. When he finally crawled into bed beside Elaine at Shadow Creek, she asked, “What happened? Something bad or something good?”
“Something good,” Wynn replied. “I’ll tell you about it in the morning.” And he went to sleep.
Wynn spent most of the final weeks before his latest casino opening in the grip of this sort of panic. He needed more time, but was afraid to alarm his investors by delaying the opening.
“This is gonna be a squeaker,” Wynn said in March 2005, several weeks before the scheduled opening, settled temporarily in the boardroom while his office was being finished. Wynn’s dog Bora was gone, replaced by Sela, and the aged Palo lay as usual at his master’s feet. Wynn addressed the dogs in their native German: “Palo! Sitzt dich!”
Marc Schorr, the resort’s president, raced around the facility on a motorized cart, his shoulders hunched habitually forward, a frown etched on his face. “Wall Street will appreciate this because we’ll get cash flow six months before,” Schorr said, “but we’re suffering initially.”
It turned out that Le Reve didn’t work as a name for a Las Vegas casino. People couldn’t pronounce it, and they didn’t know what it meant.
Frank Luntz, the Republican pollster who had been doing marketing polls for Wynn for years, ran focus groups on the resort’s name. Luntz discovered that Wynn’s name alone was worth an extra $80 per night for a hotel room. He recommended naming the casino after its developer. “I call it the Wynn ‘extra,’” Luntz says. “People are willing to pay more for him.”
Calling it Wynn, of course, sounded like something Donald Trump would do. “I don’t like Donald Trump,” Luntz said, noting that Wynn and the Donald had called a truce to their long-running feud. “Three years ago, they hated each other. Donald would make blind jokes about Steve, and Steve would make hair jokes about Donald.”
Wynn took Luntz’s advice and named it Wynn Las Vegas anyway, explaining his decision with a quip: “This is the only place I felt good enough about to put my name on.”
At the time, Wynn Las Vegas was probably the most expensive casino resort in the world. It had burled wood paneling, mosaic tile floors, and walls of crinkled fabric. Its $2.7-billion cost irritated some social consciences. This was a billion dollars more than Clark County spent educating 300,000 children. Vanity Fair noted the resort cost more than the $2.4 billion that the United States spent on world AIDS research that year.
With 2,716 hotel rooms, the Wynn would be small by the current Las Vegas standards, where most new hotels had more than 4,000 rooms. Each of the Wynn’s rooms measured a minimum of 640 square feet—larger than many New York apartments. Luggage was nosed over by bomb-sniffing dogs in the back-of-house area before being delivered to rooms with 320-thread-count linens and at least two flat-screen televisions (one in the bathroom); electronically controlled drapes; and wall-to-wall, floor-to-ceiling windows. Guests were expected to pay, and they soon did pay, on the average, more than $300 a night to stay at the resort. They were the highest room prices in Las Vegas.
The designers who opened shops there included the Wynns’ friend Oscar de la Renta as well as Chanel, Dior, Gaultier, Cartier, Graff jewelers, Louis Vuitton, and Brioni. Manolo Blahnik, the shoe fetishist’s designer, agreed to open his first outpost outside of New York there. Treating toe cleavage as an aphrodisiac, Blahnik stocked the shop with delights such as feather-covered stilettos. “After all, Las Vegas is a fantasy town,” Blahnik explained in a video recording on Wynn Las Vegas’s website.
There were three wedding chapels, twenty-two restaurants, and two theaters in addition to the one-of-a-kind Ferrari and Maserati dealership. Once open, the automobile showroom would sell so many Ferraris that Wynn would begin buying up inventory from dealers elsewhere in the country. The lines of people who wanted to catch a glimpse of a Ferrari snaked out of the salesroom, past the gift shop, and down the hall. Wynn, seeing a missed opportunity, began charging admission to walk through the dealership. This did not noticeably shorten the lines.
The resident Ferrari dealership henceforth played a big role in the Wynns’ lives. Over dinner at Okada one night in December 2005, the Schorrs and Wynns chatted about their Ferrari habits. Marc Schorr had bought four Ferraris that year, and Steve Wynn had just bought Elaine a new Ferrari Spider. “You’re gonna love it,” he told his wife. “The engine’s got that Ferrari sound, but it’s muted inside. It rides like a Town Car.”
The Wynn Las Vegas resort even had an eighteen-hole golf course, designed by Tom Fazio and Steve Wynn. This was remarkable, given how urban the Strip had become in the past twenty years
, and how expensive land there had become. The 7,042-yard course had more than 100,000 shrubs, 4,600 linear feet of streams, and a 37-foot waterfall.
In front, the resort had Wynn’s mountain: an edifice 140 feet high, with 1,500 freshly transplanted trees—some as high as 50 feet—a 100-foot waterfall, and a 3-acre reflecting pool that had been populated with 4,000 color-changing LED lights and a giant fiberglass head that could be raised and lowered from its depths during nightly sound and light performances.
To enhance the boutique feeling, Wynn turned down the volume on slot machines. He placed blackjack and craps tables near the hotel elevators to draw the attention of Armani-clad guests and heighten the Bond-in-Monaco sense of the place. There were plush salons for high rollers, who could be ferried into town on one of Wynn Resorts’ jets and escorted into the hotel tower through a private entrance. These guests could even slip downstairs to gamble without ever setting foot among the very well-heeled riffraff in the main casino.
Ever the aficionado of clever detail, Wynn placed a few conference rooms overlooking the topless area of the swimming pools—much to the delight and consternation of a group of investment bankers from UBS Warburg in the spring of 2005.
And yet after it opened, many people said they were disappointed in Wynn Las Vegas. The tower’s exterior was an architectural departure for the city. The chocolate-and-copper tower, curved in an arc, lorded over the skyline and the Strip. It did not, however, impress architectural critics. Christopher Hawthorne of the Los Angeles Times joked, “The theme is mid-rise office tower in Houston, circa 1983.”
Wynn was hurt, but unbowed. “You see if they don’t start building crescent-shaped buildings around here now,” Wynn said with a chuckle one afternoon. (In truth, his wasn’t the first: Tony Marnell had built a crescent-shaped tower at the Rio in 1997.)
The fact is that Wynn was a victim of expectations. When they heard him boast that he was building the finest hotel in the world, they expected something bigger and grander-looking than Bellagio, not something more intimate and tasteful. People don’t come to Las Vegas for good taste.
Winner Takes All Page 26