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Best of Chris Sieroty
Chris Sieroty
 

Steve Wynn discusses online poker and Macau

2 May 2011

LAS VEGAS, Nevada -- Steve Wynn remains skeptical about business opportunities available online and the role the Internet will play within the gaming industry.

Even with an estimated $4 billion to $6 billion wagered in the U.S. annually on online poker, Wynn, who has opposed online gaming for many years, was a tough sell when PokerStars came calling.

"The Internet loomed like Mount Everest blocking out the sun," said Wynn, who said he still believes it will be tough, but not impossible, to regulate online poker.

"What happens if the government gets involved and they control it and interfere with our ability to run a business? If they do Internet poker, they are going to tax the hell out of it," he said. "They would only make it legal in America because they have this insatiable appetite for money in Washington."

Wynn, chairman and chief executive officer of Wynn Resorts Ltd., recently sat down with the Las Vegas Review-Journal to discuss online poker, company projects and politics. At 69, he is still firmly in control of a publicly traded casino company that generated $1.26 billion in net revenues in the first quarter of the year.

Despite a setback with the collapse of a "strategic relationship" with PokerStars, Wynn remains focused on breaking ground on his long-awaited $2.5 billion project on the Cotai Strip in Macau and the opening over Memorial Day weekend of the new Encore Beach Club. He created the $69 million pool, club and bar project after deciding to tear down the entrance to the Encore.

Wynn believes his Macau project, built on a 52-acre landfill, will open in late 2014 or early 2015. Analysts are more cautious about his ability to turn a garbage dump into a high-end resort and believe Cotai won't open until 2016.

"We are waiting for permission to work on the site," he said. "Our project has been approved but we have to wait until the government publishes their permission."

In recent years, Macau has been the driver of all good things for Wynn Resorts.

The company last year added space in the Chinese province with Encore, a move that helped revenue increase 46.6 percent to $865.7 million and earnings before interest, taxes, depreciation and amortization, jump 50.2 percent to $272.8 million in the first quarter.

Wynn has lobbied for years for destination-integrated resorts in Japan. That came to an abrupt end on March 11 when a tsunami spawned by an 8.9 earthquake struck Japan's eastern shore.

"They were always very, very hesitant to let outsiders in," Wynn said. "To the extent there was a chance they would change their minds about ... resorts, it would be because they decided they really need the revenues."

He said the question facing Japanese officials is will they be in a position to change their minds? Wynn also asked if they had suffered damage that would stop them from becoming a gambling destination.

"Forget our business. You hope not," he said "Naturally we had big eyes for Japan and that was going to be a 100 percent effort on my part. Unlike Singapore, we were ready."

When Singapore legalized gambling in 2005, Wynn said his company was focused on completing its project in Las Vegas and ongoing construction on Wynn Macau, which opened in 2006.

"When Singapore legalized gambling I withdrew," he said. "I had $3.6 billion worth of stuff in startup. If I had taken on Singapore I would have looked like a nut.

Turning to his competition in Las Vegas, Wynn was amazed by the amount of money invested in CityCenter and The Cosmopolitan of Las Vegas.

"They started CityCenter on all debt alone. It was luck they bumped into those guys from Dubai," he said. "They gave them $5.4 billion. It's gone. How could you lose $5.4 billion here, you've got to be an imbecile or a moron."

Wynn said the $3.9 billion invested to complete The Cosmopolitan was gone.

"The place is worth $500 million," he said. "It will throw off $40 million to $50 million at nine times earnings. That's 10 percent of what it cost."

Wynn Resorts benefited from an improved first quarter in Las Vegas in which revenue increased 24 percent to $394.6 million. Property EBITDA jumped 119.1 percent, to $132.1 million.

Wynn, however, is still figuring out whether online poker will be legalized in the U.S. so it can be added to his list of businesses.

More than a year ago, Wynn got a call from Senate Majority Leader Harry Reid, D-Nev., asking for help with sorting out the legalities and potential business model of online poker.

"I developed a negative perception of it. Harry and I have been friends for 40-odd years, so I sent him a couple of my people to work on the issue with his staff," he said.

That was followed by a phone call from Isai Scheinberg, co-founder of PokerStars, who wanted to meet.

"PokerStars is just one of many people who have come to us,' Wynn said. "They've all come to us to try and hook up with our brand."

Scheinberg's goal was to persuade Wynn to join the efforts to regulate online poker in the U.S. by setting up a joint venture. It was about the need for an American partner to gain influence and credibility with regulators.

Wynn described PokerStars as the "800-pound gorilla" because of its business growth in the United States before April 15, when the federal government seized the dot-com domain.

After their first meeting, he had to be persuaded by former U.S. Rep. Dick Gephardt, D-Mo., who is now a lobbyist, to meet with Scheinberg a second time. Wynn said set up another meeting "more out of friendship with Gephardt than anything else."

Wynn didn't take their meetings too seriously. But he did take Scheinberg up on his offer to learn more about how PokerStars did business.

Wynn said he was impressed by what he learned, especially how the company was strictly regulated in Europe, its ability to trace website abnormalities, and its ability to monitor and block underage gaming.

He was also impressed that PokerStars had 1,300 employees with an average salary of $110,000.

"A brainy bunch if you've ever seen a brainy bunch," said Wynn, adding that it was PokerStars' position that online poker was not in violation of the Unlawful Internet Enforcement Act approved by Congress in 2006.

That was a position not shared by the Department of Justice. But there had been no enforcement against PokerStars or other online sites, he said.

Wynn asked Scheinberg why the U.S. market was so important. After all, the Isle of Man-based gaming company is profitable and had only one serious competitor, Full Tilt Poker.

Wynn said he remembers Scheinberg telling him, "I don't want to look over my shoulder and be considered a second-rate citizen at this point in my life."

He eventually agreed to work with Scheinberg toward creating a joint venture, PokerStarsWynn.com, which was announced in March. On April 15, the venture was terminated following the seizure of the Internet domain names for PokerStars, Full Tile Poker and Absolute Poker.

Scheinberg and Paul Tate from PokerStars were among the 11 people indicted. The government also froze 76 bank accounts in 14 countries that allegedly belonged to online poker companies.

"These people have a big business that is offshore. This is a business that cries for regulation," said Wynn, who compared the government's efforts at combating online poker to the Volstead Act, which ushered in Prohibition in 1920.

"People kept drinking beer during prohibition," he said. "Poker is as American as apple pie. They are not going to stop playing online poker."

Still, Wynn said he doesn't think Republicans in Congress will support efforts to legalize online poker. He said discussions with Sen. Jon Kyl, R-Ariz., never move beyond the senator's belief that online poker is illegal.

Any interview with Wynn eventually leads away from the industry that made him a wealthy man to a heated discussion of politics. He is defiantly passionate about President Barack Obama, whom he supported in 2008, and where the country is headed.

Wynn speaks about "uncontrolled spending" and "unsustainable debt." He also compares the Federal Reserve's $600 billion bond-buying program to the securities fraud committed by Bernie Madoff.

On Wednesday, Federal Reserve Chairman Ben Bernanke said the program would end in June. Probably to Wynn's dismay, Bernanke said the central bank is likely to continue reinvesting its securities holdings as they mature even after June.

"You guys ... who live on a salary, it's going down like a rock, your living standard," he said. "Even Wal-Mart is more expensive, clothing is more expensive, education for your children is more expensive. Health care is going through the roof."

Wynn said the country has a government that "may be political, but it's cowardly."

He's concerned about inflation and the cost to his business from the new health care law.

"For the first time in 40-odd years, my ability to protect the living standards of my employees has been stripped from me," he said. "Because the living standard of my employees is dropping faster than I could ever overcome with salary increases."

Wynn, who described Obama as a "socialist" and "redistributionist," urged the president "to throw down on the problem" or even "shut down the government" to get a handle on the country's debt.
Steve Wynn discusses online poker and Macau is republished from Online.CasinoCity.com.