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Best of Liz Benston

Gaming Guru

Liz Benston

New Resort Just Latest Piece of Wynn's Legacy

28 April 2005

LAS VEGAS -- More than five years ago, Steve Wynn had witnessed his share price for Mirage Resorts Inc. drop sharply over concerns that he had spent too much to build his crowning achievement. Nitpicked by investors expecting higher returns at the Bellagio resort, Wynn eventually sold his resort empire to MGM Grand.

In hindsight, Wynn had the last laugh. Under MGM Mirage, the Bellagio now produces about $350 million in operating cash flow -- a performance that blows away the competition but couldn't seem to come fast enough for Wall Street.

The impact of the Bellagio on Las Vegas tourism was immense.

The resort created a "virtual monopoly on fine dining" in Las Vegas and forced other properties to follow suit, said Tom Kaplan, senior managing partner of Wolfgang Puck Fine Dining Group in Las Vegas.

There are several defining moments in Las Vegas' colorful history that help explain to outsiders how the city has captured the world's attention. Along with the legalization of gambling and the building of the Hoover Dam in the 1930s, the opening of the mob-run Flamingo resort in the 1940s and the corporate takeover of casinos in the 1960s, there's another date that casino operators know by heart.

It's November 22, 1989: the day that Wynn opened the Mirage.

It was the biggest and most expensive casino ever built -- one of the biggest gambles this city of gamblers had ever known. The Mirage sparked an unprecedented building boom on the Strip that would help transform the small desert city into the country's fastest-growing metropolis.

Critics said the Mirage would never be able to generate the revenue needed to pay down its exorbitant debts. They were proved wrong when the resort churned out at least a million dollars in revenue per day.

Wynn didn't create the first themed megaresort -- that title likely belongs to Jay Sarno and his 1996 debut of Caesars Palace. But he improved on the old model, setting a new standard of luxury and escapism.

Wynn would later build Treasure Island and Bellagio, as well as reinvest millions into the Golden Nugget downtown.

He bought the old Desert Inn site for $270 million around the time he sold Mirage Resorts. One of the largest available parcels on the Strip, the 212-acre site included plenty of land for a golf course as well as more than 100 acres for future development. A smart purchase at the time, the price would be a steal at today's prices, analysts say.

After vowing to stay out of the public markets, Wynn filed for an initial public offering in 2002 to raise money for his new megaresort. Amid a lackluster IPO market and a new crop of critics who questioned the resort's $2 billion pricetag, Wynn Resorts stock opened at $13 per share -- several dollars less than bankers originally sought.

Wynn is now riding high.

As of Wednesday, shares of Wynn Resorts traded at about $55 -- not cheap considering the company hadn't made a penny of operating profit. This is no dot-com bubble, analysts say.

More than perhaps any other major public company, the stock price of Wynn Resorts is based on the influence and track record of one man.

While some analysts may still be leery of Wynn's penchant for spending lavishly, he has earned universal accolades on Wall Street for his creative genius.

Meanwhile, prospects in Macau and Las Vegas -- widely viewed as the world's most lucrative gambling markets and the two places Wynn will operate casinos -- have exceeded analysts' expectations.

"Steve has come back with a very strong growth story and he owns a greater percentage of this company so his interests are aligned with shareholders," Deutsche Bank stock analyst Marc Falcone said. "There's a new sense of energy and design and a focus on (service). He's got a young, hungry and energetic management team that will maybe bring a new approach to the industry."

Early booking trends have been positive, with occupancy and rates exceeding expectations, analysts say.

Of about 13 analysts now tracking Wynn Resorts, seven have "buy" ratings, four are neutral and only two say "sell." Most say shares, which traded around $56 per share Tuesday, could rise in the $70 to $80 range a year from now.

Last week, Merrill Lynch analyst David Anders issued a "sell" rating, cautioning investors that the current stock price already reflects the company's growth opportunities and gave a relatively conservative target of $45 per share.

Anders said Wynn Las Vegas in 2006 is expected to generate about $350 million in earnings before interest, taxes, depreciation and amortization -- a key profit indicator that excludes costs unrelated to operating performance. That compares to $419 million at Bellagio, $335 million at Venetian and $265 million at Mandalay Bay. Even with roughly 30 percent fewer rooms than the competition, Wynn Las Vegas revenue is expected to be about $1.2 billion, close to Bellagio's $1.3 billion and above Venetian's $859 million and Mandalay Bay's $882 million.

Wynn's company recently refinanced its debt to take advantage of low interest rates. Together with $400 million in proceeds from its stock offering, the company has accumulated enough financing to build the $1.4 billion Encore resort next door in addition to opening Wynn Las Vegas. The 2,000-room Encore is expected to open in the first half of 2008.

Competitors continue to view Wynn as an asset -- an innovator willing to take risks others avoid and build must-see resorts that attract new customers.

"I think it's going to be great," Palms resort owner George Maloof said. "Steve's never let us down."

Besides attracting new customers, Wynn Las Vegas will lure return visitors, Deutsche Bank bond analyst Andrew Zarnett said.

"Customers who've seen a lot of stuff in Las Vegas and said, 'I've done that' are going to re-emerge," Deutsche Bank bond analyst Andrew Zarnett said.

New Resort Just Latest Piece of Wynn's Legacy is republished from