The revenge of Steve Wynn

The baccarat bunch
Wynn has already begun an extensive marketing campaign. He has opened sales offices in 13 cities, many of them in Asia, and cut a cross-promotional relationship with Société des Bains de Mer, a publicly traded company majority owned by the principality of Monaco that runs the casinos there. Wynn also ran TV ads during the Super Bowl and the Oscars. They featured a grinning Wynn standing atop the new hotel proclaiming it "the only one I've ever signed my name to."

Wynn's timing couldn't be better. With MGM in the process of merging with Mandalay Resort Group, and with Harrah's Entertainment Inc. buying Caesars Entertainment Inc., he'll have his pick of top managers at the outfits being acquired. By targeting high-end players with fancy new suites and baccarat tables, Wynn is likely to siphon off as much as $75 million in cash flow from MGM, says J.P. Morgan Securities Inc. casino analyst Harry C. Curtis. Harrah's, which traditionally targets middle-market gamblers, may reduce the focus its new flagship Caesars Palace places on high-end customers, creating more business for Wynn.

In public, rival casino operators say that new properties are good for Vegas because they create more reasons for people to come to town. Behind the scenes, however, they compete fiercely for the kind of gamblers who feel comfortable betting $10,000 or more per hand. MGM may already have launched its counteroffensive. "They're throwing tons of events, shopping sprees, baccarat tournaments, fishing trips," says Steve Conigliaro, an independent businessman who hosts high rollers at various casinos. "Steve Wynn is going to take some business away. He knows what people like."

Wynn's reputation is that of a man obsessed with details. Daniel R. Lee, who served as chief financial officer at Wynn's Mirage Resorts and who now runs casino operator Pinnacle Entertainment Inc., remembers Wynn criticizing what Lee thought had been a well-executed annual report. "He told me there was a split infinitive on page 23," recalls Lee, who immediately corrected the error at a cost of $9,000. After Lee told his boss, Wynn replied: "When you're close to perfect, why wouldn't you try for perfect?" Wynn declined to be interviewed.

As Wynn found out, though, such standards can be costly. He lost control of Mirage largely because investors grew unhappy with his prodigious spending on projects such as the $685 million Beau Rivage Hotel & Casino in Biloxi, Miss., and on a $200 million corporate art collection. Shades of those days are already apparent at Wynn Las Vegas, where design changes such as a second theater added $300 million to the original budget. But this time around, Wynn and Japanese businessman Kazuo Okada control almost half of the stock, making it much harder for institutional investors to influence his decisions.

Wynn already has his next projects cued up: a $700 million casino opening next year in the booming Chinese market of Macao and an even more exclusive, $1.4 billion casino, dubbed Encore, next door to his Las Vegas property. Such high-end resorts rarely earn outsize returns. UBS Securities LLC casino analyst Robin Farley noted in a report last year that the average Las Vegas Strip casino returned just 13 percent on capital -- about what Wynn Las Vegas is projected to earn in 2006. Lower-budget properties such as Mandalay's Excalibur and MGM's New York-New York earn above 20 percent.

Still, investors, enthralled with surging Vegas tourism and the even hotter Macao market, have bid Wynn shares up fivefold since their initial public offering in October, 2002. At a recent share price of $68, Wynn's 25 percent stake is worth nearly $1.7 billion -- six times his investment. Everyone likes to be with a winner.

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