#MeToo, Et Steve: Part II

This is Part II about the times, rise and fall of Steve Wynn. As you may recall, Part I ended:

 

Wynn had found the formula, a prescription that says the building is the star and if you can build a star building, they will come. But what building should it be, and at what cost? And where? Las Vegas? Or Atlantic City? And, later, what do you do for an encore besides build a hotel named Encore? Maybe learn some Chinese.” Now let’s go on to Part II.

 

That’s what Steve Wynn did in 1986 after a contentious and troubling New Jersey casino re-licensing hearing in 1985. While Wynn and his then Golden Nugget Corporation carried the day and gained re-licensing, the hearing had focused on troubling questions about the business practices of the company and the judgment of Wynn himself. Angry and feeling himself aggrieved by New Jersey, the then 44-year-old Wynn got an offer he could not refuse.

In 1986 one of the devices in vogue on Wall Street was called greenmail, by which an investor would take a position in a public corporation strong enough to threaten a takeover — not so much for the purpose of acquiring a company but to force it to reach a hefty monetary settlement with the individual or the other corporation taking a strong position in its shares.

In Atlantic City, Donald Trump, already owner of two casino hotels, began acquiring shares in Bally Manufacturing Corporation, then the owner of the Bally’s Casino Hotel.  New Jersey’s casino law permitted no more than three licenses to be held by one enterprise or interest. This meant if Bally could acquire another casino hotel in Atlantic City it would be protected from a takeover by Trump because for him to do so would put him in possession of four casino hotels, one beyond the legal limit.

It was this that caused then chairman of the New Jersey Casino Control Commission, the late Walter “Bud” Read, (with whom I was pleased to serve and from whom I took lessons in public decorum and the wisdom of age) — it was this that caused Bud Read to advise Donald Trump at a public hearing that, “A casino license is not a hunting license,” which is to say we did not look kindly on Trump’s machinations.

Casting about for a defense to stymie Trump by way of a second casino, and given the well-known fact that Wynn was very unhappy with New Jersey and might welcome a good offer, Bally’s eye fell on the Golden Nugget of Atlantic City.

Bally made one, paying $440 million to purchase the Atlantic City property from Wynn  though it left behind another major 14-acre site owned by Golden Nugget, Incorporated  in the city’s Marina District adjacent to one of Trump’s two hotels and to Harrah’s Atlantic City. It wasn’t the smartest deal a buyer could make. It was a great deal for Wynn and the Golden Nugget.

The land Bally’s left behind owned by the Golden Nugget is in the part of the city where the Borgata was later built and opened about 16 years ago and became and remains the biggest money-maker in Atlantic City history. Borgata is not on those 14 acres  but close enough to it to greatly increase the value of the parcel. Wynn’s then Mirage Corporation (when Golden Nugget built and opened the Mirage Hotel — see below — it changed its name to Mirage) owned 50 percent of the Borgata, which is now owned entirely by MGM Resorts International.

MGM came into full possession of the Borgata by virtue of its takeover of the Mirage Corp. circa 2001 and of buying out its former 50 percent co-owner, Boyd Gaming Corporation (how all of how that came to be and how the Borgata came to be built is another, different story — one in which I was closely involved for nearly four years as a Mirage consultant {well past my commission post-service-business restrictions}).

In the sale to Bally in 1986, Wynn and the Golden Nugget profited handsomely on the company’s investment, nearly tripling its initial stake in the property, never mind five years of enormous revenue flow.

With plans in the works for a major new hotel casino to be built on the Las Vegas strip, Wynn now had a major cash infusion to move the project forward and forward it went at an ultimate cost of nearly $1 billion. It became the first casino hotel anywhere to reach that extravagantly sized development budget and the first new big property built on the Las Vegas Strip since the mid-1970s. Las Vegas had been in the dumps for a decade and more.

The Mirage Hotel opened in late 1989 and suddenly the world of casino gambling changed and changed forever. With a man-made volcano erupting regularly every few minutes outside along Las Vegas Boulevard (the “Las Vegas Strip”) to draw crowds, the sleek 1,000 room hotel featured opulent restaurants; the tiger taming act of Siegfried and Roy; a habitat for their tigers that became the greatest attraction in a city filled with competing attractions; shops at the highest end of the retail trade, and a front desk backed by an immense tropical aquarium, live parrots and decor evoking a tropical island oasis.

Tourists and gamblers poured into the Mirage, its casino,  shops, restaurants and showroom. Even as The Mirage changed expectations for major casino hotels, it changed the business expectations of casino hotels owners.

Wynn believed it should be possible to create an attraction that would provide as great a return from everything else it had to sell as from the casino. His Mirage proved no mirage in that respect as it changed the template from one in which hotel casinos, whether in Nevada or Atlantic City, expected and experienced a business prototype in which 90 percent or more of revenue came from casino gambling and the small remainder from the hotel side of the business.

As his former wife Elaine would say years later in an interview with “60 Minutes”, her then husband, could “… go crazy making the most extraordinary environments…He understands innately what the public will respond to.”

With record-breaking revenue flowing at the Mirage, which began to generate as much as 40 percent of revenue from its hotel, food and beverage, retail and entertainment offerings anchored by Siegfried and Roy and their white tigers — the Golden Nugget Corporation changed its name to Mirage Incorporated. The success of the Mirage gave its chairman the resources to build still another hotel on the Las Vegas Strip and then another and another.

As an inducement to golf-playing high-end customers and because he was then interested in golf, Wynn had the company build the renowned Shadow Creek Golf Course, in every way, out in the desert, looking and feeling like a course in North Carolina with pine forests and babbling brooks and ponds running through it (someone told me they had imported 17,000 pine trees to give it the feel of Carolina).

The Treasure Island Hotel opened in 1992 with the streetscape spectacle of a regularly scheduled live simulated 18^thCentury battle between a pirate ship and a British warship. The crowds that gathered for the show every day all day and every evening into the night inevitably found their way into the hotel and casino and into the neighboring Mirage hotel and casino. Later as he developed more properties on the strip, Wynn did what Atlantic City had long talked about. His company built a tram, except the only stops were Mirage Incorporated hotels. Not for nothing had Steve Wynn paid close attention to Disney Corporation development models.

(An important biographical note is that in 1993 one of Steve and Elaine Wynn’s two daughters, both then in their 20s, was kidnapped. A ransom was paid. She was released unharmed. Wynn became acutely security conscious. He remains so. One of his defenses is the ownership and use of guard dogs — dogs that would attack if ordered too and that some I know said they were more than uncomfortable when in the presence of those animals).

Wynn’s success with the Mirage and Treasure Island inspired a massive new building spree in Las Vegas. Throughout the 1980s the desert city had been overshadowed by the rapid expansion of gambling development and revenue in Atlantic City, which by 1990 supported a market in which just a dozen casino hotels  generated about 60 percent as much revenue as  Las Vegas with its dozens of hotel casinos. Suddenly the Mirage and Treasure Island proved Wynn’s long held belief that the greatest success would come to those who would make the building the show and use their buildings to put on a show.

In rapid succession other companies like the former Circus Circus and Sheldon Adelson’s Sands Corporation built themed hotel casinos including the Excalibur, Luxor, the New York, the Paris and the Venetian hotel/casinos.

At the close of the decade Wynn built what then became his piece de resistance in Vegas, the Bellagio. Constructed on the site of the former Dunes at the famous four corners and originally budgeted for $1.5 billion, Bellagio, with an enormous water feature cum dancing water/light show inspired by lake Como in Italy, where the real village of Bellagio is located, came in at nearly $3 billion.

The investment included several hundred million dollars in 19th and 20th Century art collected by Wynn, including works Monet, Chagall, Picasso and other vaunted Impressionists, Cubists and modernists. By the age of 60, Wynn could barely see his art or the artistry of his remarkable hotels and the remarkable designs and decor he infused them with. Afflicted with Retinitis Pigmentosa — a degenerative genetic eye disease that gradually but inexorably steals peripheral vision, robs light from vision and then destroys vision itself — some believe Wynn was always in a hurry to finish his creations while he could yet see them. He has for decades acknowledged his affliction even as he had the innate ability to see beyond it to create his empire of the imagination.

After the Mirage, tens of millions of Americans who have never been to New York or Paris or Venice and never would; who would never visit the Museum of Modern Art in New York to view paintings by the artists gathered into the Bellagio collection; who might only imagine the splendors of Venice, a ride in a gondola, a view of the Statue of Liberty or the Eiffel Tower, or the mysteries of ancient  Egypt, suddenly found themselves in fake transport to them by preposterous recreations of these places and experiences in Las Vegas resort casino hotels.

Wynn did not build all those hotels but he inspired them all because of his imagination, his ability as a showman, and his business formula — making his buildings the stars of the shows he produced that drew the public like magnets. All came from an extraordinary business sense that told him that all of this could and would greatly expand the revenue base of the casino hotel industry to the non-gambling side of the hotel casino equation. And, of course, as in any retail business, in any public attraction, the more people who enter money they will leave behind.

One more example: Wynn changed the tired old Las Vegas entertainment scene from headliners to contemporary show biz, becoming the first to bring Cirque de Soleil to Las Vegas and then importing full cast Broadway hit musicals. You get people in the door, they spend money in all kinds of ways including but also besides in slot machines or at blackjack and craps tables.

If Wynn uncharacteristically stumbled it was in over-reaching by attempting to carry out a major development in Mississippi at the same time he went ahead with the budget over-runs on the Bellagio while also planning a return in Atlantic City.  The Bellagio cost $3 billion. The bill for the Beau Rivage project in Mississippi shot up to $1.5 billion. In Atlantic City, he invested more than $100 million in an infrastructure project in partnership with the State of New Jersey to open up a major piece of land – the former municipal land fill — acquired from the city with the promise that Mirage Incorporated would develop at least one, and probably two 2,000 room hotels on the site. Eventually, one hotel did get built on the site: The Borgata.

Suddenly, in 1999 the market took notice of the company’s mounting costs and financial over-extension. The share price of Mirage Incorporated plummeted by half, making it an easy target for a takeover. The MGM Corporation (now MGM Resorts International Incorporated),  had been on its own building spree in Las Vegas and was also in an acquisitive mode since taking over the Mandalay Bay Corporation (which itself had been born as Circus Circus Corporation) and its many properties in the Nevada gambling capital, swept in with an offer.

Wynn weighed his options including a fight to retain control and opted instead to allow the offer to move forward. He came away with $500 million dollars himself, including payment for some of the art at the Bellagio, which he owned privately. What he didn’t sell he kept. MGM Resorts came away with all of the Mirage hotel properties.

It later sold the Golden Nugget and then in turn with substantial financing from the ruler of Dubai built an enormous $8 billion Las Vegas project of casino hotels, condominiums, commercial and retail space called City Center. Each City Center hotel boasted over 2,000 rooms, a common feature in the gambling business by 2012. By then  56 hotels in the casino hotel industry throughout the United States offered more than 1,000 hotel rooms. Nearly half of them in Las Vegas. These and the following facts date to about 2012.

The opening of three more mega hotels at City Center brought the total hotel room count in greater Las Vegas to 150,000, dwarfing the next highest total in New York City, which for all its prowess as a center of tourism and commerce has by comparison 90,000 hotel rooms. In fact by 2011, 23 of the 35 largest hotels in the world were located within a two-mile radius in Las Vegas, including 13 owned by MGM Resorts alone, which owns the biggest one of all, the 5,000-room MGM Grand (nothing like experiencing a quaint little hotel).

The only other city with more than one mega-hotel is Orlando, Fla. where two Disney properties make the list, a list from which are absent New York City, Chicago, Los Angeles, Washington, D.C., New Orleans, Atlanta, London, Paris, Rome, Berlin and every city in Latin America and Africa. The smallest hotel on the then list of the 35 largest was the Golden Nugget, Steve Wynn’s first in Las Vegas, the one that first opened with 200 room. It had expanded to over 2,300 rooms.

When, in 2000, Steve Wynn found himself with $500 million and, for the first time since his Frontier job folded in 1966, unemployed, he had choices. He could retire, devoting himself to whatever else he wanted to do to fill his life. He could do nothing. Or he could do it all over again. He chose the latter.

But to do that even with his considerable wealth, he needed far more capital. He went looking for a partner and found one in Japan in the person of Kazuo Okada, a billionaire with a fortune based on manufacturing pachinko gambling machines, a device unique to Japan that combines elements of a pinball machine and slot machines (with the reputed taint of Japanese organized crime involved in Japan’s ubiquitous pachinko parlors). With substantial financing from Okada,  Wynn  established Wynn Resorts in 2000 in Las Vegas, named its first mega-property after himself, the 3,000 room  Wynn Hotel on the site of the former Desert Inn; and decided to venture overseas when in 2002 the Chinese government opened up the gambling franchise in Macau.

Macau is an 11 square mile peninsula and two islands with about 550,000 people. It is near Guangdong Province in China, which overflows with people, is about 37 miles southwest of Hong Kong in southeast China and like Hong Kong is governed and is now part of China as a special administrative district. It is the only place in China where gambling is legal.

From the early 1500s the Portuguese held sway in Macau, also spelled Macao. They established it as a major trading center in Asia from, which they loomed large in commerce in the Far East for centuries. Macau formally became a Portuguese colony in the second half of the 19^thCentury under treaty with the last Chinese imperial dynasty and a later treaty with the Nationalist Chinese Kuomintang government — that overthrew and succeeded imperial rule only to be overthrown and replaced in 1949 by the People’s Republic of China under the Chinese Communist Party led by Mao Tse Tung.

When the Communist Party came to power in China in 1949, it declared the existing treaty invalid but otherwise did nothing to disturb Portuguese control. The last quarter of the 20^thCentury saw the Portuguese begin  gradually to relinquish their position until, in 1999, the Chinese assumed control over Macau but in a fashion like that in Hong Kong, supposedly assuring it great autonomy for decades while preserving its role as an international commercial and financial center. Like Hong Kong and its Honk Kong dollar, Macau retained its own currency, the pataca.

First under the Portuguese and since under the Chinese, legal gambling is and has long been a mainstay of the Macanese economy. Until 2002 one man, Stanley Ho, and his company, Sociedade de Turismo e Diversoes de Macau (STDM), held a monopoly license. When the Chinese government took control, it ended the STDM monopoly and awarded six concessions and sub-concessions for new gambling enterprises. Three of them went to American companies, MGM Resorts International in partnership with Pansy Ho, a daughter of Ho; Las Vegas Sands Corporation, whose chairman and controlling shareholder is Sheldon Adelson, who did so much to bankroll the Newt Gingrich presidential candidacy in 2012 and is one of the arch financiers of the far right-wing Republicanism that now grips American government in its talons.

(Full disclosure I worked briefly for Sands Corporation through its D.C. lobbyists four years ago in a campaign against legalizing on-line gambling. I did research and wrote. Adelson is opposed to it as it is a threat to his business. I am opposed to on-line gambling because it would be, if allowed to spread everywhere, socially irresponsible and catastrophic public policy. It was a short engagement as they call these sorts of consultancies, three months and then they would not even talk to me.  I concluded they, the Adelson people, must have discovered the many on-line posts I had made about Adelson’s exreme right-wing politics and imbalanced interference in American public life with his Citizens United-enabled torrent of giving to the far right.).

From that digression, let’s turn back to Macau. What was/is the third American company granted a Macau concession by China?

Wynn Resorts.

In but 10 years these and other companies in Macau transformed gambling so that Las Vegas is no longer the capital of the worldwide casino industry. Macau is. What is the reason for this? It is simple enough.

Macau sits on the doorstep of China, a nation of 1.4 billion people with a $15 trillion and ever-growing annual economy that is second largest in the world to the $21 trillion U.S. economy (GDP). All of this combines with the fact that risk and gambling are ingrained in and integral to Chinese culture to make Macau the largest gambling market in the world.

At its peak in 2007, just before the Great Recession, Nevada crossed the $12 billion mark for annual gambling revenue. In the depths of the great recession that figure plummeted below $9 billion but by 2011 had recovered to about $10.5 billion. Atlantic City reached $5.2 billion in 2006 but today is at about $2.4 billon (including $200 million a year from in-state on-line gambling), a decline owing first to the recession but ultimately to the over-saturation of  casinos through the Northeast and Mid-Atlantic states. Pennsylvania casino gambling started up in 2006 and Atlantic City started its precipitous decline.

The Keystone State now records well over $3 billion a year in casino revenue, far surpassing New Jersey. The biggest revenue producing casino in the U.S.? It’s called Resorts World. It’s located in New York City in the Borough of Queens adjacent to Aqueduct Racetrack. It produces more than $800 million a year. And it’s owned by? It’s owned by the New York State Lottery and managed for 25 percent of the take by a Malaysian Company named Genting,  controlled by one Chinese Malay family.

Again, back to Macau. In 2011 total gambling revenue in Macau’s two dozen casinos reached $33.5 billion, more than three times that of Nevada, where Las Vegas contributes two-thirds of the total. Wynn Macau, the Wynn Resorts subsidiary that owns the company’s three hotel casinos in the Chinese enclave, by itself generated almost $3.6 billion in 2011 – equal to the entire Atlantic City casino market that same year.

Without Macau, Wynn Resorts lost money in 2011 at home in Las Vegas. Its $640 million in profits came entirely from Macau. The Macau subsidiary of Wynn Resorts accounted in 2010 for 69 percent of corporate revenue, 70 percent of the company’s assets and 57 percent of its costs with the decidedly smaller balances in each category attributed to its Las Vegas hotels. If you checked the numbers since year by year they would almost certainly be alike. Wynn Resorts added a second major Las Vegas hotel, The Encore, but also greatly expanded in Macau. Both Wynn Resorts and Adelson’s Sands Corporation derive at least half their annual revenue from Macau.

Macau’s total casino revenue peaked in 2013 at $43.7 billion. Then came President Xi’s crackdown on corruption and the gambling market, to no one’s surprise, shriveled.  By 2016 Macau casino revenue had plunged to $28 billion. In 2017, with the corruption crackdown easing as Xi prepared to make himself president for life, Macau revenue recovered to $33 billion. By comparison, more than 1,000 Indian and commercial casinos in 44 states in the U.S. recorded total  2017 revenue of $70 billion revenue.

Like the Mafia mobsters who lost consistently in the long gone Atlantic City Golden Nugget decades ago, China’s corrupt public officials and new class of business millionaires and billionaires lost a lot of money in the glittering new palaces of Macau’s casinos. It  looks now like the corruption crackdown lid is off and they are returning to lose billions more.

That’s largely because a unique factor in Macau has to do with what is called junkets in the American casino industry, the practice of bringing big gamblers to a casino who can and will risk vast amounts of money gambling and from whom vast amounts of money can and will be won over time by the casino.  Steve Wynn in his 1981 testimony recalled his first trip to Las Vegas at age 10 when he accompanied his father who was on a junket trip to gamble. The really big junket customers have long since passed the category of high rollers. They are now called “whales”, people who can lose — oh pick a number — say $500,000 on a single bet, if the house will take and cover it.

In the United States junkets are a closely held proprietary interest of each major casino. While casinos contract with junket representatives, agents who bring such customers — regulators carefully and closely scrutinize both sides of the junket business, including the backgrounds and suitability of junket representatives and the financial incentives/commissions paid to them. They are sales people. They sell to casinos people who like to gamble a lot and are willing to risk a lot of money when they do.

In Macau a different system is at work. A casino does not pay a fixed incentive or a commission but shares its winnings from customers of a junketeer with the junketeer who supplied the losers as customers of the casino. In fact the Macau casinos operate different levels of gambling for the big customers with the greatest proportion of  gambling revenue coming from junket customers, with huge amounts going back to the junket agents, who effectively own a share of the revenue their customers produce.

There are and have been allegations that some significant part of this business is connected to organized criminal elements in Macau that would never pass muster before American casino regulators: And that it would be difficult to regulate with trust the actual distribution of the proceeds under typical American casino regulatory systems.

If you own the revenue under various state regulatory laws like the New Jersey Casino Control Act, you need to be licensed. Whatever the truth of such allegations and concerns, it is nonetheless true that the greater part of Macau’s casino revenue derives from catering to such customers and is dependent on the agents who supply them. It is at least arguable and more likely certain that many of them could never get a license in New Jersey or its fellow U.S. casino states.

One July 2011 report about the Wynn Macau operation illustrates how dependent Macau is on junket gambling. According to an analysis at the time by Union Gaming Research, in the 2^ndquarter of 2011 Wynn Resorts recorded nearly $33 billion in what its report called “VIP table drop” in Macau (drop is the industry term for the money paid over by gamblers to wager) while what the report called “mass table drop”, the amount risked at table games by non-junket generated customers, was a mere $693 million; and the amount customers put into Wynn Macau slot machines was a relatively modest $1.5 billion.

According to other information in the Union Gaming report it appeared these total wagers generated more than $1 billion in gambling revenue for the company in the quarter but the amount actually retained from the enormous VIP revenue was just 2.89 percent compared to over 27 percent retained from “mass” table play. By comparison the company’s Las Vegas operation reported $391 million in revenue for the same period. Clearly Macau became beyond important to Wynn Resorts and the other American companies in the market. It became essential. Money the casino moguls have poured into Republican campaign coffers these past few years? It’s from China. (Steve Wynn co-chaired the Trump inaugural, the one with the not so big crowds).

As vital as it is, Wynn Macau became the source of discord between Wynn and his  partner, Okada. It contained the seed of what threatened to become a major regulatory issue for the company at home in Nevada. In a drama that played out over several years, led to all kinds of federal and state regulatory complications for the company that, like all such problems, eventually were resolved, Okada was forced out, sold out and Steve and Elaine Wynn were left in control of about 21 percent of Wynn Resorts shares.

They had divorced in 1986 then remarried in 1991. In 2010, they divorced again as he separated in life, if not in business, from his steadfast ally and companion in building his businesses over nearly 50 years. In the split, he kept 12 percent of the shares and Elaine Wynn got 9.4 % but without the right to vote them, a complicated point that became a dispute that resulted in a bitter business breakup that ultimately played out in 2017. She left her seat on the board but kept her shares.

When Wynn resigned from the company after the explosion of #MeToo allegations the company’s stock was in the range of $170-175 a share.

In March 2018, Wynn reportedly sold his 12 percent stake in the company in two transactions. In one he reportedly sold 4.1 million shares at a price of $180 a share. Reports say he sold his remaining 8 million shares the next day at $175 per share. The two sales produced a combined $2.15 billion. Various sources place Wynn’s total net worth at $3 billion.

Looking at it only from the perspective of the $2-plus billion he received for his Wynn Resorts shares, Steve Wynn arrived in Las Vegas in 1966 on a $30,000 investment. Fifty-two years later he had grown that into at least $2 plus billion, probably $3 billion.  If you are good at that sort of thing, you can calculate his discounted return on investment. No matter how you calculate it., he did alright.

More than that, he had changed the face of Las Vegas, changed the way it did business, and showed it how to keep growing its business. Also, more than anyone before or after him in the casino hotel industry, he changed the way Americans thought about, think about and experience gambling.

In the first decade of this new century, Wynn  founded his third  company, Wynn Resorts, and built on the site of the once famous Desert Inn, the very same hotel where Howard Hughes holed up years before, The Wynn, the most spectacular casino hotel of them all. In 2009 he added  The Encore, to the site, boosting his company’s Las Vegas hotel room count by 2,300 more to over 5,000. With new momentum in Las Vegas in the first decade of the 21^stCentury, he entered the burgeoning gambling market in Macau, China and put his name and his company on the international stage. Not bad for a boy from Maryland who once ran a bingo game and became the ultimate proof that, yes, Parry Thomas knew talent when he saw it.

And then came February 2018 when #MeToo revelations blew it all up.

Mr. Wynn has his money, the company still bears his name though reportedly is thinking over that conundrum.

For now, perhaps forever, Steve Wynn has gone silent in a world that might not ever allow one more toss of the dice by the most successful and visionary gambling industry entrepreneur since Bugsy Segal stopped in the Mojave desert in 1938  thought to himself something like this and then said it to Meyer Lansky, “Wow it’s legal here, think what we could do, think what we could build.”

Bugsy could not have imagined what Steve Wynn would build though he did understand the frailties of men that can make them vulnerable and undo them. Someone undid Bugsy one night in Los Angeles in 1946, riddling him with bullets.

This year Steve Wynn’s reputation became riddled and ruined in the space of a few days by the firing of a lot of @MeToo bullets.