Thursday, Aug. 13, 1998 | 10:44 a.m.
Wall Street for the most part hasn't been pleased with Steve Wynn's latest sale of Mirage Resorts Inc. stock.
But well-placed observers of the Mirage chairman say critics are failing to recognize Wynn is selling stock to buy more high-end art for display at his Bellagio resort opening in October.
Some estimates value Bellagio's art collection at $315 million. Analysts backing Wynn's strategy feel that investment will pay off by cementing Bellagio's stature as one of the world's few must-visit luxury resorts.
"This is money that's effectively going back into the company, because the art is ending up at Bellagio," an analyst said.
Mirage stock has dropped about 10 percent since the news circulated that Wynn had sold another 3 million shares; the stock closed Wednesday at 20 --a 52-week low.
Analysts attributed part of the decline to last week's announcement of a big and unexpected drop in Mirage's second-quarter earnings, as well as concerns about market saturation in Las Vegas.
But they said the timing of Wynn's latest action -- he's sold 7 million Mirage shares so far this year -- also hurt, coming as it did just two days after the disappointing earnings release and just two months before the opening of Bellagio, the company's $1.8 billion gamble on Las Vegas.
The sale also comes as anti-gaming forces push a ballot issue that would ban dockside gaming in Mississippi, where Mirage is building an $800 million resort called Beau Rivage.
"The message seems to be that Wynn thinks there are better places to invest his money than Mirage," chuckled one short seller who's betting Mirage stock is headed still lower.
Short sellers are investors who borrow stock from other investors and sell it, hoping its price declines. Then they can replace it at a lower price, pocketing the difference.
Sometimes the difference is big. Short sellers in Circus Circus Enterprises Inc. made an estimated $400 million as the price fell from the mid-30s to the mid-teens in the recent gaming stock selloff.
Since the Circus short sellers covered their positions, Mirage has had the gaming industry's biggest short interest -- number of shares sold short -- at almost 22 million shares.
But analysts said Wednesday the short sellers could get caught short and Mirage's shareholders may ultimately benefit from Wynn's plans for the proceeds of his own stock sale.
Mirage executives refused to comment on those plans. But Wynn used proceeds from previous sales to buy fine art for display at Bellagio, and analysts said they expect him to do the same this time.
Last February, Mirage disclosed it planned to display about $240 million of classics by Van Gogh, Picasso, Monet, Renoir and other artists at Bellagio.
At that time, the company said the figure included $75 million in art owned by Wynn and $165 million owned by the company. Wynn has agreed to lease his art to Bellagio.
Since February, Wynn has re-entered the art auction market on several occasions, and some reports say he paid a record $33 million recently for a Monet. He also offered $15.5 million for an Andy Warhol portrait of Marilyn Monroe, but was outbid by newspaper publisher S.I. Newhouse Jr.
"If you take the total proceeds he's received from the 7 million shares, it comes to about $160 million," said one New York-based gaming analyst who asked not to be identified.
"He's got to pay a 20 percent capital-gains tax, so that cuts what he's got to spend on art to $130 million. And that doesn't cover his total cost, which is approaching $150 million."
That would bring the total value of the collection on display at Bellagio to $315 million.
"He thinks he needs to have an extraordinary collection there as part of his arsenal, but the Mirage board didn't want to spend any more money on art," the analyst said.
"He may have been a little naive about what art costs, but he wants a museum-quality collection, and that costs a lot of money.
"Investors who look at this as a complete negative don't understand what he's doing," said the analyst. "He's getting lease revenue of 4 percent a year, and that's not much of a return. It's Bellagio that's reaping the benefit."
A gaming industry executive who also requested anonymity likewise believes investors are missing the point.
"If these sales were to buy vacation homes or other personal things, I would understand some of the handwringing," the executive said.
"But what I don't understand is why no one talks about turning some of his personal assets into shared assets that in effect benefit the company.
"He's re-investing his own money in a different way, and it might not appreciate the way the stock might. In the long run, he probably could get more from keeping his money in Mirage stock. But he clearly gets immense pleasure out of this art."
Wynn's silence on the sales may be strategic. Telegraphing his plans for the proceeds could drive the price of artwork he covets higher, even if he uses agents to buy it.
Meanwhile, "The sales are obviously weighing on the stock," said David Wolfe of CIBC Oppenheimer & Co.
"There are concerns about the chairman of a company selling when you want to see him buying.
"You can look at it and draw a very negative connotation or a very rational explanation. There are a lot of opinions, and none of them are right until after the fact.
"When you come right down to it, it's Wynn's decision," Wolfe said. "If you don't like it, the stock market is open from 9:30 to 4."
"Cosmetically, the sale looks bad to investors," said Jason Ader of Bear Stearns & Co. "Mirage stock has hit a new low, trading at one point Wednesday below 20 for the first time in a very long time.
"I have an attractive rating on Mirage and won't downgrade because of the sales. Wynn still has a significant amount of shares, and I believe Bellagio will be a big success.
"But it's hard for the average investor who sees insider selling to take comfort from such actions," Ader said.
The analysts cautioned against reading too much into Wynn's sale.
"It's hard enough for me to analyze stocks, let alone individuals and their investment decisions," said Wolfe.
"Every situation is different. I try not to think about personal transactions but to focus on the fundamentals. And we've always said Mirage is a bellwether stock with a marque product coming into the market and an obsessive-compulsive management, which is what every shareholder should want."
"There's a lot of confusing signals from people in the gaming industry today," said Ader, pointing to Rio Hotel & Casino Inc.'s chairman, Anthony Marnell, who negotiated a merger with Harrah's Entertainment, and MGM Grand Inc.'s stock repurchase program, engineered by majority owner Kirk Kerkorian.
"You have Steve selling, Tony trading and Kirk buying," Ader said. "These are three guys who've created more wealth than anyone else in Las Vegas, and they're all doing different things. And I suspect they'll all be right."
But Ladenburg Thalmann & Co. analyst Andrew Zarnett is hoping Wynn isn't -- at least as far as selling Mirage stock is concerned.
"He was wrong in 1993 when he sold before the opening of Treasure Island," Zarnett said. "Hopefully, he'll be wrong this time, too."
And as for the art purchases, Zarnett offered another perspective:
"Everybody in the world would love to do what he's doing. And the beautiful thing is, he's going to share it with the world."
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