Envy this casino operator

By Liz Benston

Saturday, Dec. 20, 2008 | 2 a.m.

It’s a good time to be Steve Wynn.

While competitors are slashing expenses and running their hotels on the cheap, Wynn spared little expense developing Encore, his $2.3 billion resort that opens Monday.

While competitors are struggling to pay down debt accumulated during the boom, Wynn’s company carries relatively little debt that won’t come due for years.

And while some companies are mothballing or scaling down projects, Wynn has the money he needs to weather this downturn — at least for now.

MGM Mirage is seeking financing for CityCenter, which was well into construction when the credit crisis struck.

By contrast, Wynn Las Vegas and Encore were financed before building began, with a little more than 60 percent of Wynn Las Vegas’ budget coming from borrowed funds.

Construction began on Encore in 2006, a year after Wynn Las Vegas opened and was generating money.

“Wynn’s balance sheet is in a more stable position today than the three other major Las Vegas Strip competitors,” stock analyst Dennis Forst of KeyBanc Capital Markets said. “The other companies have to envy Wynn Resorts’ financial position at present.”

It seems unlikely that Wynn, the first casino operator to finance properties using junk bonds, would be known for his conservatism. And yet, lining up financing ahead of construction has always been Wynn’s stock-in-trade.

Lured by an abundance of cheap capital and a false sense of security, others didn’t follow this prudent example.

“I could have run my company more recklessly and I wouldn’t be in a position to protect the jobs of my employees and wouldn’t have been able to guarantee the consistency of experience to my guests,” Wynn said. “And that would have made me, what, a more high-powered executive? Or a dolt like some of the other guys?”

Investors have noticed. Wynn Resorts shares are trading at more than $40 apiece — higher than those of any casino operator — and have been the least hurt by a recession that has slashed the value of several companies by more than 80 percent in a year.

Wynn maintains that he has always followed a conservative path. Yet investors haven’t always appreciated his approach.

Analysts have long accused Wynn of spending too lavishly on his resorts. The published cost of his properties often rose because of multiple revisions, changes Wynn says are critical to the creative process.

Wynn dismisses such critics as short-term thinkers who don’t understand that quality matters and is ultimately lucrative. Under MGM Mirage, the Bellagio — the most luxurious resort in the company’s portfolio — has emerged this year as the most profitable on the Strip. Wynn sold Mirage Resorts, including the Bellagio, to MGM Grand in 2000.

Some companies furlough workers when business is slow, but Wynn avoids economic layoffs and tends to err on the side of more versus less when opening resorts.

Encore has given Wynn an opening to avoid layoffs at a time when slower business justifies fewer employees. About 1,400 of Encore’s 5,000-plus employees will come from Wynn Las Vegas, offering some flexibility for Wynn to replace those workers as needed.

Wynn hasn’t changed his top-shelf style to address analysts’ concerns in years past, nor is he sweating this economy too much.

“Is it surprising that business moves in cycles?” he said.

In fact, Wynn betrays none of the nervousness usually involved in casino openings. It might be that Encore, which resembles Wynn Las Vegas in its color scheme and design, isn’t as much of a risk as some resorts in the pipeline. After all, the more expensive resorts have been less hard hit in this economy.

The smallest of Encore’s 2,034 rooms are 700 square feet, compared with 640-square-foot standard rooms at Wynn Las Vegas. Encore’s largest suites are more than 5,800 square feet, far bigger than Wynn’s 3,200-square-foot suites. Encore’s rooms will be 20 percent more expensive, on average. There’s custom-designed red carpet, marble floors with mosaic designs, silk wall coverings and large flower beds inside and out. (The company isn’t allowing the interior of the property to be photographed.)

For a large resort, there are more outdoor views from the casino floor, which is enclosed in glass. Like Wynn Las Vegas, Encore is a flowery, boldly colored fantasyland. Encore’s main lobby features giant red flower sculptures that bloom from the walls and butterflies that appear in floor mosaics and glittering wall hangings.

Like Wynn Las Vegas, Encore’s Tower Suites have a separate entrance and color scheme. Encore’s resembles an indoor garden, with a striped and flowered carpet in a pattern resembling a grassy meadow. The furniture is colored in whites, browns and greens, and bubbles rise from mirrored side tables like water droplets from long vases resembling green stalks.

Even Wynn acknowledges that Encore, for all of its glamour, isn’t a big departure from what he’s done.

“There was nothing really left to do — we’re talking about the most important part of it — but do the basics better,” Wynn said. “At the end of the day it’s not about gimmicks but guest experience ... that’s the only thing that matters.”

From his point of view, the unique and most important aspect of Encore happened during the hiring, when the company took a novel approach to interviewing. Instead of questioning job candidates in cubicles, hiring managers sat down with them in a lounge, offering fruit juices and cookies and initiating small talk with the goal of revealing candidates’ personalities. Job seekers waiting their turn watched something approaching motivational videos featuring a smiling Steve Wynn, while new hires watched yet another tape of Wynn congratulating them and asking them to address him by first name should they run into him on property.

“We are very self-conscious and aware of our relationship with the staff because that’s all that really matters,” Wynn said. Success is also about “the ability for you to grow a staff that learns and becomes more sophisticated ... you can only live off just a plain baccarat table for so long.”

How Encore will perform – and how quickly it will pay down its debts – is an open question. Unlike many of his peers, Wynn has the benefit of more than three decades of experience to guide him through the worst recession in the modern resort era.

And he already has a leg up on some companies, which, like many homeowners, borrowed beyond their ability to pay on the expectation of future growth.

“The world is full of guys who know all there is to know about how to do a deal,” he said. “And the world is critically short of people who know whether they should do a deal or not.”