Commentary: For Investors, Wynn's Latest May Be a Sucker Bet

The king of Las Vegas is back. Two years after Stephen A. Wynn sold his Mirage Resorts Inc. to MGM Grand Inc., he's cooking up another over-the-top casino. Shortly after Labor Day, Wynn plans to take a new company, Wynn Resorts Ltd., public in a stock offering expected to raise $454 million. The proceeds will go to build the aptly named Le Reve (the dream), a $2.4 billion resort with 2,700 rooms, the only 18-hole golf course on the Strip, and a Ferrari/Maserati dealership.

Wynn, 60, is a Las Vegas legend. His casino-cum-amusement park concepts--including a fire-spewing volcano and staged pirate battles--draw hordes of tourists to Sin City. But based on the prospectus and Wynn's history at Mirage, investors may not want to dive for their checkbooks.

When MGM bought Mirage for $6.4 billion, Mirage's stock was sliding because of construction-cost overruns for new casinos and Wynn's lavish perks. He rented his art collection to the company's Bellagio Hotel for $330,000 a month. Mirage also put a $8 million New York condo and a fleet of jets at Wynn's disposal. After selling Mirage, Wynn vowed he would never again run a public company. So much for that promise. Wynn still doesn't seem to get it.

It looks as if Wynn Resorts will be very good to the boss. Wynn and Kazuo Okada, founder of Aruze Corp., a Japanese maker of electronic gambling machines, will hold a majority of the stock. How ordinary shareholders will fare remains to be seen--especially since Le Reve won't be up and running, let alone making money, until 2005. "Wynn is someone who wants the control of a private company with the access to public capital" of a public company, says Nell Minow, a prominent shareholder-rights activist. "Anyone who buys into this should think carefully about these issues." Wynn refused to comment, citing a mandatory quiet period before a securities offering.

The prospectus does detail plans to control costs. Still, the lack of outside voices is a red flag. Wynn Resorts' seven-member board is packed with Wynn associates. Two are company execs, including Chairman and CEO Wynn and President Ronald J. Kramer. Okada will be vice-chairman. Wynn's wife, Elaine, is a member, as is Zenith Insurance Co. (ZNT ) Chairman Stanley R. Zax, a longtime friend of Wynn's. The sixth board member, former Nevada Governor Robert J. Miller, got $124,000 in campaign contributions from Wynn-related entities for three campaigns since 1986. Wynn has been a big contributor to an eye institute named after the seventh director, John A. Moran, a retired executive. Zax and Miller, in separate written responses to BusinessWeek, said their ties to Wynn won't affect their duties. Okada and Moran couldn't be reached for comment.

Wynn is again leasing his art collection to the company--now displayed at a gallery on the Le Reve site, the prospectus says. Instead of cash, Wynn Resorts is paying the insurance and giving him a cut of any profits from ticket sales to view the works. Wynn has sold two personal jets to the venture for a total of $48 million, the prospectus says. He also contributed a license to build a casino in Macao, valued at $56 million, in exchange for equity.

Wynn's bankers certainly have every incentive to sell the deal. Banking sources say Deutsche Bank (DB ), Bear Stearns (BSC ), and Bank of America (BAC ) guaranteed Wynn Resorts $1.1 billion in financing. Although they have commitments for much of the money, the sources say, the banks could potentially have to put up several hundred million dollars if they can't find enough investors.

True to Vegas, those who can least afford the risk of Wynn Resorts are likely to fall hardest for its glitter. The shares will be pitched to retail investors as "the last chance to own a piece of the king of Las Vegas," says an investment banker familiar with the offering. Institutions will steer clear. "In the current environment, how do you turn to the head of your fund and say you've invested in a business that won't be profitable for at least three years?" he says. Wynn may have the golden touch, but the house always wins.

By Christopher Palmeri

With Heather Timmons in New York

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