Doesn’t fit the mold

By Liz Benston

Monday, Aug. 20, 2007 | 7:08 a.m.

ILLUSTRATION BY CHRIS MORRIS

When Steve Wynn opened his signature resort, he had a tough act to follow. His own.

When he was captain of Mirage Resorts, the Mirage and later the Bellagio shattered profit records and set a higher bar for luxury in Las Vegas. Skeptics wondered whether he could keep up with himself after venturing out on his own and building Wynn Las Vegas, especially because it seemed to stumble out of the gate.

But after two years, the performance of Wynn Las Vegas has quieted skeptics and has wowed even the most bullish on Wall Street.

"I think they really nailed it," Jefferies & Co. stock analyst Larry Klatzkin said. "It's probably among the top four, five or six casinos in the world as far as earnings go."

The property, which topped all other Strip resorts in operating profit in the second quarter, even topped management's expectations.

"It's clearly a reflection of the strength of the brand," Wynn Resorts President Ron Kramer said. "The brand has clearly attracted higher-spending consumers."

It's a management mantra that seemed like so much spin when the property opened in April 2005 to a public that wasn't convinced Wynn could top himself - again.

By all accounts, Wynn Las Vegas was a gutsy gamble. At $2.7 billion, it was the costliest resort ever and was built without the usual sidewalk trappings , such as fountains, shows or cafes , meant to draw the masses inside.

Instead, Wynn built a streetfront mountain to coyly hide his resort, and banked on the power of his name to draw customers in, where they were rewarded with visual surprises.

For Wynn, the resort has produced a pleasant financial surprise. Wynn Las Vegas earned $115.3 million in operating profit (earnings before large fixed expenses such as interest on debt, taxes, depreciation and amortization, and the best indicator of casino performance) in the second quarter, compared with Bellagio's $107 million and the Venetian's $81 million.

Wynn Las Vegas beat outsiders' and insiders' expectations in all departments, from food and beverage to hotel rooms to retail.

And yet, apples to apples comparisons with other properties are problematic.

Wynn Las Vegas has only 2,716 rooms, while Bellagio and the Venetian have roughly 4,000 each. Each property also has a different operating strategy, with the Venetian maximizing room rates with customers attending conventions and Wynn more focused on high-rollers. With one of the largest casinos, Bellagio attracts more of the masses to its upscale property.

"The Venetian's really going after the convention business, while a lot of the top players have kind of gravitated toward Wynn," said Steven Wieczynski, a stock analyst with Stifel Nicolaus Capital Markets.

By a broader measure, Wynn Las Vegas comes up short next to its predecessor.

On an annualized basis, Bellagio is the Strip's biggest earnings generator, with Wynn coming in at No. 2. But analysts say that's somewhat expected because Bellagio has at least 1,200 more rooms than Wynn, as well as more slot machines.

Quarterly comparisons among high-end properties can also be problematic because high-rollers who are especially lucky or unlucky can swing profit numbers by millions of dollars.

In the second quarter, Wynn got lucky to the tune of about $7 million over what the casino expected to earn from its games , whereas Bellagio, for example, lost a few million to high-rollers.

Klatzkin expects Wynn to generate $422 million in operating profit next year. Bellagio is expected to do better than the $472 million he expects out of that property this year. Palazzo, with bigger, more luxurious rooms than its sister Venetian property, is expected to generate at least $450 million, Klatzkin says.

In its casino, however, Wynn is getting more bang for its buck than its nearest competitor.

In the second quarter, Wynn won about $757 per seat in the casino, while Bellagio won about $495 per gambling position, which includes slots and table games. Although both properties have about the same number of table games, Bellagio has at least 400 more slots than Wynn.

The table games comparisons show an even greater disparity between the kind of cash dropped at Wynn and the Venetian, which is the only other property on the Strip to specify how much each table or slot machine makes .

In the second quarter, each Wynn table won an average of $10,443 per day , compared with the $4,660 per table per day won at Venetian. Wynn's slots won an average of $269 per machine per day versus the Venetian 's $227 . (Wynn had about 10 more tables and about 300 more slots than the Venetian during the quarter.)

So whichever property makes the most money wins, right? Not entirely.

When you spend more on your casino than anyone else, you expect some of the biggest spenders to drop their dough at your place. That's why some experts think that return on investment is a superior performance indicator , because it takes into account how much was spent to develop a casino resort.

By that measure, Venetian, which cost about $1 billion less than Wynn Las Vegas, wins. The property's return approaches 30 percent on its initial investment, compared with the midteens return of Wynn Las Vegas.

But Wynn management expects to improve on that as the property hits its stride, even if it can't sustain the kind of improvement that propelled the property's second quarter operating profit forward by 58 percent from a year ago.

In discussing the company's earnings with investors, Wynn implied that his posh environs keep customers hanging around longer and , therefore, allow the casino to keep more of their cash.

"What determines gross revenue of a casino is the length of play," Wynn said. "Casinos that appeal to a special group of customers and get them to sit for a longer length of time" ultimately make more money .