Not so long ago, Steve Wynn stated an obvious truth: The our deepening recession would impact Las Vegas sooner or later. Wall Street promptly punished him by selling down Wynn Resorts stock.
Fast-forward a few months and now it’s the conventional wisdom of the moment that “Las Vegas is not recession-proof.” Turn the crank on any stock analyst and that newly minted cliché will come tumbling out. We’re not privy to the considerations that recently led MGM Mirage and Station Casinos to pink-slip a collective 500-plus employees last month. However, in the case of MGM, even a company that turned a $1.7 billion profit last year has to placate the whims of Wall Street, which lives from quarter to quarter, long-term considerations be damned.
Hence the gargantuan post-9/11 layoff that earned J. Terrence Lanni the nickname “Osama bin Lanni” from his then-employees. MGM Mirage ended up having a profitable 2001 fourth quarter and year (and some of its executives were rewarded with six-figure bonuses, too). It was a panic-driven overreaction and highlighted how the mantra of “maximizing shareholder value” had turned into a millstone around some companies’ necks.
Had MGM turned but one penny per share of profit (far less than it actually did) in 4Q01, would it have been the end of the world? If you’re a stock analyst, yes. They’ve no stomach for short-term adversity or austerity. It’s gotta be blue skies and sunshine eight days a week, 25 hours a day.
That’s why it was satisfying to “open” today’s paper and read Steve Wynn‘s thoughts on the subject. A $0.41/share profit is hardly the kind of scenario in which Wynn should be feeling pressured to lay people off. Yeah, it was 15 cents higher a year ago. And fuel was a lot cheaper then. As was food. And there weren’t Spamalot costs to write off. And the Bush economy wasn’t in the crapper. And so on.
(Though, as Wynn told the Milken Institute Global Conference, our dollar seems like a peso to Europeans, so Vegas is a becoming an even bigger draw for them.)
A big part of what makes Steve Wynn who he is, as an evolutionary force in the casino-resort industry, is that he usually builds and plans for the long-haul, for better or (if you work on Wall Street) worse. The value of having fine art on property or building a conservatory, etc., doesn’t translate directly to the bottom line, but it’s what made the Wynn brand so highly respected and fungible. You won’t see a Palazzo-style slap-happy opening from Wynn because of the value he places on his reputation.
He’s also been around long enough to have experienced a few adverse swings in business. By contrast, Wall Street’s relationship with gaming is manic-depressive. Excessive euphoria alternates with premonitions of imminent doom. It doesn’t really care if you beat up on the product so long as those ‘eps’ numbers keep going up and up.
Take this to an extreme and you get the Columbia Sussex chop-shop mentality, which juices near-term profits but results in properties whose long-term performance brings up the rear in their respective markets. And for the consumer it means being offered places like the Las Vegas Tropicana, where the prices are higher, the promotions are fewer and the product is filthy.
Margin-obsessed William J. Yung III would never be caught dead saying, “We consider the morale and feeling of security our employees have is the most important asset the company owns.” That’s why he’s an industry laughingstock and Wynn is an industry leader. (Mind you, Wynn’s tip-confiscation regime hasn’t done anything for “the morale and feeling of security” among his dealers and he seems wrongheadedly determined to make that his “line in the sand” issue.)
Sure enough, Wynn’s much-needed pushback to Wall Street produced some downward drift in Wynn Resorts stock. But we could use a few more CEOs who say things like, “My colleagues and I are paid to run hotels in good times and fair times … This is not a company that gives a damn about short-term markets.”
Good on him.
