Sunday, November 14, 2004
Copyright © Las Vegas Review-Journal

INSIDE GAMING: Insiders see Wynn poaching workers

Industry insiders say more than 8,000 of the workers being hired to run Wynn Las Vegas are now working at other hotel-casinos. Wall Street bankers say that puts MGM Mirage at the most risk for losing employees. However, insiders say the company has effective contingency plans in place to prevent any significant attrition in manpower or earnings. Insiders believe 2,500 workers to 3,000 workers at the $2.5 billion resort will be former Mirage Resorts workers who worked for developer Steve Wynn before he sold the company to then MGM Grand Inc.

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So why have shares in Wynn Resorts been trading as high as $65 a share, after opening two years ago at $13? The Motley Fool recently pointed out investors are simply betting on Wynn. Even if everything goes just right, Wynn will have to get pocket aces to justify the current stock price. But what if something goes wrong? The Motley Fool says all Wynn Resorts will have are big interest payments and a name. In the meantime, the new company's Strip resort will carry about $1.8 billion in debt.

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Wall Streeters say there's investor interest in more gaming industry merger-and-acquisition deals. The only hang-up is that opportunities are shrinking. Station Casinos, they say, would be the most interesting target, especially for private equity funds pining for opportunities in Las Vegas. But a deal involving Stations would come at a significant price premium. Aztar Corp. and Pinnacle Entertainment remain among the few realistic acquisition targets. Analysts say Ameristar Casinos and Boyd Gaming Corp. are out because of their heavy inside ownership.

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Don't rule out more mergers or buyouts. The seven recent and pending casino company mergers, with a combined $25 billion price tag, have stemmed from increased access to low-cost capital. That has let the buyers offer high multiples of price-to-cash flow and promise their shareholders earnings accretion. Wall Street analysts say the driving forces have been scarce and expensive gaming licenses, a maturing North American gaming market and the slowed pace of proliferation on top of access to capital. None of that is going to change anytime soon.

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The debate over the value of Strip land continues. Analysts say owners of the 40 acres across from Mandalay Bay are asking $8.75 million an acre, but no one has pulled the trigger. And the land is unencumbered with air-space restrictions. The price raises doubts about recent estimates that Strip land is worth $20 million an acre. And what is the significance of all this? Land price estimates are driving stock prices, and the question becomes whether companies have topped off and investors should dump shares in land-rich companies or get in deeper.

The Inside Gaming column is compiled by Gaming Wire Editor Rod Smith. You can contact him by phone at (702) 477-3893, fax (702) 387-5243 or e-mail at rsmith@reviewjournal.com.