It is almost impossible to avoid talking about Steve Wynn and Wynn Resorts these days. Wynn has always been an important figure in gaming, a marketing genius and a game changer. But, since January 26th, Wynn has transcended the gaming industry, becoming an international headline. The Wall Street Journal, New York Times, Forbes, London Daily Mail, El Pais, Sydney Morning Herald and the South China Morning Post have all done stories on Wynn since the Wall Street Journal broke the story of the alleged misdeeds of Steve Wynn. The story “Dozens of People Recount Pattern of Sexual Misconduct by Las Vegas Mogul Steve Wynn,” was reflective of the investigative journalism of recent months. Since the Harvey Weinstein scandal there has been a growing trend to delve into the inappropriate sexual behavior of major political, media and business personalities. The investigation and Wynn’s alleged behavior fit perfectly into the trend. In its investigation, the Journal sought out women who claimed Wynn had assaulted them and created a culture of intimidation within Wynn Resorts.
According to one article on the subject, Journal reporters interviewed over 150 current and former employees of Wynn Resorts. Did Steve Wynn commit crimes against women? Did he violate gaming regulations in Nevada, Massachusetts or Macau? Wynn’s guilt or innocence has not been fully investigated or adjudicated yet and the process is not likely to be quick. But guilty or innocent he has been forced to resign as CEO of Wynn Resorts and as chairman of the Republican National Finance Committee. The resignations were the first of the reverberations from the Wall Street Journal article and more are certain to come.
Macau, Massachusetts and Nevada regulatory agencies have begun formal investigations into Wynn’s behavior and the company’s culture. Also, the board of directors of Wynn Resorts has hired an outside law firm to investigate Steve’s actions. As a result of the Journal article, the price of Wynn Resorts stock dropped 20 percent from $200 to $163 a share. When Wynn resigned, it bounced back 10 percent. But then to further complicate matters, during the week of February 5th, the stock market lost nearly 2000 points bringing down all gaming stocks with it, including Wynn Resorts. Wynn stock has hovered in the mid-$160 range since the stock market took that major dip.
The damage done to the stock price and the company’s reputation by the accusations against Wynn also triggered a shareholder lawsuit. Norfolk County Retirement System sued Wynn and the company’s senior vice president, Kimmarie Sinatra for breaches of fiduciary duty; the suit also claims the board of directors failed to exercise proper control of Wynn’s behavior, salary and expenditures.
Predicting the final outcome of the accusations, the lawsuit, resignations, stock drop and regulatory actions is far beyond my skill level. However, it is possible to speculate on some of the possibilities. The most likely outcome is the end of Paradise Park. Paradise Park was to be the next Las Vegas casino built by Wynn. Based on a Carnivale theme, the $1.5 billion resort was to be the latest instance of Wynn changing the Las Vegas paradigm. But without Steve’s vision, it is difficult to imagine how anything unique could be created on the 130-acre Strip land the company owns. It is also hard to see where the company would find that $1.5 billion without Mr. Wynn to weave his magical web. Wynn Resorts is, of course, bigger than one man, but this man has had the vision for every property ever built under his name. And the same man is the one bankers and financiers have believed could pull the rabbit out of the hat each time.
Other potential fall-outs include a continual decline in stock prices over the next couple of years and a sale of the company or some of its assets to one of its competitors. I cannot imagine a scenario wherein the stock price ever recovers to pre-scandal levels, although if revenues grow year-over-year, stock prices would likely follow. The properties should continue to generate revenue at current levels. Steve Wynn’s contribution to the company was conceptual, not operational. The managers in place are among the best in the industry and will continue to do their job, unless some of them run into licensing issues also. If the property under construction at Boston Harbor opens as scheduled a year from now, corporate revenue should go up significantly. Even the undeveloped property in Vegas could be sold or developed and add to the company’s cash flow.
The worst possible outcome of the scandal is the loss of one or more of the company’s casino licenses. Macau, Massachusetts and Nevada are all investigating. To be considered unsuitable for gaming license a person, whether called Wynn or any name, need not be convicted of a crime. Criminal behavior is reason to deny or revoke a license, but it is not the only cause. Nevada Gaming Regulation Five includes the following:
It is the policy of the commission and the board to require that all establishments wherein gaming is conducted in this state be operated in a manner suitable to protect the public health, safety, morals, good order and general welfare of the inhabitants of the State of Nevada.
Responsibility for the employment and maintenance of suitable methods of operation rests with the licensee, and willful or persistent use or toleration of methods of operation deemed unsuitable will constitute grounds for license revocation or other disciplinary action.
The board and the commission deem any activity on the part of any licensee, his agents or employees, that is inimical to the public health, safety, morals, good order and general welfare of the people of the State of Nevada, or that would reflect or tend to reflect discredit upon the State of Nevada or the gaming industry, to be an unsuitable method of operation and shall be grounds for disciplinary action by the board and the commission in accordance with the Nevada Gaming Control Act and the regulations of the board and the commission. Without limiting the generality of the foregoing, the following acts or omissions may be determined to be unsuitable methods of operation: Failure to exercise discretion and sound judgment to prevent incidents which might reflect on the repute of the State of Nevada and act as a detriment to the development of the industry.
The Nevada Gaming Control Commission will have to decide if Steve Wynn or one of his agents or employees did anything harmful to the state’s public health, safety, morals or discredit the state or the gaming industry.
Chapter 23 of the Massachusetts Gaming Expansion Act in states: …gaming licensees shall be held to the highest standards of licensing and shall have a continuing duty to maintain their integrity and financial stability; and…any license awarded by the commission shall be a revocable privilege and may be conditioned, suspended or revoked upon: …a breach of the conditions of licensure…any civil or criminal violations of the laws of the commonwealth or other jurisdictions; or …a finding by the commission that a gaming licensee is unsuitable to operate a gaming establishment or perform the duties of their licensed position. Therefore, the Massachusetts Gaming Commission must decide if Wynn Resorts and Steve Wynn have complied with the regulations.
Macau has a separate set of criteria, but for the moment no one outside of the actual regulators seems to know what they are. Whatever the criteria might be, Macau like Nevada and Massachusetts will have to decide if Wynn Resorts is in violation of regulations. The answers to those questions will determine the fate of the corporation. The process promises to be painful for both the regulators and the company. The fate of Wynn Resorts is being separated from Steve Wynn. The question for Wynn Resorts is whether it can divorce itself from Steve sufficiently to placate gaming regulators and investors. It will likely need a new name, but with a little luck it could have a new, exciting and profitable future.
