Wynn Vs. MGM: What Company Will Win This New Game Of Las Vegas Outdoor Attraction Poker?

| About: Wynn Resorts, (WYNN)


Outdoor projects from MGM and Wynn present conceptually different approaches.

CEO Murren sees MGM's role as an urban planner making a buck in the process.

CEO Wynn sees the great outdoors as a new cash register.

"Nobody goes there anymore. It's too crowded…"

Yogi Berra

Gaming's two most presumptive historical enemies were clocks in the casino and the outdoors. The operating assumption back in the day was not to remind players of the time. Or sending them outside to squint at the sun, jarring them into a sense of place. That was a no-no - the shrewd operators of the time understood the casino floor was a fantasy world where dreams came true and were dashed by the second. It provided lots of indoor adrenalin rushes not to be toyed with. The casino was a place where clay chip costing the house maybe a buck or two was exchanged into a magic amulet that was suddenly worth $25 when a player bought in.

Bill Harrah, eponymous founder of that venerable gambling house, was first to challenge this idea as early as the 1960s by giving the nod to visible clocks on or near his casino floor. And, particularly in the magnificently scenic Lake Tahoe property, he proved that the great outdoors could also be great for business.

In many ways, his spiritual heir in today's gaming business is MGM CEO Jame J. Murren. By his continuing investment in non-gaming atmospherics, entertainment venues and now the new Park outdoor pedestrian district between New York New York and Monte Carlo, Murren clearly sees himself as part gaming CEO, part impresario and now part urban planner.

Nobody questions MGM's strategy in thinking of Las Vegas as a world tourist destination city. And great cities need outdoor space that's pedestrian friendly and environmentally sustainable. Space that offers a respite from the sensibility numbing experiences of the Las Vegas strip. Its new Park pedestrian plaza to be developed in the open space between the MGM's 20,000 seat T-Mobile Arena and its two properties has the sensibility of the urban planner shot through its conception. It will be lush with mature trees, grassy lawns, indigenous desert plantings, patio seating areas, and plenty of places to take a bit of sun.

Kudos for MGM (NYSE:MGM) again as it continues to prove itself the poster child for enlightened corporate citizenship in the gaming business. In the words of one local industry wag I spoke to yesterday, "Murren's wasted at MGM. He really should be mayor of Las Vegas or governor of the state. The deal here is just how much live entertainment seating can Vegas absorb? And how many sliders can a person eat? Someone ought to install scales at the airport to weigh tourists when they arrive and again when they depart."

Murren began his career as a Wall Street numbers guy and he can read a balance sheet with the best of them. So it's clear his crunchers did the numbers on all these non-gaming projects MGM has embarked on and they penciled out to his and the board's satisfaction.

The MGM Park at T-Mobile Arena

The Park is a great concept. The question for investors here is what impact will it have on revenues, earnings, possible dilution of existing behinds in seats at the MGM Garden Arena and other entertainment venues? And by extension is The Park a plus or a shoulder shrug for MGM shares?

I do believe The Park will do more for MGM than win a good citizenship award. The proximity to its two properties and the arena will produce foot traffic and away time for visitors who invariably will drop in to one of the restaurants. You can make the case that the foot traffic generating power of The Park and amenities offered had to be, by any common sense standard, accretive to MGM earnings from its two adjacent properties, and rents, from the uptick in attendance at T-Mobile arena's event attendees.

Yesterday Steve Wynn joined the great outdoors too

His concept was different than MGM's: His take: use the outdoors to produce fun and make money. Use it by all means if you already own the ground and can control the water rights. MGM's urban landscaping space, admirable as it is, assigns moneymaking to the back burner and this could cause a shoulder shrug to the market.

But yesterday's announcement by Steve Wynn of Wynn's (NASDAQ:WYNN) proposed recreational lake concept on the old Desert Inn golf course was a game changer. Who else had seen the rapidly shrinking outdoor Strip spaces as a possible moneymaking initiative?

Here's the key question for MGM: Will The Park take people away from the casino floor? Could it become a magnet for dead money pedestrians who will sit there brown bagging it? Murren wisely is already on record already having warned off the aggressive cartoon costumed characters and undesirable peddlers who currently plague the ill-advised pedestrian seating areas at Times Square New York. "You won't see Sponge Bob here," he said at the project announcement gathering. Safe to say the MGM outdoors move can't hurt but only enhance the experience of people in the area and in that respect it should do fine and definitely contribute to the revenue base of New York New York and Monte Carlo.

Enter Steve Wynn.

Well it's now clear that Murren has a fellow true believer in the great outdoors in Steve Wynn. His announcement yesterday that the company will convert its golf course behind the Wynn and Encore properties into a recreational lake/park with a 1,000-room hotel spiked the stock over 10%. Wynn Resorts is now in the family friendly tourist business.

Wynn Paradise Park

The 130-acre complex will enclose a beach, a lake for water skiing and paddle boating, parasailing and a 1,000 room hotel. It will feature restaurants (what else?) nd shopping at a cost $1.5 billion. Financing is essentially in place.. Currently the golf course (Originally the old Desert Inn course) owned by the company generated $5 million in adjusted earnings. Several analysts have looked at total visitation to Las Vegas and have already projected that Paradise Park could generate between $300 and $400 million in annual earnings.

What few have seen thus far is that with this concept, Wynn, with his usual savvy strategic moves on the Las Vegas chessboard, accomplishes this in one stroke:

1. He creates a better revenue balance between his heavy Macau exposure and Las Vegas without having to build another multi-billion dollar integrated resort. At a proposed $1.5 billion, Paradise Park is a bargain asset. If it produces as planned it will be significantly accretive to Wynn Las Vegas earnings.

2. It puts to sleep the strategy employed by many Vegas competitors to expand by either buying legacy properties or building new ones from scratch. That price tag can run $3 billion as the Genting project is expected to run.

3. It signals a solution to the family friendly question that has dogged Las Vegas for decades. Wynn built the Mirage in 1989 and had to eventually shoo away all the folks with strollers, crying kids who just came to gawk, take pictures and maybe buy an ice cream cone. They annoyed gamblers and hotel guests.

Paradise Park will sit with welcome arms to the family trade by saying: Look folks, why pay through the nose to Disneyland? Come to Wynn Paradise Park, daily ticket price only $25, free to hotel guests. And by the way mom and dad, if you care to partake of a few games of chance while here, just steps away you'll find our slot machines and table games and not have to worry about the kids finding what to do.

4. Based on ownership of the land, existing credit facilities and the faster than usual transition from planning board to grand opening, this is a no-sweat, no-strain high leverage ROI move by the company.

Some people think: Genius. I say as I have been saying for a long time: It's not genius. It's Wynn. Apparently the market agrees.

Upon the MGM announcement of The Park project, the shares inched up, settled back and moved slightly up again. They've been up in the last month. Last year we liked the stock to move up to $35 based on our appraisal of the terrific Las Vegas asset base of MGM and what we believe will be a home run in its National Harbor project in Maryland.

The MGM picture card: MGP announces its REIT pricing

MGM announced today that it expects to offer 50 million MGP shares at an $18 to $21 range raising $1.1 billion of which $868 million will be immediately repaid toward the $4 billion bridge facility it assumed from the MGM parent. That in theory values the combined businesses assets at $40 to $43 a share, less than half of the $100 a share Wynn trades at (this writing).

While we believe the company's REIT design is far superior to other ones in gaming and lodging in that control is retained by the parent, we still see it as more financial engineering, not a laser vision of a future.

We like the broad view that MGM will consider buying the realty of other gaming operators and have guessed that its Borgata partner Boyd (NYSE:BYD) could be an early candidate.

In valuing both poker hands at their current prices (including the MGM REIT) we see an upside in both, giving Wynn the edge because it is based on anticipated revenue streams with a larger long-term upside than the more static performances generally.

So who holds the winning hand in the new outdoor Las Vegas poker game?

The critical mass cards: Wynn's Paradise Park development sits cheek by nearby jowl to the Sands Expo convention center and a short walk away from the Las Vegas convention center, closer to ground zero Vegas properties. It's not hard to envision conventioneer business when attendees who now bring families have a better option. And its family business will be a totally new segment for Wynn overall. This Ace to Wynn.

The direct revenue generating card from outdoors

This is an easy ace to Wynn. There's far more clarity for investors in envisioning the revenue boost than can now be discerned by the MGM Park project.

The charity begins at home card

Compare relative locations in terms of revenue bearing foot traffic. In this metric we award the ace to MGM. The Park will expose huge potential crowds on a regular basis pouring out of the T-Mobile Arena to either Monte Carlo or New York New York as the closest gaming and dining options. So we totally see upticks in the revenue streams of both those MGM properties. Comparatively Wynn's proximate properties, Wynn and Encore, are aimed at a more upscale patron base and are already producing strong REVPAR revenues from their existing room and casino bases. Paradise Park will be an entirely new market segment to plumb. New revenues will accrue to its 1,000-room base but may not do much for the business coming out of Wynn and Encore guests who might not be enticed by paddleboats. Monte Carlo and New York New York will incrementally benefit more directly percentage wise as standalone properties.

The unlocking shareholder value card

Wynn will achieve this without financial engineering. If Wynn Paradise Park achieves its targets the company will have leveraged its existing asset base immensely for a relatively modest investment.

MGM has gone to a REIT and the performance of its MGP shares await reception by the market.

However in all this there is a message: As has been his history, Steve Wynn is the primo "imagineer" of Las Vegas and for decades has been compared to his hero Walt Disney, who coined the phrase. Just as Disney reimagined the American theme park, and Wynn reimagined the casino hotel as we know it with Mirage, he has now taken his imagination outdoors. And we can expect, as has been past precedent, that his competitors sooner or later will find ways to woo me to the outdoors idea. Wynn's had his share of miscues along the way. Yet overall his track record is brilliant and has installed a premium into his share price because the market recognizes his skills as a developer.

(Wet 'N Wild Las Vegas is a water park located in the nearby Las Vegas suburb of Summerlin since 2013. It does reasonably well with all the usual water based recreation activities. It is largely dependent on locals and not head-to-head competition with the proposed Wynn project ).

History tells us that Wynn's message won't be lost on Las Vegas Sands, Genting to come, or whatever entity ultimately emerges as the heir to the currently troubled Caesars (NASDAQ:CZR) empire.

What's key for investors now is to bet on the best hand to date.

And while MGM sits with a nice full house we believe Wynn's new project is a fourth ace.

About the author: Howard Jay Klein is a veteran c-level casino executive and consultant. He is the publisher of The House Edge premium site on Seeking Alpha. He is the author of Mastering the Art of Casino Management and other books in the field. His own gaming portfolio is sited in a blind trust for his children and grandchildren so as to avoid potential conflicts of interest with gaming clients.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.