December 22, 2008 / 1:19 PM / 11 years ago

New Wynn casino faces unprecedented Las Vegas slump

LAS VEGAS (Reuters) - Steve Wynn towers over the Las Vegas Strip in commercials for his new Encore resort, but the recessionary slump in business along the fabled gambling corridor could soon bring the casino mogul down to earth.

Wynn Resorts Ltd is on Monday slated to open the $2.3 billion, 2,000-room Encore, a curved tower of bronze glass that nearly mirrors the adjacent Wynn Las Vegas, the company’s three-year-old luxury casino hotel.

Meanwhile, shares of Wynn Resorts have fallen about 66 percent since February as the casino industry has grappled with tight credit markets and a downturn in gambling demand.

Encore will mark its debut at a time when crowds have thinned in Las Vegas, fewer private jets are rolling in and hoteliers are slashing rooms rates to attract as much foot traffic as possible.

“I’ve always opened up hotels in boom periods — it is a fascinating moment to open a hotel in a market that’s extremely tough,” Wynn told Reuters in a recent interview.

But he was confident that Encore will be recognized for its “extraordinary attention to detail.”

The casino magnate serves as chairman, chief executive and part owner of Wynn Resorts, which also operates a casino-hotel in China’s Macau. His involvement in Las Vegas dates back to the late 1960s, when he invested in the Frontier Hotel.

Wynn subsequently took on the Golden Nugget in downtown Las Vegas and parlayed that profit into the multi-casino company named Mirage Resorts, which was acquired by MGM Grand in 2000.

The opening of the $2.7 billion Wynn Las Vegas in 2005 marked a further lifting of the bar in terms of high-ticket design and expensive offerings for Las Vegas, where themed resorts such as the Paris Las Vegas or the Wynn-built Mirage, had become the norm.

SUNLIGHT, SINATRA

That track record has earned Wynn a big fan base.

“The fact that Encore is another Steve Wynn hotel makes it intrinsically exciting,” said David Schwartz, head of the gaming studies research center at the University of Nevada, Las Vegas.

Features of the new resort include plenty of natural light, an Italian restaurant named Sinatra and Wynn’s signature mosaics and abundant use of luxury fabrics and flowers.

But spending on the Strip has been falling as consumers hunker down amid tighter credit, higher unemployment and a slumping stock market.

“Consumer confidence has fallen dramatically ... For the majority of the state, we are seeing double-digit declines in spending,” said Frank Streshley, a senior research analyst at the Nevada Gaming Control Board.

In October, Las Vegas Strip casinos won 26 percent less money from gamblers than a year earlier — the biggest such decline ever.

“Economics 101 — it’s going to be tough for prices to hold at the levels they are now,” said Matthew Jacob, an analyst at Majestic Research.

Prices for hotel rooms have already plummeted as casino operators scramble to keep the rooms filled.

The average price of a Las Vegas Strip hotel room for the first week of January is down 35 percent from a year earlier, according to a survey by JP Morgan, which also found that rates for the key New Year’s Eve holiday have fallen 27 percent.

“The economy amounts to a room pricing decision for us,” Wynn said.

The latest statistics also broadcast ominous signals about the high-net-worth customers coveted by Wynn and other Strip resorts, such as Las Vegas Sands Corp’s Venetian and Palazzo or MGM Mirage’s Bellagio.

Overall airline passenger traffic into Las Vegas’ McCarren Airport fell 13 percent in October from a year earlier, but the volume of charter and international traffic slid 35 percent.

Also, revenue from baccarat, a card game popular with big-betting gamblers from Asia, plunged 63 percent in October from a year earlier.

“It looks like high-rollers are cutting back ... I think the trend will continue,” said UNLV’s Schwartz.

If that happens, the outlook will dim not only for Wynn’s Encore, but for a string of luxury resorts slated to open in Las Vegas over the next few years.

MGM’s massive CityCenter project is scheduled to open late next year, while Fontainebleau Las Vegas and the Cosmopolitan resort are expected to open next fall.

“I think it (Encore) is going to be wonderful for the town,” Jim Murren, chief executive at MGM Mirage, told Reuters.

“It’s not going to add to anyone’s level of anxiety. It’s going to be a tough first quarter here anyway,” he added.

Editing by Gary Crosse

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