Las Vegas Sun
March 5 2005
Kerkorian’s vision shaped Las Vegas Strip
By Liz Benston
<benston@lasvegassun.com>
LAS VEGAS SUN
WEEKEND EDITION
March 5 – 6, 2005
Pittsburgh had Andrew Carnegie, Cleveland had John D. Rockefeller,
Seattle has Bill Gates.
And Las Vegas has Kirk Kerkorian.
As a developer, Kerkorian three times built the world’s largest hotel
in Las Vegas.
And as the majority shareholder of MGM Mirage, Kerkorian made the two
largest deals in the history of the casino industry.
After the second deal, MGM Mirage’s $7.9 billion buyout of Mandalay
Resort Group that is expected to close this month, Kerkorian will
have a majority stake in a lucrative real estate empire of historic
proportions.
He’ll control 11 major resorts and the largest share of Strip hotel
rooms, casino space and entertainment venues ever assembled by one
owner.
Kerkorian, a fixture on Forbes’ list of the richest Americans, had an
estimated net worth of $5.8 billion last year. His Tracinda Corp.
holding company, named for his daughters Tracy and Linda, holds about
59 percent of MGM Mirage’s stock, a stake worth $6.1 billion as of
Friday’s closing price.
Despite his record and wealth, Kerkorian’s nearly 40-year Las Vegas
career is little known by the public, and even by his peers in Las
Vegas, where strong personalities and new entertainment venues grab
headlines.
He avoids the spotlight, rarely giving speeches and leaving
management up to trusted executives. He is also modest and
unassuming, typically giving others credit for their role in his
success.
“It’s just amazing that he’s taken Las Vegas to the next level three
or four times and he can practically walk down the street without
being recognized,” said Steve DuCharme, a casino consultant and
former member of the state Gaming Control Board. “But that’s the way
he wants it.”
Kerkorian once drove himself to a Gaming Control Board meeting when
DuCharme was on the board.
“I think it was a Chevrolet station wagon,” DuCharme said.
Quiet leadership
His publicity-shy demeanor belies a sharp business sense and an
ability to time the market, observers say.
Henri Lewin, a retired casino consultant who ran Hilton Hotels’
gaming properties in the 1980s, said Kerkorian was always “one step
ahead” of the competition.
“The man had more brains than anybody,” said Lewin, whose former
employer bought the International hotel from Kerkorian. “Kerkorian
knows what the value of a company is and when to buy it. Then he
knows who to put in to manage it. He doesn’t buy anything unless he
knows he can do better with it.”
Boyd Gaming Corp. Chairman and Chief Executive Bill Boyd said
Kerkorian “has been a tremendous influence” in the transformation of
Las Vegas into a resort destination.
“I’ve always been impressed by his ability to see where the market
wants to go,” said Boyd, whose father created his own gaming empire
after arriving in Las Vegas in 1941. “On no less than three occasions
with the International, the MGM and MGM Grand, his company has
pointed the way toward Las Vegas’ future. And now he’s doing it again
with MGM’s planned CityCenter.”
In an industry that has had its share of risk and failure,
Kerkorian’s string of successes and big deals have been a big
positive for Las Vegas, experts say.
“He does it so effortlessly that people don’t stop and scratch their
heads in wonderment,” DuCharme said. “There’s never a concern about
whether things will get done right and get financed. It just gets
done.”
Las Vegas Sands Corp. Chairman and Chief Executive Sheldon Adelson —
No. 60 on last year’s Forbes list before a spectacular initial public
offering of stock raised his net worth by $15 billion — said he
respects Kerkorian’s ability to weather risk.
“He’s obviously a very shrewd investor and a fine gentleman,” said
Adelson, who has a majority stake in Las Vegas Sands. “We don’t play
tennis together and we don’t have dinner together, but we have mutual
respect for each other.”
The son of Armenian immigrants, Kerkorian dropped out of school to
box and later discovered flying.
In World War II, he transported planes from Canada to Great Britain
as a pilot in the Royal Air Force and later bought his own plane to
charter passengers to Las Vegas.
Kerkorian and Hughes
When Howard Hughes was buying up hotels, Kerkorian was using profit
from a land sale on the Strip and the sale of his charter service to
purchase land for the International, which would open in 1967 as the
world’s largest hotel. The Paradise Road property was later bought by
Hilton Hotels Corp. and renamed the Las Vegas Hilton.
“The dream of one man — it’s a remarkable story,” Nevada Gaming
Commission member Art Marshall said before the commission unanimously
approved the Mandalay purchase. The approval marked the last major
regulatory hurdle for the deal.
“We’ve had 40 years of behavior by this principal and their team. I’m
willing to trust them,” Marshall said before entering his vote.
It was the story of Hughes, the eccentric playboy, and not of
Kerkorian, that made its way to the silver screen last year. While
both men were pilots and emerged in Las Vegas around the same time,
Kerkorian’s contribution to Las Vegas is generally believed to be
much more significant than Hughes’.
Hughes arrived in Las Vegas in 1966 and, clouded by mental illness,
bought up six casinos on the Strip while doing little to transform
them. His purchases of the Desert Inn and other landmark properties
would be small by today’s resort standards.
“(Kerkorian) doesn’t have the mystique of a Howard Hughes or the
charisma of a Steve Wynn,” said David Schwartz, coordinator for the
Gaming Studies Research Center at UNLV. “Maybe he doesn’t get all the
credit he should have.”
Schwartz said Kerkorian has had a “huge role” in casino history for
foreseeing future demand for Las Vegas and by building some of the
world’s largest resorts.
When MGM Grand acquired Steve Wynn’s Mirage Resorts in 2000 for $6.4
billion, the deal set an industry record and established MGM Mirage
as the largest competitor on the Strip with a 27 percent share of
hotel rooms and casino space.
At the time, Mandalay Resort Group — which owns three of the largest
hotels — had about 27 percent of the hotel rooms and about 22
percent of the Strip’s casino space.
Kerkorian’s timing couldn’t have been better for the buyout of Mirage
Resorts. He offered $17 per share for Mirage in February 2000 — an
unsolicited offer that was well below Mirage’s 52-week high of $26.37
in May 1999.
A variety of factors, including less-than-spectacular earnings at
Mirage’s older resorts, had depressed the stock to levels that some
experts said weren’t warranted longer-term.
Wynn rejected the first offer, but was put in a difficult position of
refusing a bid that was 56 percent over Mirage Resorts’ then stock
price of less than $11 per share. Analysts warned investors to hold
out for a higher price. Wynn and shareholders eventually accepted an
offer of $21 per share.
MGM Grand sold 46.5 million shares of stock for about $1.3 billion to
help finance the $6.4 billion Mirage acquisition.
Tracinda purchased about half of those shares for $609.5 million,
with the remainder going to financial institutions. The sale reduced
his holdings in MGM Grand from 64 percent to 60 percent.
Only 62 percent of Mirage shareholders voted in favor of the deal,
with many naysayers believing that they could have gotten more out of
Kerkorian.
Bidding for Mandalay
Likewise, MGM Mirage’s landmark bid for Mandalay Resort Group was far
from a slam dunk. While the deal breezed through investigations by
the Federal Trade Commission and Nevada gaming regulators without the
companies being forced to sell any Las Vegas casinos, Mandalay
shareholders could have stopped the deal in its tracks.
Fewer than 60 percent of Mandalay shareholders approved the deal,
according to institutional shareholders — another sign that
Kerkorian bought at a favorable price.
Kerkorian’s involvement was less overt this time. Historically, low
interest rates and unprecedented hunger on Wall Street for Las Vegas
gaming deals are allowing MGM Mirage to finance nearly all of the
$7.9 billion acquisition with low-interest-rate bank debt.
Kerkorian is more than just a dealmaker, said Hal Rothman, chairman
of UNLV’s history department.
In creating MGM Grand, Kerkorian has developed a “visionary profile”
for the city, Rothman said.
“What they’re really buying is ideas and approaches,” he said.
“That’s why he bought Wynn’s properties. He has taken Wynn’s vision
and carried it out.”
Rather than micromanaging, Kerkorian has left the management of his
casino empire to MGM Mirage Chief Executive Terry Lanni and his team.
“The people under (Kerkorian) are as qualified as the guys on top,”
Lewin said. “There’s not a lot of companies like that. These are blue
bloods. You will never see them doing something stupid.”
Kerkorian still keeps abreast of his investments, Lewin said.
Lewin came into contact with Kerkorian when Hilton executives were
negotiating with Kerkorian’s executive Fred Benninger to buy the
International hotel.
“Kerkorian came into the meeting room and he made comments about the
property that we didn’t even see, and we went through all the books,”
Lewin said. “We went through the whole hotel and didn’t see it. He
said he didn’t have to go to the hotel to know what was going on. He
said, ‘I have my people and I have the books, and I look at the
books.’ I look dumb next to him.”
Instead of incorporating the Mirage Resorts properties into MGM
Grand, the company set up a separate Mirage operating division and
allowed those properties to be run much like they had been, Rothman
said. The tactic was aimed at encouraging competition and innovation.
“What size does is breed uniformity,” Rothman said. “Size can
discourage innovation.”
MGM Mirage executives said they expect to do the same with Mandalay
Resort Group. All company casinos “compete mightily against one
another,” with presidents at each property compensated based on
individual financial results, President and Chief Financial Officer
Jim Murren told state Gaming Control Board members at the hearings.
For all his visionary might, Kerkorian may not have all the answers.
In an interview prior to Control Board approval of the deal,
Kerkorian said he was “very much” surprised at the visitor growth in
Las Vegas and the nationwide popularity of its casino culture.
He gave a cryptic answer to a reporter’s question about whether this
deal marked the culmination of his deal-making career.
“Who knows?” the spry 87-year-old said.
The future of Kerkorian’s Las Vegas investment looks bright.
MGM Mirage’s proposed $4.7 billion CityCenter — an urban complex of
three hotels, a casino resort and high-rise residential towers — is
a sign that the company is trying to improve upon the typical casino
model in a way that benefits the entire city, Schwartz said.
“I think this (buyout) is more about real estate and (future
development) and that’s good because it shows there’s a master plan,”
he said. “This is not saying, ‘Let’s add 10 slot machines this
quarter and see how it goes’ and ‘We’re going to redo the buffet next
year.’ “