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King of Vegas

The ageless Kirk Kerkorian leads a wave of private money into the latest transformation of the desert playground
Michael Kaplan
From the Print Edition:
Richard Branson, Sept/Oct 2007

(continued from page 1)

Anthony Marnell, whose father originally built the Rio, and who is now working on his own casino deep in the southern precincts of Las Vegas Boulevard, with Kerkorian's MGM Mirage as a partner, enthuses, "Everything here is in play. And everyone is reexamining every asset. They're asking what these assets are really worth."

The existing players in the Vegas casino game are doubtlessly pleased with what they're hearing, none more so than Kerkorian— whose MGM Mirage owns three miles of Strip frontage.

It's been said that before Steve Wynn lost his hold on Mirage Resorts, he referred to Las Vegas as Kirk Town. This is a fitting nickname when you consider the impact that Kirk Kerkorian has had on Las Vegas and the seismic shifts he continues to affect, seemingly at will. Just by announcing his interest in buying City Center and the adjacent Bellagio, he has caused confidence in the city to increase tremendously. It's certainly reverberated through MGM: its stock price rose a whopping 37 percent. Shares have since dropped back a bit, but not nearly to where they were prior to the announcement.

By wanting to partially tear himself away from the company that he controls and go it alone with the casino and mega development, notoriously press-shy Kerkorian seemed poised to make a gargantuan bet on the future robustness of Vegas. It was bullish in the extreme, from a man who is known for being right. "[Kerkorian's] instincts in developing things, in creating things, even selling things, are without parallel," says Bob Maxey, former president of MGM Grand, in the book The Players: The Men Who Made Las Vegas. "This guy doesn't make mistakes. But he does it by instinct."

That he suddenly ceased the City Center/Bellagio negotiations on June 20, less than one month after he began talks, and has since led MGM into a deal with South African casino magnate Sol Kerzner (owner of the Atlantis, who, himself, recently took his company private) to partner on a project that will sit on MGM's newly purchased parcel near Circus Circus, might be interpreted as a bit of a mixed signal. Then again, there's a belief that his opting out of the deal may indicate that he sees the Wall Street valuations coming into line with what he thinks the properties are truly worth. Whatever the case, Jeff Hwang, who covers casino stocks for The Motley Fool Web site, believes, "Eventually MGM will get taken out and it will be all Kerkorian. Eventually he will take the whole company private."

If history tells us anything, Kerkorian's pullback is no indicator that he's completely lost interest in grabbing City Center and Bellagio for himself. After all, feigning and jabbing fit the style of Kerkorian, a lifelong fight fanatic and one-time amateur boxer with a record of 29-4 (his nickname was Rifle Right). Back in 1999, while Steve Wynn was still overseeing Mirage Resorts, Kerkorian took a small position in the company. It looked to some as if he might make a move on the operation. Then he sold his interests and apparently vanquished the likelihood. So much so that Terry Lanni, who was then chief executive officer of MGM, stepped down when the acquisition seemed to have fallen by the wayside ("I felt that we had accomplished all that we could," says Lanni). Soon after, however, as Lanni puts it, "An opportunity arose for the acquisition and I came back [he is currently chairman of the board and CEO]." So it is far from inconceivable that Kerkorian will revisit City Center and Bellagio and decide that he wants them after all.

Regardless of what he does, the reverberation will be felt throughout Vegas. Investment banking firms such as Credit Suisse, Morgan Stanley and Deutsche Bank all want in on action that is both profitable and sexy. To prove it, they have adorned their boardrooms with aerial shots of the Strip, depicting the various properties, who owns them, what they're worth and what they'd be likely to sell for.

The interest is not just confined to prime real estate. Already Goldman Sachs has purchased the low-rolling, north-of-the-Strip Stratosphere (the neighborhood directly behind the casino used to be known as Naked City), chef Charlie Palmer has announced plans to build an eponymous non-casino boutique hotel in a way-off-Strip location, and a real estate developer from Bloomfield Hills, Michigan, is angling for 70 acres that will bridge downtown and the Stratosphere with casinos, hotels and a 22,000-seat arena.

"Eventually the whole industry will be private," opines Hwang. "Private equity has a lot of money, and casinos are appealing investments; they're predictable and have stable cash flow." They also are conducive to the five-year plans of private equity investors, who like to buy at a discount, build a business and take it public or sell it within a relatively narrow time frame.

Directly and indirectly, a good deal of the prevailing interest in Vegas can be attributed to the growth and success of MGM Mirage and its top dog. What makes this Vegas icon all the more extraordinary is that Kerkorian is as un-Vegas as they come. "Kirk is low-key; there is no micromanagement and he gives me the freedom to do what I do," says Lanni, who received a limitless budget when he built the exquisite Mansion at MGM, a Mediterranean-style hotel within the hotel that still reigns as Vegas's magnet for super-high-limit players. "I've never heard him say 'my company,' even though he owns 56 percent of MGM Mirage. He pays for everything himself, never sends us a bill for airfare, and all he ever gets for free is lunch at the board meetings. He doesn't get comped, he pays full freight, and is as bright a human being as I have ever met."

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