The Big Gamble
When the Mirage opened in 1989 — a collage of the best ideas in resort tourism — it transformed the Strip, the gaming business, and Las Vegas
Elmer Sherwin, as usual, didn’t have enough money on him. The 76-year-old retiree — who had left Cleveland for Las Vegas five years earlier — had played through $80 on the slot machines and wasn’t quite ready to call it a night. So he asked his ex-wife Florence for help. She obliged him with $20. Sherwin went back to his Megabucks machine and lined up four Wild 7s, winning a neat $4,652,177.29, a then record-setting slot jackpot.
With the pull of a handle, Sherwin’s life changed, in ways he might not have appreciated at the time (at a news conference the following day, he declared his biggest ambition was to take his motor home to his favorite Arizona campground). But the destiny of Las Vegas itself changed, perhaps not as dramatically but just as profoundly, on that day. Not because of Sherwin’s jackpot, but because of where he hit it: in Steve Wynn’s Mirage resort, which had opened a mere nine-and-a-half hours earlier.
The Mirage’s opening on November 22, 1989, is an exclamation point in the evolution of the casino industry and, by extension, Las Vegas itself. Over the next decade, the city would grow astronomically, in part due to the booming growth of the Strip. The success of the Mirage wasn’t the only factor in that transformation, but it was a major one. As big a gamble as Las Vegas has ever seen, the Mirage paid off in ways that are still being felt 30 years later.
Las Vegas, 1989
Even before the Mirage was conceived, Las Vegas casinos were in the midst of profound transformations on several levels. The first was ownership: The Mob was out, and corporate America was in. Not that casinos had been wholly owned subsidiaries of La Cosa Nostra LLC in the past, but it’s undeniable that, with mainstream financial avenues closed, the only sure way to get capital to build casinos was to borrow it from people who knew firsthand the potential profits of gambling — people who, if not “organized” in their business themselves, were on a first-name basis with those who were.
The Mirage near completion in October 1989. Courtesy Las Vegas News Bureau
The aging-out of the former bootleggers who had built the Strip in the 1940s and 1950s and the advent of corporate ownership (starting in 1962 with Del Webb’s purchase of the Sahara, and accelerating with the 1967 and 1969 legislative acts that okayed ownership by publicly traded companies) led to a changing of the guard. It’s difficult to say exactly when the last owner with less-than-reputable associates surrendered his or her shares, but the purchase of the Stardust, site of a skimming operation masterminded by the infamous Frank “Lefty” Rosenthal, by the Boyd Group in 1985 is as good a date as any to choose as an anchor point.
The second change already apparent before the Mirage was the size and nature of Strip resorts. Once relatively intimate, with 500 rooms or so, Strip hotels had grown larger than 3,000 rooms. Also changing were the casinos, which once had centered on craps and blackjack, with slots ringed around the main action as an afterthought. But thanks to a series of technological innovations, slot machines were offering bigger jackpots — and therefore more entertainment — than before, and had come to dominate both casino floors and balance sheets.
The bigger size of hotels and importance of slot machines, combined with the 1978-1982 recession, led to the third change: the shift towards middle-market visitors. From 1983 to 1989, the number of quarter slot machines on the Strip more than doubled. Casinos built more hotel rooms and focused on providing a friendly, safe environment for slot players who, individually, might not be high rollers, but who collectively were a force to be reckoned with. A quarter at a time, Las Vegas casinos not only clawed their way back to prosperity, but found a viable new business model.
By the end of the decade, Las Vegas was booming as it never had before. Total visitation, which was 11.6 million and dropping in 1982, had risen to 18.1 million by 1989. Clark County gaming win grew even more impressively, doubling from $1.7 billion in 1982 to $3.4 billion in 1989. It wasn’t just that more people were coming to Las Vegas; they were gambling more. Casino owners had very little to be unsatisfied with in 1989. Still, Steve Wynn saw something no one else did.
There were big casino hotels on the Strip: The Hilton and Bally’s, among others, had already crossed the 3,000-room mark. There were also resorts that catered to affluent clients: Caesars Palace had been the city’s reigning high-roller roost since it opened in 1966. Some resorts, like the Flamingo, catered mostly to slot players. Others had a large convention component, like the Hilton. What Wynn [pictured right] conceived was one resort that combined all of these elements in one white-and-gold-wrapped building. Never before had anyone attempted to unveil a resort of this size and ambition in one fell swoop. Wynn’s design team found their endurance pushed to the limit in keeping up with his constantly evolving vision of what the resort would be (iconic elements like the exploding Strip-side volcano were relatively late additions to the project), and the prospect of recruiting and training the staff for the resort led to the creation of new human resources systems.
The real accomplishment of the Mirage’s builders, though, might not be the creative vision or the operational feat, but the financial savvy that paid for it.
Paying for Paradise
Financing casinos used to be relatively straightforward: Find big gamblers or other “connected” friends and convince them to invest. Sure, they might demand the right to place an associate in a position to skim a little, but this was how the business worked. The rise of corporate ownership and mainstream financing, as well as more intense vetting of investors by regulators, made gathering capital for new casino projects a bit more complicated.
In the late 1970s, it became apparent that speaking the language of Wall Street and institutional investors was necessary to any casino company. Hilton Hotels’ purchase of Kirk Kerkorian’s International and Flamingo was one step in the process. A 1977 loan from Aetna to Caesars World marked the first major ($60 million, in this case) investment by an institutional lender of that size in the gaming industry. After Circus Circus Enterprises went public in 1983, majority shareholder Bill Bennett realized he needed a Wall Street maven to negotiate the straits of high finance and brought on former stockbroker Glenn Schaeffer, who ultimately became the company’s leader.
Wynn, by the time of the Mirage, was a known quantity on Wall Street. The key to raising the money for the Mirage wasn’t Las Vegas, but Atlantic City, which had just legalized casino gaming when Wynn bought a property there. Needing to raise $100 million to build a hotel there, Wynn — whose Downtown Las Vegas Golden Nugget casino was, generously, perhaps worth $5 million — was introduced to Michael Milken, then a 32-year-old financial wunderkind at investment bank Drexel Burnham Lambert. After listening to Wynn’s pitch for the Atlantic City project, Milken explained how, by setting modest goals for his projects and meeting them, Wynn would one day be able to receive a billion dollars from investors. Milken was able to raise $160 million for the Golden Nugget Atlantic City.
The key to the Atlantic City financing was Milken’s specialty, high-yield bonds. Less charitably known as junk bonds, these financial instruments were perfectly suited for capitalizing a casino: While they offered the promise of higher yields than more traditional bonds, these bigger payoffs came at a price — the bonds had a higher risk of default than was typical. High-yield bonds were a gamble, but an acceptable one — if you had faith in the borrower.
The Mirage demanded that kind of trust from investors. It was a resort with a budget of $650 million in what Wynn called “a $200 million town.” And while Wynn had done much to earn the confidence of investors with his moves in Atlantic City and on Fremont Street, Wall Street was decidedly skittish after 1987’s Black Friday stock market bust. It was only after a mid-construction field trip, combined with the personal persuasion of Wynn and his operations chief, Bobby Baldwin, that the project’s financing was completely secure.
The large scale and polish of the Mirage meant that it would need to pull in substantial sums every day to remain solvent: Baldwin calculated that the property’s daily nut was $1.1 million. For this reason, the design process emphasized efficiency, making the Mirage not only the most lavish resort the Strip had yet seen, but the tightest ship to sail the Mojave.
The Mirage Difference
When it finally opened, the Mirage exceeded even its builders’ expectations: The slot department, for example, briefly shut down because the change banks hadn’t been stocked with enough coins — the demand was that high. By the end of the following year, even the most skeptical of parties had to admit Wynn’s ambitions had paid off. The Mirage was not only making more money than any Las Vegas resort had before; it was pulling in a mix of gaming and nongaming dollars that changed the way operators thought about casinos. Previous projects (as well as the Excalibur, which opened six months after the Mirage and was the last casino built on the Strip not to be influenced by it) had made money, but almost all of it was from the casino. The Mirage not only had giant investments in areas that produced no immediate revenue (the exploding volcano is the most obvious but not the only one) but it relied on substantial nongaming revenues to stay in business. Once loss leaders, entertainment, dining, and lodging became revenue centers in the own right.
Roy Horn, Gov., Bob Miller, Siegfried Fischbacher and Steve Wynn at the grand opening of the Mirage Nov. 22, 1989. Don Knepp/Las Vegas News Bureau
The ability of the Mirage to consistently earn more than the necessary $1.1 million each day sparked the megaresort revolution of the 1990s, and the broader focus on nongaming that dominates the Strip today. The conventional wisdom of the Nevada casino business going back to the 1930s held that gambling was where resorts made their money; everything else, from theater seats to beds, existed only to drive customers into the casino. Investing more money in restaurants and expecting patrons to spend more on dining was foolhardy, since any player worth their salt was comped anyway. But the Mirage showed that, when run correctly, entertainment, dining, and lodging did not have to be loss leaders, but could be revenue centers in their own right. Or, in Wynn’s words, the Mirage was a hotel with a casino attached, rather than a casino with a hotel attached. Every subsequent resort followed this model.
In 1990, the first full year of the Mirage’s operation, visitation to Las Vegas increased 16 percent, the second biggest bump, percentage-wise, in Las Vegas history (only 1994’s 20 percent jump, triggered by the openings of Treasure Island, Luxor, and MGM Grand, beats it). While part of that was due to the opening of Circus Circus Enterprise’s Excalibur, which, with 4,000 rooms, was the largest hotel yet opened on the Strip, the Mirage was the more visible face of the “new” Las Vegas, which emphasized not only high-rolling casino play but also luxury accommodations and an only-in-Vegas form of entertainment spectacle then embodied by Siegfried & Roy. By any metric, the Mirage was as big a success as Las Vegas has ever seen.
Thirty Years Later
Today, the Mirage is no longer the top property on the Strip. It’s arguably not even a premier property of its owner, MGM Resorts International. The property’s reign at the summit lasted only until the opening of Bellagio in 1998 — a nine-year run. Steve Wynn and his original team only operated it for 11 years; it has been 18 years since the MGM acquisition.
But the Mirage inspired every casino that came after it, both on the Strip and farther afield. Look no further than Circus Circus Enterprises. In the late 1980s, it was, by many metrics, the most profitable casino company in the world. Low-frills amenities for price-sensitive gamblers and family vacationers translated into a very healthy bottom line. The business lacked the pizazz but also the volatility of those with high-end aspirations. The Excalibur was the final elaboration of the Circus Circus Enterprises vision: a mass of budget accommodations, with a giant slot floor, and an arcade level attached. Unpretentious fun that doesn’t pretend to be anything it isn’t — besides a medieval castle. And Excalibur was as much a success as the Mirage, garnering an impressive return on investment.
But Luxor, Circus Circus’s next resort, tried to emulate the Mirage more than Excalibur, and its successor, Mandalay Bay, made no bones about its desire to emulate Wynn’s pioneering resort, right down to the gold-and-white exterior and the coconut aroma inside. When the company changed its name to Mandalay Resort Group, it was clear that tropical luxury, not clown games, was the future of Las Vegas. And everything built in Las Vegas since then followed a similar path, with some variations. If the 1950s and early 1960s are best known as the “Rat Pack era,” the period from 1989-2001 deserves to be called the “Mirage era.”
So, 30 years later, that ambitious gamble in the desert still stands as a true landmark in not just Las Vegas history, but the evolution of the casino resort. Other buildings have since reached higher in the sky, but none has made as profound an impact as the Mirage.