Wynn Resorts Is the Biggest Test for Investors' Tolerance

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The price of sexual misconduct accusations has never been higher.

Wynn Resorts

WYNN -9.32%

has lost $3 billion in market value since its founder and chief executive was accused by former employees of behavior that would amount to a decadeslong pattern of sexual misconduct. The situation is unique because of

Steve Wynn’s

role as CEO and his outsize importance to Wynn Resorts. “He is the company,” industry executives and analysts say.

Indeed, Wynn Resorts, which includes its signature hotels in Las Vegas, two casinos in Macau and a $2.4 billion project scheduled to open next year in Boston, is nearly impossible to separate from the man. This puts investors in a quandary—whether to sell now, demand the ouster of a CEO who made them big profits or support Mr. Wynn, whom many of them have in the past praised as a visionary leader.


Steve Jobs

to Apple, or

Phil Knight



Mr. Wynn is integral not only to the company’s brand, but to the casinos’ design, development, and licensing. Harvey Weinstein comes close in terms of an executive’s value to a company, but the film studio founded by Mr. Weinstein and his brother was privately held. Bill O’Reilly and Matt Lauer were valuable media stars, to be sure, but ultimately of only modest importance to the behemoths that employed them,

21st Century Fox




Mr. Wynn is the first founder and chief executive of a major publicly traded company to be accused of sexual misconduct in the recent wave of allegations. The Wall Street Journal reported that in 2005 a manicurist who worked at Wynn’s hotel told co-workers that he had forced her to have sex and beyond that reported incident, dozens of people who have worked for Mr. Wynn’s casinos described a pattern of sexual misconduct. Mr. Wynn said it was “preposterous” that he would assault a woman. He didn’t provide further response to other allegations of sexual misconduct.

The company’s stock dropped 10% on Friday after an article about the accusations in the Journal and shares fell another 5% on Monday.

But will he be pushed out? The board and investors will weigh whether keeping Mr. Wynn would be better for the company’s long-term value than firing him, and whether any value that is created is worth the hit to its reputation. In a securities filing before the Journal’s report, the company cited the loss of Mr. Wynn as one of the biggest risks to the business: “If we lose the services of Mr. Wynn, or if he is unable to devote sufficient attention to our operations for any other reason, our business may be significantly impaired.” It is hard to say whether casino-goers will shun Wynn properties if he stays; these are casinos, after all.

The Wynn situation is also unique because the casino industry is so heavily regulated. Nevada gaming regulators have typically focused more on historic risks such as mob influence or corruption than on sexual harassment. But a recently appointed top regulator there has said the Nevada Gaming Control Board is “reviewing the information.” Under state regulations, she could cite character as a consideration in the granting of casino licenses, though that would be an unusual step.

Massachusetts may be more important. Following the Journal’s report, the Massachusetts gambling regulator, which granted the company a casino license in 2014, has opened a regulatory review of Wynn. The company has said it “will be fully cooperative with any review the commission chooses to undertake.”

The company’s best bet may be to sell, or to break up, regardless of whether Mr. Wynn stays. But the company is seen as hobbled. Weakness in the stock could make the company a strategic asset for players looking to grow.​

Mr. Wynn won’t go quietly. He claims the accusations are part of the litigation strategy of his ex-wife,

Elaine Wynn,

who is seeking to lift restrictions on the sale of her stock in Wynn Resorts. (She says the notion that she is responsible for the Journal’s article is “just not true.”)

After the Journal published its report, Maurice Wooden, president of Wynn Las Vegas, sent a letter to employees reiterating support for Mr. Wynn and lamenting that “the news media has been used to assail Mr. Wynn and us in this way.”

Mr. Wynn is likely to fight to keep control of the company. He started Wynn Resorts in 2000 after he lost control of

Mirage Resorts

which he had founded and used to transform the Las Vegas Strip. The loss of Mirage was traumatic for Mr. Wynn.

To start Wynn Resorts, he turned to Japanese pachinko king

Kazuo Okada

for funding. Mr. Okada and Mr. Wynn both controlled 20% of the company until Mr. Wynn’s divorce, when he divided his stake with Ms. Wynn.

In 2012, after Mr. Wynn’s stake had fallen and Mr. Okada became Wynn’s biggest shareholder, the company forcibly redeemed Mr. Okada’s stake. The company accused Mr. Okada of corruption, and Mr. Okada called the move an unmerited power grab.

Mr. Okada sued to get back his shares. Now, with Mr. Wynn under fire, the case is set for trial in April, according to Wynn’s most recent quarterly securities filing.

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