Wynn is right on taxes, but picked bad time to deliver the message

A smiling sentinel, who refused to give his name or his employer, guarded the door to the small room, trying to obscure what was occurring inside.

The young man, who obviously worked for the luminary within, only stepped aside when Democratic legislative leaders trudged down the hallway and entered the inner sanctum for an audience.

In the hallway, a gaggle of reporters waited, frustrated and amused at the spectacle of supposedly powerful lawmakers having to be granted entrance in their own building to a special room for an audience with the great and powerful Wizard of Wynn.

Even for the Legislature, which has had its share of surreal and embarrassing scenes, Wednesday was a new nadir. Steve Wynn, who had called and importuned the leaders the previous week to leave gaming alone and tax mining, had decided to come up to educate lawmakers on the fragile health of the casino industry. And now they appeared to be coming to his private classroom, joined in the alcove on the second floor by Wynn's government affairs chief, Mike Britt, and his legislative lobbyist, Richard Perkins, the ex-speaker.

Wynn, of course, has a point – actually, more than one: The industry is not what it once was. Taxing gaming at this time would be questionable (at least) policy. The margins tax is far from the best solution and could really hurt major public companies who now make most of their money from non-gaming revenue.

Wynn repeated all of this and more during a couple of conversations I had with him on Thursday in which he also insisted a gross receipts tax was the answer, said the margin tax was “a lethal injection” for the gamers and he told me there was a “tipping point” at which public company boards would no longer countenance investment in Nevada.

Wynn bristled when I suggested he probably had not been helpful with his legislative meetings. He said he has created 250,000 jobs, had manifest charitable donations and probably is the biggest supporter of education in the industry. “If I don’t have a right to come up here…” he said. “No, I have a responsibility.”

Maybe.

But what Wynn doesn’t understand – and veteran legislative observers do – is that this was not the place nor the time, that the optics were awful and that the ever-forceful gaming doyen was bound to anger some of them. And he did, especially Speaker Marilyn Kirkpatrick, who abruptly left her sit down in what she would later call a “huffy” moment when Wynn told her taxing his nightclubs would be a disaster. Telling the speaker, in full animated Wynn mode, that what she had been working on ALL session, her all-consuming passion was a terrible idea? Not good.

No one denies that Wynn is a visionary and one of the smartest guys ever to grace the Strip – or, perhaps, anywhere. But his timing, with reports of company profits, property tax breaks and his Massachusetts investment ), was awful. Wynn managed to alienate the Democratic leaders who (at least previously) had no intention of raising a tax on gaming as they prepare to unveil their still-inchoate tax plan. You could almost sense the Nevada Resort Association lobbyists cringing (Wynn is not an NRA member but the most recognizable face – sorry, Mr. Adelson) as Kirkpatrick and then state Senate Majority Leader Mo Denis (seen below with aide Mike Luce) entered The Wynn Room.

Did I mention the optics?

MOHAMMED GOES TO MICHAEL

They got worse when Wynn, whose minions had persuaded the leaders to come to Wynn and not vice-versa because of his vision/mobility problems, left the room and went to….GOP Senate Minority Leader Michael Roberson’s office to meet with him and his merry band of would-be mining taxers. (I wonder how Perkins, who also lobbies for Newmont, felt when taxing mining came up in that conclave.)

Did I mention the Democrats control the Legislature and don’t much like Roberson?

To some extent, the Democratic leaders asked for this by promising they would have a plan and with three-quarters of the session done, we have heard crickets. If I were a business or gaming leader, I’d be worried, too.

And Wynn, during those Thursday conversations, actually sounded worried.

“Gaming is sick,” Wynn told me. “It needs help. Thank God for China. We are sick”

Wynn swatted away the recent reports of companies doing better, saying those have been exaggerated. He pointed to the abstract from regulators that indicated the Strip lost $1.4 billion in value last year. And he estimated – this is an astonishing number – that Las Vegas Boulevard South is $38 billion poorer than it was five years ago.

Lest anyone think he is a Cassandra, Wynn obviously is right that the industry is not what it once was. But even his CFO, Matthew Maddox, and the rest of the Economic Forum members seemed to think that the worst is over when they met as Wynn was talking to lawmakers..

LEAVING LAS VEGAS?

Wynn’s thanks to the divine for his Macau success – and that of others, too – is a double-edged sword in Carson City. Wynn pointed out that he can use money made in that thriving Asian market to invest in improvements at Wynn and Encore, which he has. But others see the gamers spending so much money elsewhere and wonder if they are as hurting as much as they claim. It’s not that simple – but that is a common perception.

“The slack has been taken up by other jurisdictions,” Wynn told me. “They are going to continue to burgeon and are burgeoning.”

Although he gushed about the ongoing “menu of options” on the Strip, Wynn cautioned that there is that “tipping point” when public company boards might decide not to invest in a jurisdiction they don’t think is viable. He wasn’t exactly saying companies might pull out of Las Vegas – he mentioned that government must let companies like MGM Resorts International and Caesars Entertainment de-leverage themselves -- but he was saying the future may be elsewhere if the economy doesn’t turn around here.

And, of course, if lawmakers have the right tax policy. Thus, Wynn decried Kirkpatrick’s effort to “squeeze more money out of nightclubs” (her still-unreleased admissions tax) and even expressed reservations about Roberson “going after one industry” (mining).

He hearkened back to ex-Gov. Kenny Guinn’s gross receipts tax of 2003, suggested that was still the best solution, combined with eliminating the payroll tax and establishing an exemption level at $500,000, perhaps higher. Wynn said he would be willing to pay three quarters of a percent or even 1 percent on his non-gaming revenue, which now exceeds his gaming revenue – as it does in many establishments. He estimated his non-gaming revenue at about $800 million.

THE "LETHAL INJECTION"

That’s why he called the teachers’ margins tax fatal – others have told me gaming companies would have to do layoffs if it passes – and why the union must be brought to the table. Wynn obliquely referred to teachers operative John Vellardita coming to Carson to demand $600 million for education, emphasizing the margins tax approach could be devastating.

“We have to beat it, or try to get the teachers to beat it,” Wynn said of the margins tax.

On the other hand, Wynn also seemed genuinely pained by what he had heard, that “kids are sitting on the floor in some classrooms. That’s not OK with me.”

Clearly, the real leverage here is with the union, which knows it has the tax on the ballot. Wynn gets that and wants to negotiate with them – he talked to Lynn Warne, the outgoing head of the state union, last week, he told me. But he wants the Legislature to join in, along with others, to make a deal so the teachers will back off the tax, and help defeat it at the polls with the guarantee of an alterative.

This is a much more difficult needle to thread than Wynn realizes. He actually thinks Gov. Brian Sandoval could be persuaded to support such a compromise tax plan; I think it’s more likely the governor would announce he supports patient dumping.

But here again Wynn is not wrong  -- the state needs to broaden the base and a gross receipts tax that exempts three quarters of the state’s small businesses makes as much sense now as it did 10 years ago. But, again, his timing is not great, and lawmakers will have none of it, I’d guess.

Wynn, being more optimistic than I, said he thinks lawmakers “are such nice people. They are not even getting paid this week. Deep down they all want to do the right thing.”

Deep down, I wish he were right. Deep down, I don’t think so. Deep down, I think it all depends on what the definition of “right thing” is.

And at this point, I think many in the Gang of 63 have a bunch different definition than Steve Wynn does.

(Wynn photo from Business Week.)