I’m in Las Vegas for the Value Investor’s Congress where I am presenting today (wish me luck). After a few dozen trips to Vegas over the years, I have to admit that the bright lights, gaudy furnishings and generalized circus atmosphere leave me somewhat numb. Vegas just isn’t “my sort of place.” That doesn’t mean that I cannot be stimulated in other ways. It all starts with the question that I ask myself every time I come here—what is the marginal return on capital of the lake at the Bellagio?
The Bellagio is set on an 8 acre manmade lake that runs along the Las Vegas strip. What makes someone decide to use some of the most expensive land in the world to build a lake in the desert? Clearly, there is a thought process behind this. What is the marginal return on capital of the lake? Why not just build another mini-mall full of Louis Vuitton, Brioni and Cartier? Was the lake a better return on capital than the 541 foot Eifel Tower across the street from it? What was the thought process that went into that one?
I realize that there is a true mad genius to how things are designed in Vegas. Somewhere on some spreadsheet, there is some formula that compares the height that the fountains shoot the water to the daily casino rake. Another spreadsheet probably tracks what song they play to how much revenue the shops take in. There is just too much money involved for them to do it any other way. The best behavioral analysts are certainly involved in these computations. I wish I could see their math.
Of course, for guys like Steve Wynn, after they’ve hired the experts, they go with their guts. When it comes to casinos, Steve Wynn is just a visionary. Can you calculate a return on capital for the dancing fountains? Probably not—the spreadsheets are for the board of directors and the bankers—but can you imagine a movie in Vegas that doesn’t have a scene in front of those fountains? They are now iconic and so is Bellagio.
In a city of faux glamor and over the top presentations, Bellagio stands out for being differentiated. There is really no way to quantify the lake and the fountains except to say that it was Steve Wynn’s vision and it’s created one of the most profitable casinos on the strip. Where other developers went for mega-malls, Wynn went for something that would bring in the high-rollers. To use the “economic moat” concept, Wynn went one step further and practically built an actual moat around the Bellagio.
I’m sure that when the idea of the lake was first conceived, people were dubious. Yet, as other casinos have slowly faded away, the Bellagio is still one of the most popular. In investing, you trust those who have repeatedly succeeded—even if you have to pay up—it is almost always worth it. Winners continue to win. So, when it comes to the 8 acre lake, you cannot calculate a return on it—you just know it will work, because Steve Wynn says it will work—then you buy into whatever his next venture is because he gets it right so often.