(FORTUNE Magazine) – STEVE WYNN: A $2.5 BILLION WAGER

It would be easy--way too easy--to rely on familiar gambling terms when you talk about the remarkable recent success of Stephen A. Wynn and his Mirage Resorts Inc. You could say he's on a roll, drawing aces, hitting the jackpot. But the truth is that luck has had little to do with the flamboyant Wynn's ascent to the top of the U.S. gaming industry. He relies instead on his own aggressive instincts and sharp business skills, like fierce attention to detail, meticulous financial planning, and a mastery of employee relations.

Wynn rules an empire that consists mainly of upscale resort hotels in Las Vegas, to be joined over the next few years by massive resorts in Nevada, New Jersey, and Mississippi. The new projects, which include Bellagio, the most sumptuous pleasure palace ever to grace the Las Vegas Strip, will cost about $2.5 billion. All the debt Wynn will have to incur to expand his kingdom seems to him to be a very safe wager. Come recession or anti-gambling regulations, he believes the white-hot gaming industry will continue to produce outsize profits.

So far Wall Street is backing his bet. Mirage's stock, which sold at a low of $6 a share in 1990, is now trading around $50. Part of the attraction is the company's granite-solid financial base, a rarity in its line of business. In the past few years Wynn has shed most of its junk bonds and in the process sliced long-term debt from $1.1 billion down close to $200 million. The company carries an investment-grade bond rating and a $1 billion line of low-interest bank credit.

"Mirage simply appears to have its arms around its business better than other gaming companies do," gushes Smith Barney analyst Harry Curtis. Neil Barsky at Morgan Stanley predicts that Mirage, which last year earned $163 million on revenues of $1.45 billion, will book profits of $350 million on revenues of $3 billion by 1999--more than a doubling of the business in just four years.

But what investors really like is Wynn himself--the 54-year-old front man, head cheerleader, and all-around inspirational leader of the enterprise. The secret of his success is hard to fathom, for the man is a study in contradictions, a human paradox. He's the son of an East Coast bingo-parlor operator, and he dearly loves spending time with raffish casino characters. Yet he's also a highly articulate and well-read graduate of an Ivy League college, the University of Pennsylvania, and he counts investment titans like Warren Buffett among his friends. He has adopted an old-line paternalistic management style, indulging his employees with everything from elaborate banquets to lavish vacation trips. Yet he's also capable of flying into a white-faced rage over an employee's minor transgression.

His shares in Mirage alone are worth nearly $500 million, and he lives with his wife of 33 years in a well-appointed, Mediterranean-style mansion overlooking the lush grounds of the private golf course he carved out of the Nevada desert. Yet Wynn's life also has more than its share of tragedies. He suffers from retinitis pigmentosa, a degenerative eye disease that often leads to blindness. One of his two daughters was kidnapped and ransomed back for $1.45 million in 1993. A couple years before that, he partially severed his left index finger while fiddling around with a gun in his office; the digit was later reattached.

Despite his eye condition, Wynn maintains a furiously active lifestyle; he's an avid weightlifter, skier, and rock climber. All that exercise has left him obviously fit--he's a big, strapping man, well over six feet tall--and he maintains a year-round tan that George Hamilton would envy. Wynn can turn on a thousand-watt smile and oozes charm when he relates stories about the early days of Las Vegas. But his ferociously competitive nature is always there, simmering just below the surface.

A mention of Donald Trump, one of Wynn's chief nemeses, draws an immediate reaction. The two men have been at odds for nearly a decade, and Trump has recently earned Wynn's ire by trying to impede Mirage's return to the gambling business in Atlantic City. Trump has centered his opposition on the use of state funds for a new road leading to the proposed Mirage casino site. Says Wynn of The Donald: "Because he doesn't understand the gaming industry, he's capable of being confused. He's obsessed with being king of the hill, and he's probably threatened on more than one level. Basically, his fixation on me is so perverse that I'm inclined to excuse it all and forget about it."

Trump's response is no less caustic--and even more testosterone-charged: "I don't believe the state should approve a free 1.6-mile driveway leading to Wynn's property, but that's not really what our personal disagreement is about. A lot of it has to do with the fact that I have twice kicked his ass on the golf course. It seemed to be very important to him." Mr. Trump, by the way, did not seem to be kidding when he uttered those words.

All of Wynn's quirks and conflicts add up to make him one of the more intriguing, enigmatic chief executives anywhere. Says William N. Thompson, an expert on the gaming business who teaches at the University of Nevada Las Vegas business school: "I see Steve Wynn as the prototypical charismatic leader, a kind of Henry Ford of the gambling industry. Yet he has these ticks, and he wants to make everything perfect. He may scream at you and humiliate you, but he's also the best person to work for if you want to learn to do things the right way."

Wynn the powerhouse didn't just rise from the desert. His dominance of Vegas has been taking shape for 20 years. In the late Seventies, when he was already established as a medium-size player in Las Vegas, he was convinced that the new gambling center of Atlantic City would prove fertile ground for his notions about the business. His problem: He needed to raise $190 million to build a new hotel but had no real money. Says Wynn: "Here I was, somebody none of the money guys knew, with only about $5 million in equity."

Through a mutual friend, Wynn met the man who then specialized in such quixotic financial causes, Mike Milken, and thus was born a close friendship that lasts to this day; Wynn proudly mentions that he visited the former Drexel junk-bond king in prison 16 times. During a brutal string of road shows, the two men eventually swayed the skeptical financial types--Fidelity's Peter Lynch was an early convert--in part by linking Wynn's vision to the same magical economics that drive the business today.

A modern gaming resort carries with it all the pluses and minuses of any hotel operation. Rooms tend to yield fairly high operating margins; the cost per night at a first-class hotel, where you can charge $200 or more a night, might be only $25 or so when you add up maids' salaries, linens and towels, soap, and the like. Restaurant services tend to yield much lower margins. Added together, an upscale hotel with high occupancy rates can hope for operating margins of, say, 25%.

But gaming resorts have an additional revenue stream--an extra cash register, as it's called in the business--consisting of slot machines and table games. At the tables, the house advantage is typically 1.25% or so. That means a knowledgeable gambler, playing the probabilities perfectly, will still come out behind eventually. But no player ever makes perfect decisions, so in fact the house typically wins from 15% to 20% or so of all the money that crosses the green felt. On average, table games at a successful casino produce operating margins in the mid-20% range. The slots, which require little in the way of labor costs, are even better money machines. In Las Vegas they may retain only about 5% of the coins they receive, but that can translate into a 50% or 60% operating margin.

Those compelling business dynamics helped get Wynn the financing for his first major casino, the Golden Nugget in Atlantic City, which opened in 1980 and quickly exceeded projections, producing between $50 million and $60 million in annual operating income.

But even then Wynn knew that gambling is as much about show business as it is about margins. Nothing illustrates that better than his current flagship, the Mirage Hotel. In the mid-Eighties he had acquired a large plot of land on the Strip in Las Vegas, the town's main center of casino action, and was contemplating construction of a mammoth 3,000-room resort with state-of-the-art amenities. To Wynn the project seemed like a logical response to the increasingly upscale visitors jamming Las Vegas and to the city's close-to-100% occupancy rates--"a perfectly normal progression," he calls it.

Yet Wynn sensed that size alone wasn't enough to ensure success for the Mirage; some sort of spectacle, something visitors to Vegas would never see back home in Keokuk or Kyoto, was needed. So he planned a spa that promised a series of surprises for visitors to the Mirage--a 20,000-gallon aquarium filled with sharks behind the front desk, a family of dolphins frisking about in its own habitat, and a glass cage featuring a pack of rare white tigers. For the main showroom of his new resort, Wynn hired bizarre magicians Siegfried and Roy. They put together an extravagant show that features, among other oddities, a disappearing live elephant. The final touch: a massive volcano outside the Mirage's front entrance that erupts in flames every 15 minutes. Wynn considers the Las Vegas Strip to be the largest carnival midway in the world, and he has always looked for ways to get the rubes under the tent. "You've got to get people wondering if what's inside the place is as wacky as the outside," he says. "The name of the game is to be a net receiver rather than a net donor of bodies--you try to make a dormitory out of your neighbor's hotel."

While the Mirage project awed tourists, industry watchers were awed by the debt Wynn had incurred building it. All in, the cost of the Mirage topped $600 million, an unheard-of sum at the time, and a sign of potential trouble in the eyes of competitors. Though Wynn has since paid the debt down, he scoffs at his doubters: "How could anyone understand Disneyland if all they'd ever seen was the Santa Monica pier?" he says.

But the desire for expansion has not kept Wynn from understanding the value of well-timed shrinkage. Take his Golden Nugget casino in Atlantic City, which despite prosperity in the mid-Eighties was exhibiting signs of fatigue: Growth and operating margins were slowing. Wynn quickly moved to unload the casino in a deal that netted a big profit at the expense of Donald Trump.

At the time Trump, already a major power in Atlantic City, had been buying shares in Bally Entertainment. "I suspect he had been reading the newspapers about takeovers by people like Boone Pickens and Carl Icahn and decided maybe he could do this in his own little way," says Wynn. In any case, Bally's advisers, aware that New Jersey law prevented any single casino operator from owning more than three operations, had devised a foolproof takeover defense. Since Bally's already had one casino, it merely had to buy one more; Trump, with his two casinos, could not acquire the company. Wynn eventually cut a sweet deal, unloading the casino he had built just a few years before for $190 million to Bally's for a surprising $470 million.

The move relieved his company's financial pressures, which eased further after the Mirage opened in 1989. The hotel was an artistic and commercial success from the first day; Mirage has continued to turn operating profits in excess of $200 million each year. Occupancy rates for standard rooms have run at or about 100% since the opening; and many of the resort's lavish, $350-per-night suites, designed as free perks for high rollers, have been occupied by paying customers on most nights.

This heavy demand has allowed Mirage management to develop sophisticated yield-management techniques--similar to those employed by the airlines when they price seats--to ensure the highest possible room revenues. Convention business is sometimes simply turned down if busy meeting schedules will keep visitors away from the gaming tables. At other times, the hotel will demand higher room rates from conventioneers to make up for the lost gambling and entertainment business. The computer freaks who flock to Vegas for the annual Comdex convention, for example, pay top dollar because their timidity at the gaming tables has become legendary. Sneers Bobby Baldwin, a former world champion poker player who is now chief executive at the Mirage: "Five of 'em will stand there and watch one guy play."

Demand for rooms at the Mirage also prompted Wynn to go ahead with plans to build a companion hotel, also with 3,000 rooms, directly adjacent. The pirate-themed Treasure Island, designed to serve less affluent guests than those at the Mirage, opened in 1993, and it too operates near full occupancy. Wynn's hook to get passers-by to stop was a full-scale pirate battle--complete with cannons, explosions, and a sinking British man-of-war--that is reenacted outside the hotel several times each evening.

Another key part of Wynn's formula is his unusual take on employee relations. "I have found that you can never go wrong indulging your employees," he says. Throughout the company the staff receives so-called Gotcha awards, usually an extra day off with pay or a gift certificate, simply for doing their job in a competent manner. "We reward the ordinary, not just the extraordinary," says Arte Nathan, human resources director at the Mirage. Employees and Supervisors of the Year are treated to Hawaiian vacations and a banquet that costs about $400,000. While employees at many other casinos are fed with leftovers from the guest buffet, Mirage workers enjoy fresh, free meals in gleaming new cafeterias.

The hotels operate under a system that Nathan calls planned insubordination. Basically, supervisors are required to explain why any task should be accomplished. If workers find the explanation unsatisfactory, they are not required to do the job. The company's turnover rate runs about 12%, less than half the industry average, and a spot on Mirage's employee rolls is so coveted that the company can attract good workers for pay at or below market rates.

Perhaps the best measure of the state of labor relations is that, despite the fact that about 40% of the workers belong to unions, not a single grievance has been filed against the company in more than four years. Says John Wilhelm, Western regional director for the Hotel Employees and Restaurant Employees International Union: "This really is a unique company. The top people actually do believe that their business will be better if their employees like working there."

Wynn himself is the wild card when it comes to employee relations. Though he is the driving force behind the company's progressive attitudes, he has also been dogged by stories that he at times erupts in anger and verbally assaults subordinates over minor matters--things like a burned-out light bulb or a dirty ashtray. The subject is taboo among Wynn's top lieutenants, and he is obviously uncomfortable talking about it. "I've always been emotional and passionate," he says. "I guess it's a fear that I'll become isolated and not know what's going on."

Jon Jerde, a California architect who has worked with Mirage on several projects, says he's seen Wynn exhibit his "dark side" at meetings and then be baffled later on that some subordinate was upset by the rough treatment. Says Jerde: "Steve wants to get things done immediately, and his passion becomes almost maniacal at times."

Though Wynn may have been slow to mellow with age, he has now become far more fiscally conservative than he was in the old go-go days. At least part of the inspiration, says Wynn, came from his friend Mike Milken's predicament--a clear sign that the Eighties were over. "When you see your buddy become a defendant in a criminal trial, you crave a simpler life," he says. "I decided it was time for us to become a blue chip." CFO Daniel Lee used the company's ample cash flow to retire most of the high-yield bonds Wynn and Milken had floated throughout the Eighties.

Debt levels will rise over the next few years as new projects come on line, but those projects should throw off more than enough cash to cope. One new Las Vegas casino hotel called Monte Carlo, a joint project with Circus Circus Enterprises, opened this summer, and Mirage is planning a $375 million spa on the Gulf in Biloxi, Mississippi. Wynn's Atlantic City project, the one being actively opposed by Donald Trump, is a joint effort with two other casino operators to construct a complex of several hotels in the marina district.

Wynn's most fervent current obsessions revolve around the massive $1.25 billion resort he is building just up the road from the Mirage on the Las Vegas Strip. The place, to be called Bellagio, was inspired by the discreet lakeside hotels of northern Italy, but its attractions will be Vegas-size. A 12-acre artificial lake will be dotted with some 1,100 water spouts, and each evening a festival of light and water is promised.

Will Wynn's streak ever stop? Just about everyone you talk to in Las Vegas or on Wall Street dismisses the competitive threat posed by smaller gambling operations now blossoming around the U.S. These operations, say the experts, only seem to whet the appetite of curious customers for the outsize attractions Las Vegas offers. "It's like there's a bunch of 7-Elevens out there, and we're the supermarket," says Dan Lee.

A recession in California, the state that provides almost one-third of all visitors to Las Vegas, wouldn't help matters. Any extended slump on the Pacific Rim that slowed the flow of Asian high rollers to the tables in Nevada would slow things down as well. But the only real threat to Wynn's empire building, say close industry watchers, is some draconian intrusion by government watchdogs reacting to the rising anti-gambling sentiment out there. Says Kenneth Moelis, a managing director at Donaldson Lufkin & Jenrette: "It's a ridiculous idea, but governments have been known to do ridiculous things."

In the meantime, Wynn's worries center on problems faced by leaders of any enterprise: growing at a frantic pace. "With size comes a lack of feel," he says. "We ask ourselves if we're smart enough to do what we do with twice as many people, with 30,000 employees. We're paranoid. We're white-knuckled about it." But still playing for all he's worth.