The report last week in the Wall Street Journal that MGM Entertainment was talking with Wynn Resorts about buying the Wynn Boston Harbor in Everett has raised questions about what would happen to MGM’s Springfield property if this should happen. Bay State gaming law would prevent MGM from operating more than one casino in the state.
The $960 million MGM Springfield is scheduled to open in September. About 1,500 workers who don’t know their future are working to complete the tower and hotel.
Currently investigators for the Massachusetts Gaming Commission are probing how the Wynn company handled the reports of sexual impropriety by former CEO Steve Wynn and a $7.5 million settlement by him to a massage therapist who accused him of forcing her to have sex with him.
Gaming industry experts say it is perfectly reasonable for MGM to look at purchasing the Boston-metro property because it would be a step up by several levels over the Springfield property.
Although Wynn CEO Matt Maddox has declined to talk to reporters about a possible sale, he told the Massachusetts Gaming Commission last week that he would be forced to entertain an offer if it comes. “Our company stands for quality and five-star service and is uniquely situated to deliver one the best integrated resorts in the world for both customers and employees in Everett, Massachusetts,” he said. “We remain very excited about the Boston market.” He added, “However, our obligation to shareholders is always to maximize the value of our assets and to mitigate risk.”
Alluding to recent comments by commission Chairman Stephen Crosby that the casino’s project was going forward on an “at risk” basis, Maddox added, “These obligations are particularly relevant in light of recent commentary that was made despite our rapid and decisive efforts to sever all ties with our former Chairman, actively searching for new diverse board members, and fully cooperating with the regulators in Massachusetts and elsewhere.”
Last week Boston Globe columnist Adrian Walker suggested that Wynn Enterprises is applying subtle pressure on the commission.
“More likely, Wynn officials are using the threat of sale to throw the process into (further) chaos and prod the Gaming Commission into deciding sooner rather than later whether Wynn Resorts gets to keep its casino,” wrote Walker.
He added, “The commission is in an unenviable position. If Wynn keeps its license and proceeds as scheduled, the panel will be accused of rank hypocrisy, or talking a good game on ethics but backing down when it counted. But if Wynn is stripped of its license, the company is left with half a casino, years of wasted time, and a ton of broken promises to Everett, which is counting on the casino as the key to its long-overdue revitalization.”
At the same time purchasing the $2.4 billion Boston area property at possibly bargain prices would almost certainly generate higher returns on investment for MGM, says industry analyst John DeCree of the Nevada-based Union Gaming.
In DeCree’s report last week, he wrote that the Springfield casino, “was a great fit for MGM when the license was awarded in 2014, but MGM is a vastly different company today.”
He wrote: “In 2014, MGM’s total leverage was six times and the company generated $1.5 billion of domestic cash flow” adding, “Today, MGM’s balance sheet is 4½ times leveraged and going below four times in a hurry. The company now generates over $2.5 billion of domestic cash flow and has significantly expanded its presence on the East Coast with MGM National Harbor and The Borgata. As a substantially larger enterprise, we believe MGM is a good fit for Boston.”
Because of the MGC’s ongoing investigation, Wynn might find it prudent to vacate the market. “The political climate has become unfavorable for Wynn in Boston and rather than waiting around, the company could exit. Further, the company is refocusing its strategy, which doesn’t appear to include regional U.S. gaming,” wrote the analyst.
Cree adds that possible purchasers such as Las Vegas Sands, Caesars Entertainment, and Genting, are unlikely to be interested in Boston, for various reasons. He suggests MGM’s best course would be to “trade up,” by finding a buyer for MGM Springfield.
Continuing with the exercise, Cree suggests Penn National Gaming, which already operates the state’s only slots parlor, but which might also want to trade up. He adds to that mix Boyd Gaming and the Mohegan Sun, Foxwoods and Florida’s Seminole tribe.
Travis Hoium, writing in the investment website Motley Fool suggests a way for MGM to carry out the trade up.
He wrote: “I think the formula for funding Wynn Boston Harbor would be similar to how MGM Resorts financed MGM National Harbor near Washington D.C. The property cost $1.4 billion to build, and once it was completed the real estate was sold to MGM Growth Properties for $1.2 billion. In effect, MGM Resorts got a brand-new resort for $200 million.” Hoium added, “The same formula could be replicated in Massachusetts. Wynn Boston Harbor’s real estate could be sold to MGM Growth Properties; if terms were similar to MGM National Harbor, the real estate could fetch around $2.1 billion. For around $300 million, MGM Resorts could get a coveted casino on the East Coast.”
Needless to say, although we will say it anyway, any such deal would require the consent and probably enthusiasm of the Massachusetts Gaming Commission. And that’s not a given by any means. It would also probably require the city of Springfield’s blessing, since it has a host agreement with MGM.
Game of Musical Chairs?
The possibility has drawn the laser-like focus of area rivals. Cody Chapman, a spokesman for the Mohegan Sun in neighboring Connecticut told the Hartford Courant, “We are able to share at this time that like everyone in the industry, we are watching what happens in Massachusetts closely.”
Alex Bumazhny, a senior director at Fitch Ratings, told the Courant, “Unless the gaming act is amended, MGM wouldn’t be able to have both Boston Harbor and Springfield. The gaming act appears pretty clear on the one casino per operator.”
If MGM did pursue the Boston option—and put the Springfield casino up for sale—that could spark a game of musical chairs among the also-rans for a casino license in the Bay State the first time, such as Foxwoods and the Mohegan Sun.
Both Indian casinos, once fierce rivals, are now partners locked in a legal and public relations war with MGM over the commercial casino that they seek to build in East Windsor as a bulwark against the MGM Springfield. MGM has fought those efforts to a virtual standstill.
If suddenly MGM were to switch its focus to Boston, the tribes might find themselves fierce competitors again.
Andrew Doba, spokesman for MMCT Venture LLC, the tribal joint authority, tried to tamp down that kind of talk. He said, “We’re not going to comment on rampant speculation. Our concern has been and will continue to be to preserve Connecticut jobs and revenue.”
MGM also declined to add fuel to the fire. Spokesman Debra DeShong said,
“We remain committed to the opening and success of MGM Springfield.”
Complicating things further is the fact that the Mohegan Sun is in the midst of a lawsuit against the Massachusetts Gaming Commission. It alleges that the MCG acted improperly in awarding the license to Wynn in the first place. The Sun was an unsuccessful bidder for the Boston metro license.
MGM has proven itself more than able to hold its own battling for its interests in Connecticut. This legislative session it has lobbied strenuously for a $675 million casino in Bridgeport, the state’s largest city. It has argued that although this would bust apart the tribal state gaming compact with the Mohegan the Pequot tribes that it would be able to more than make up for the money the state would lose by ending the tribes’ exclusivity clause.
The bill that resulted didn’t give MGM its sought for result: reversing the authorization for a commercial casino in East Windsor, but it did keep alive the possibility of a Bridgeport casino.
Meanwhile, legislature leaders in that state are calling for a comprehensive gaming strategy.
Macau Meaning
Japanese brokerage Nomura says Wynn Resorts may have a better chance renewing its casino concession in Macau if it retreats from its Boston Harbor casino, now in development in the United States.
“By exiting Massachusetts, Wynn would send a signal to the authorities in Macau that the new management team is serious about remedying past ills, which could enhance their positioning heading into concession renewal conversations,” said the memo from analysts Harry Curtis, Daniel Adam and Brian Dobson.
According to GGRAsia, Macau’s Gaming Inspection and Coordination Bureau held a meeting with Wynn Macau Ltd. management in late January after the scandal hit, and said in a statement that it takes seriously the issue of “suitability” of its casino concessionaires. Wynn’s concession expires in 2020.
“We believe that the Wall Street Journal commentary about Wynn possibly selling Boston Harbor to MGM is directionally correct,” said the Nomura team. “The risk to Wynn’s Macau concession would be lower, which would offset any lost value from Boston Harbor.”
Lawsuit Could Shed Light
Another court case in Suffolk County Superior may shed light on how the Wynn casino came to be built at its current location—an issue that is also tied up in the Mohegan lawsuit.
The case: FBT Everett Realty, LLC, v Massachusetts Gaming Commission, is one where FBT Everett Realty LLC, a limited liability company that includes three individuals, is suing the Massachusetts Gaming Commission for its interference in the company’s land dealings with Wynn.
The judge in the case is due to rule on whether the case will go to a jury. At the time Wynn acquired the land in Everett it was locked in battle for the Boston license with Caesars Entertainment, which wanted to build at the abandoned Suffolk Downs racetrack in Boston.
In 2012 Wynn put together an option agreement for FBT to sell him 36 acres on the former toxic waste site once owned by the Monsanto Chemical company. The sales price was $75 million. The deal could only happen if Wynn won the license.
The problem, from the standpoint of the MGC, was allegations that one of the partners of FBT was a convicted felon with mob connections. That possibility threatened to prevent Wynn from being deemed “suitable” to operate a casino. At that time Wynn’s sexual allegations were hidden from view.
The land deal was threatened when the Massachusetts State Police and the commission’s investigative arm uncovered the possible hidden ownership of Charlies Lightbody, a convicted felon. The commission alleged that Lightbody was an owner. That allegation was later disproved, but long after the commission ruled that the only way the land sale could happen was if Wynn paid FBT only what it had paid for the property. That way, if Lightbody was involved, he wouldn’t make a profit, and the state’s gaming law would be satisfied.
Under the commission’s guidance Wynn agreed to pay $40 million, what the property was deemed to be worth if it had been used for a Wal-Mart, instead of a casino.
FBT was pressured to sell under those unfavorable terms. The mayor of Everett threatened to take the land by eminent domain. The owners were rumored to be under police and FBI investigation.
FBT is now suing the commission to recover the difference between the two valuations, claiming the commission’s interference was unwarranted since Lightbody was never a partner in the property.
Attorneys for FBT and the commission made oral arguments on March 23. The judge will rule this month whether the case will move forward or be dismissed.
What makes the case interesting to the current situation is that IF it goes to a trial, many of the players may be called to the stand to testify. The inner workings on how the commission oversaw the transaction will be exposed and even how Bay State taxpayers lost taxes that would have resulted if Wynn had had to pay a larger amount for the land.
Meanwhile, attorneys for Steve Wynn and the company that bears his name has asked that his name be removed from the gaming license since he has sold all of his interests in the company.
The Wynn Boston Harbor is still a year away from completion, so it is possible that the license could be revoked, leaving an uncompleted casino sitting overlooking the Mystic River.
MGM Springfield Keeps Moving
Meanwhile, the MGM Springfield project moves forward, although city officials are obviously a little nervous about the possibility of a sale.
Ask to comment, the mayor of Springfield, Domenic Sarno, issued this statement: “I have consulted with our legal team and we are satisfied with our Host Community Agreement protections. He added, “I don’t want to speculate on what MGM might or might not do.”
Sarno later updated that statement: “I have been contacted by MGM Resorts International President Bill Hornbuckle and MGM Springfield President and COO. Mike Mathis to reassure me of their continued commitment to a first-class resort in Springfield.”
City Council President Orlando Ramos added, “MGM is a business, right? They’re in the business of making money. I don’t think they would abandon the Springfield project.”
Last week the Massachusetts Gaming Commission agreed to give MGM additional time to meet its commitment to provide 54 new market rate housing units in the downtown area.
It agreed with MGM’s arguments that it needs more time to determine if an $11 million investment in housing on a long vacant street is do-able. More negotiations with city officials and private developers are needed, says the casino company. It voted to give MGM until March 2019 to make a final commitment on Elm Street, or else move to a different part of the city for the units. The units must be within one half mile of the casino, according to MGM’s agreement with the state and city.
City officials continue to stress the vital importance of the residential housing to the downtown’s redevelopment.
The commission voted to require MGM to make quarterly reports on the progress for the housing plans.
MGM lost a vote on its request to waive state registration for cleaning jobs on the casino floor. The company had said it needed the flexibility to hire those with criminal records for such jobs.
Paul Connelly, chief of the commission’s licensing department, disagreed: “Not to make it too dramatic, but the gaming floor from a regulatory perspective is kind of sacrosanct,” he said. “That is a big red flag to us as we do the analysis as to whether we thought they were positions eligible for exemption.”
The commission previously loosened hiring restrictions on about 800 jobs.
The commission voted 3-2 to deny the request.
