A week ago, MGM Springfield opened its doors in Massachusetts. A lot of the focus of recent meetings of the Massachusetts Gaming Commission (MGC) was on the various logistics of proper regulatory oversight of a casino opening. Now that the jurisdiction has two operating facilities open (MGM and Plainridge), it will turn its attention to two potential other casino projects in the coming months. The decisions it makes will have an enormous impact on the success of commercial gaming in the state for years to come.
Wynn Suitability Investigation
One difficult issue the Commission will grapple with will be how to deal with Wynn Resorts and the allegations of sexual harassment that arose earlier this year against founder Steve Wynn. Since the time the issues first became public, another set of allegations arose regarding a (now former) member of the Massachusetts team that resulted in the filing of a lawsuit. Since the initial disclosure of these issues, the “Wynn Boston Harbor” project has been renamed the “Encore Boston Harbor” casino. Work on the construction of the facility has continued and remains on a timetable for a mid-2019 opening.
The Investigations and Enforcement Bureau of the MGC (IEB) has been conducting an in-depth investigation of the issues. At the most recent MGC public meeting, MGC Executive Director Ed Bedrosian stated that the IEB is entering the final stages of its investigation. He noted that one of the four primary elements of the IEB’s review centers on an assessment of Wynn Resorts and the board’s response to the findings of the company’s own independent review. He said that they will be reviewing the steps that the Wynn Resorts board has taken and will evaluate additional information and “expect to conclude their work by the end of this month.”
After the IEB issues its report, if the MGC acts in a way consistent with its past precedent and the applicable administrative rules, it will schedule an adjudicatory hearing to review the report, take testimony and ask questions of key witnesses, and for the full Commission to make a decision on whether Wynn Resorts is still “suitable” to be a casino operator in the state.
While to some extent this is new territory for the MGC, it does have precedent from a strikingly similar situation that might provide some insight into what Wynn Resorts can reasonably expect to face at this hearing phase of the process.
The MGC conducted an adjudicatory hearing in a prior case regarding a qualifier that the IEB conditionally recommended be found suitable (Ourway Realty). The Ourway case contains many striking parallels to the Wynn developments. Just like in Wynn, one of the key executives was accused of misdeeds (in Ourway’s case, it involved taking numerous routine withdrawals from the cash room). A second key executive abruptly resigned immediately prior to the adjudicatory hearing and requested a withdrawal of his qualifier status. Just like Wynn’s situation, Ourway didn’t discover the alleged misdeeds through its internal controls but rather were made aware and acted only after an external investigation brought them to light.
At the adjudicatory hearing, the MGC sharply criticized the company for failing to discover the misdeeds on its own and only realizing the issues when an investigation brought the matter to Ourway’s attention. It also questioned what had changed and whether simple assurances that internal controls would be better and better processes put in place was enough.
Ultimately, the MGC determined that Ourway Realty was not suitable. In its decision, the MGC indicated: “The investigation unearthed a number of practices engaged in by (the former CEO) that were deeply troubling. Though he is no longer part of the organization, we must consider the systemic issues that allowed those practices to take place, what has been done to remedy those deficiencies… It is noteworthy that all of the adjustments, including the removal of the (former CEO) took place only after the Bureau brought the issues outlined in the Report to light. They were not detected by the principals of the organization itself.” The MGC also expressed concern that “too much authority was vested in the hands of one individual with no checks and balances in place.” It also noted “there was apparently a culture in place that would have dissuaded anyone from brining problematic issues to the principals’]attention.”
It will be interesting to see how the MGC utilizes its past treatment of similar issues in reaching a resolution regarding the suitability of Wynn Resorts going forward.
Region C Application Reconsideration
In addition to the Wynn suitability investigation, the MGC decided in late July that it would postpone its determination of whether to revisit the denied proposal in Brockton. It was originally in April 2016 that the MGC rejected the application of Mass Gaming & Entertainment, a subsidiary of the Rush Street Gaming, owned by billionaire Neil Bluhm, to construct a $700 facility in Brockton, citing concerns with the design and failure to connect more closely with the surrounding community.
The MGC also expressed fairness concerns with allowing the construction of the Brockton casino to move forward when the Mashpee Wampanoag tribe’s land-in-trust application had been approved by the federal government for land and a casino in Taunton. Subsequent to 2016, a federal district judge upheld challenges from local residents, reversed the federal government’s decision to allow the land-in-trust, and sent the decision back to the Department of Interior for reconsideration.
But just last week, the DOI said there was no reason to grant the land-into-trust application for the tribe.
“Because the tribe was not ‘under federal jurisdiction’ in 1934, the tribe does not qualify under the IRA’s first definition of ‘Indian.’ Nor does it qualify under the second definition, as that definition has been interpreted by the United States District Court for the District of Massachusetts,” Assistant Secretary of Indian Affairs Tara Sweeney wrote in a letter to tribal Chairman Cedric Cromwell.
Mass Gaming & Entertainment brought a petition for reconsideration before the MGC in June seeking approval of the Brockton casino. In delaying a decision in July, the MGC indicated it must establish a process for reconsideration requests—including public input—that would recognize the many changes in the gaming industry since its 2016 decision. MGC staff recommended reviews of the gambling market in the Northeast and Mid-Atlantic regions. The MGC indicated that preliminary staff review might occur before possibly taking the issue back up in September.
It should be an extremely busy and eventful fall for the Massachusetts gaming industry and the MGC.
