Wynn Resorts investors are taking heart in the appointment of Matthew Maddox, the company’s president and one of its longest-serving executives, as CEO, replacing disgraced Chairman and Chief Executive Steve Wynn, who resigned as chairman and CEO last week amid allegations that he’d been sexually harassing and coercing female employees for years.
The shares (Nasdaq: WYNN) soared more than 9 percent in the hours after the board of directors gave Maddox the job last Tuesday.
CFRA analyst Tuna Amobi reiterated a “buy” on the stock, saying that while the departure of the “visionary” Wynn “could leave an irreplaceable void,” it will also remove an overhang that had resulted in the loss of more than $3 billion from the company’s market value after dozens of people came forward in a January 26 story in The Wall Street Journal to tell of their victimization by the casino mogul, among them a former Wynn Las Vegas manicurist who was secretly paid $7.5 million in hush money.
Wynn has denied the allegations, calling them “preposterous” and blaming them on the machinations of ex-wife Elaine Wynn, a former Wynn director with whom he’s embroiled in a post-divorce court battle over their respective shareholdings in the company.
In the end, though, it came down to Wynn, universally recognized as a brilliant developer of gaming resorts and one of the pioneers of modern-day Las Vegas, or the company he founded, as investigations into the charges were launched in his home state of Nevada, in Macau, where the company derives 60 percent of its revenues, and Massachusetts, where its license to open a $2 billion resort near Boston next year suddenly looked to be in jeopardy.
“In the last couple of weeks, I have found myself the focus of an avalanche of negative publicity,” the 76-year-old billionaire said in a statement released the day Maddox’s appointment was announced. “I have reached the conclusion I cannot continue to be effective in my current roles.”
He’d previously resigned as finance chairman of the Republican National Committee.
His departure is expected to take some pressure off the board, which could face liability in the event of a barrage of shareholder lawsuits—the first of which was filed last week—and individual executives, if it was found they were aware of sexual misconduct on Wynn’s part and did nothing about it.
In the manicurist’s case, she did inform her supervisor, she said, who in turn told the Journal she filed a “detailed” written report to the hotel’s human resources department. There was never any follow-up, she said.
The $7.5 million settlement she received has come under particular scrutiny. It was funneled through a limited liability company created with the aid of Wynn’s outside counsel and kept separate from Wynn Resorts, according to the Journal, citing sources that include court filings in the Wynn v. Wynn case. The money was paid out of Wynn’s pocket, lawyers representing the gaming magnate in the case have said.
Massachusetts Mess
Sources tell GGB News that regulators in Massachusetts, who have the power to revoke the company’s license there if they determine Wynn isn’t a “suitable” operator, were the determining factor in his resignation. The settlement itself wasn’t the issue, it was an apparent attempt to conceal it that was a “critical element” of their review.
Karen Wells, who directs the Investigations and Enforcement Bureau at the state’s Gambling Commission, said neither Wynn nor the company disclosed the payment before the commission granted Wynn a license in September 2014.
The issue could impact the board of directors, as well as senior executives like Maddox and Kim Sinatra, Wynn Resort general counsel. They will have to convince the Massachusetts board that either they had no knowledge of the settlement or were not required to report it as company “litigation” required under the license application.
Of all the potential ramifications of Wynn’s resignation on the Massachusetts gaming scene, the most calamitous is that it might leave his “half built” $2.4 billion Wynn Boston Harbor unfinished, putting thousands of workers into limbo.
The investigators by the Massachusetts Gaming Commission to review the 15-year license that has allowed Wynn to build what the state says is the largest private project in the history of the Bay State. It is employing 4,000 construction works and will employ 4,000 permanent workers when it opens in Everett, a town that sits across the Mystic River from Boston.
U.S. Rep. Michael Capuano speculated about the impact of Wynn’s departure on Boston Herald Radio.
“If they pull the license, it’ll be a big question and they’ll have to make a determination, what to do with a building that’s half-built and what to do with all the people that are working there,” he said. “I know that’ll be a factor in the decision-making too, the state is not blind to that aspect of it.”
He added that he feared that the town, which is part of his congressional district, might have “an empty building for the next 10 years while regulators figure out what to do.”
Despite Wynn’s exit, construction on the Wynn Boston Harbor remains on schedule to open in about 18 months.
Commission Chairman Stephen Crosby went out of his way to reassure construction workers that their jobs were safe—for now.
“For the time being, everybody who’s got jobs in Everett should go about their business and feel fine. This is not the first time there have been allegations of misconduct against major players in the casino business,” said the chairman. “We will resolve this one way or another. I can’t predict what the outcome will be, but for now these folks should feel fine doing their jobs.”
But he added, “Now is a critical moment to find out whether the board conducts itself with appropriate best practices and lives up to its fiduciary obligations.”
In a report to the commission Executive Director Edward Bedrosian that his investigators are “aggressively” conducting the investigation of the $7.5 million settlement Wynn did not disclose when it was bidding for the license in 2013. Bedrosian said he was also interested in finding out how much influence the former CEO will continue to have in the company he founded.
Wells added, “We will be looking at how the company, from the board on down, handles the allegations.” Noting that at no time did the casino developer disclose the settlement before the license was granted in September 2014, Wells said, “This was a private agreement and steps were taken to keep it from the public domain.” She added that “intense review” was warranted by the reports.
Wynn Resorts counters that such information wasn’t requested as part of the application process. “It was a personal settlement and was not a matter of litigation.”
Meanwhile the casino developer who lost out to Wynn Resorts, Mohegan Sun, is demanding that the license be withdrawn.
Attorneys for Mohegan Sun went to Suffolk Superior Court last week to ask that the license awarded to Wynn be revoked. This was the latest maneuver in a lawsuit the tribe has pursued ever since Wynn won the license. The tribe’s lawsuit asserts that the commission was unfairly biased in favor of Wynn, that “the deck was stacked from the start.” The motion argues, “The entire licensing proceeding was infected with bias toward Wynn, thus the Court must vacate the entire process, and order MGC to begin the process anew.”
The commission, which is the defendant in the case, countered that it followed the procedure set out by the law. “That the commission’s licensing decisions were somehow ‘shot through with bias’ towards Wynn is pure fiction,” said the commission’s brief.
The motion filed by the Mohegans also asserts that the commission removed the company it contracted to investigate Wynn Resorts and conduct the suitability check—Spectrum Gaming, at Wynn’s request.
The 2011 gaming expansion act that authorized three casino resorts and one slots parlor also requires the MGM to take into account the “integrity, honesty, good character and reputation of the applicant” when awarding licenses and requires that licensees “shall have a continuing duty to maintain their integrity and financial stability.”
Spectrum Gaming was removed after a Wynn attorney sent an email asking that Spectrum be removed, claiming that it had a conflict of interest. Spectrum also played a major role in producing a report on Caesars Entertainment that caused that company to withdraw its license application in Massachusetts.
However, the commission asserts that it didn’t remove Spectrum because Wynn asked it to, but because Spectrum had previously worked for Wynn. The commission then hired the law firm of Michael & Carroll to do the vetting.
Clyde Barrow, a professor at the University of Texas, who is frequently consulted on the New England gaming scene, told the Boston Herald that the tribe might be able to use the $7.5 million settlement to its advantage in the lawsuit.
“I would assume that could eventually play in to it,” he said. “I suspect what they might be able to do is tack this on as an example of a failure to conduct a thorough investigation.”
The $7.5 million first came to light when it was mentioned in a lawsuit filed by Wynn’s ex-wife, Elaine, who sought to end restrictions on her ability to sell Wynn stock. Apparently this mention caused Journal reporters to dig deeper. Wynn paid off the claim from personal resources, not company money.
The road has never been an easy one for Wynn Boston Harbor. As soon as it won the license it was subjected to several lawsuits, including a protracted battle by the mayor of Boston which stretched out for many months—as well as the continuing lawsuit from Mohegan Sun, which has never accepted that the bidding process was conducted legitimately.
The company expects the mega casino to generate $252 million in gross gaming revenue each year by 2020, which will be the first full year of operation. To put that in perspective, that would represent about 9 percent of the company’s worldwide holdings. It has already spent $1.13 billion on the project.
The Bay State could also be rocked financially if the project dies on the vine. The state was projecting that it would make $150 million in taxes from the Wynn in 2020.
This is largely uncharted territory. No one knows precisely what would happen if Wynn’s license were to be revoked, leaving an unfinished casino.
Last week Massachusetts Governor Charlie Baker weighed in on the issue, calling the allegations against the casino mogul “appalling and disgraceful,” on a Boston radio program. He said that if the allegations turned out to be true that the casino company wouldn’t meet the state’s “suitability standard.” “The allegations are serious, they should be taken seriously,” he said, although he admitted that the commission operates independently of the governor.
Many politicians, mainly Republican, who have taken donations from Wynn, are returning them. The Wall Street Journal has reported that the Republican Governors Association has promised to return $100,000 it received from Wynn, and cancelled a meeting it planned to hold at Wynn Las Vegas next year. The RGA has also donated a total of $2.2 million to Baker’s reelection campaign.
Cotai Control
In Macau, on the other hand, J.P. Morgan analyst D.S. Kim said Wynn’s resignation will have “surprisingly limited” implications, although he agreed that it removes the risk that the company will have its license pulled. He reiterated Hong Kong-traded Wynn Macau as a “buy” with a price target of HK$31, 24 percent above last week’s trading levels.
Amobi concurred. “Over time, we see investors’ focus reverting to healthy fundamentals in Macau/China, where WYNN derives the bulk of its operating cash flow.”
UBS analysts said that even if regulators were to find Wynn personally unsuitable to hold a gaming license, they would typically seek a solution that would not hurt other shareholders. Wynn’s own articles of incorporation include a provision that shares controlled by a person deemed unsuitable can be redeemed by the company at a value no higher than the closing price of the day before a redemption notice, and can be paid by promissory note.
The prominence of the Wynn brand, with the giant signature atop every resort, helped the casino magnate win a gaming concession in Macau in 2002. Wynn Resorts now operates two casino resorts in the world’s No. 1 gaming destination: Wynn Macau, which opened in 2006, and Wynn Palace, which opened in the Cotai district in August 2016.
He’s been successful in the jurisdiction. According to UBS analysts, Wynn Macau claims 17 percent of the market, though it has just 10 percent of the gaming tables. With the opening of Wynn Palace, the company generated $683 million in operating profit from its Macau operations in 2017, more than twice the $285.7 million it raked in during 2016, the Nikkei Asian Review reported.
But in just two years, Macau’s Big 6 gaming concessionaires—Wynn, MGM, Sands China, SJM Holdings, Galaxy and Melco—will see their licenses start to expire, in a process that will continue through 2022. On January 22, just days before the Wall Street Journal published itsfirst report on the allegations, Wynn seemed certain he would again be blessed by the government.
“We’ve been given reason to have confidence that our businesses will continue after the initial concession expiration dates,” he said.
That may be true. Credit Suisse analysts doubt the turmoil around Wynn will have much impact on his Asian business. “The gaming concession was granted by the Macau government to Wynn Resorts Macau S.A., not Steve Wynn himself personally. As such, his departure will not affect the gaming license,” wrote Credit Suisse analysts Kenneth Fong and Lok Kan Chan in a research note. An unnamed Hong Kong-based gaming analyst told the Review, “It would be ridiculous for the Macau government to take away the license because of the conduct of one individual.”
JP Morgan analyst DS Kim wrote that Wynn’s exit “actually removes the potential risk related to a Macau gaming license as the ‘suitability’ test only applies to the directors or shareholders with 5 percent or above.” The note said Wynn himself does not hold a direct stake in Wynn Macau.
“We don’t want to downplay Wynn’s importance to the group’s strategic decision and vision, but we see limited impact on Wynn Macau’s fundamentals,” Kim wrote. “We don’t expect negative impact on its patronage, as Wynn Macau doesn’t have MICE or corporate events exposure to begin with (unlike Wynn Resorts), while gambling patrons are unlikely to be affected by such reputational issues.”
But David Katz and Khoa Ngo of Jefferies took a different position, saying in a note, “Mr. Wynn’s value to the company is unarguably profound as its chief visionary and diplomat. As such, we do not believe the company can grow at the same trajectory nor can it maintain its cutting-edge position.”
And the Sanford Bernstein team wrote, “The overhang of both Steve Wynn’s holdings in Wynn Resorts (12 percent of the shares) and Elaine Wynn’s (9 percent) will concern some investors. The speculation surrounding whether Wynn Resorts will survive on its own without Steve Wynn’s leadership or whether the company could be acquired will certainly grow. At this time, though, we cannot discuss potential outcomes.”
Also in light of the scandal, Wynn Resorts may have a tougher go winning an integrated resort license in Japan, which legalized casino gaming in December 2016 and continues to hammer out its regulatory structure.
Management Changes
Boone Wayson, a member of the Wynn Resorts’ board and before that Mirage Resorts, will become its non-executive chairman. Hong Kong businessman Allan Zeman, a director of Wynn Macau, will become non-executive chairman of Wynn Macau. Maurice Wooden, the president of Wynn Las Vegas, will join the Wynn Macau board.
Wayson called Wynn “an industry giant.”
Wynn issued a statement in support of his successor, Matt Maddox. “With Matt, Wynn Resorts is in good hands,” he said. “He and his team are well positioned to carry on the plans and vision for the company I created.”
Prior to joining Wynn, Maddox was employed by Bank of America and Caesars Entertainment. Masslive.com reported that he joined Wynn Resorts in 2002 as vice president of investor relations and treasurer and helped develop Wynn’s presence in Macau.
According to a 2013 report from the Massachusetts Gaming Commission, “Maddox has been described by his references as having a Type-A personality with a tremendous work ethic. One of his references indicated that he earned his position within the Wynn organization with much hard work and dedication. He is considered by his references to be very intelligent with an even-keeled personality, unquestionable integrity and honesty.”
Brokerage Sanford C. Bernstein gave Maddox a thumbs-up. “Maddox has a good grasp of Macau operations and frequently visits the operations on the ground there. Further, he has been one of the closest executives to Steve Wynn and will likely try to maintain his vision and attention to hospitality and customer experience.”
However, the brokerage added, “The shoes of Steve Wynn will not be easy to fill. Even with Maddox at the helm, Wynn will likely become a somewhat different operation, but time will tell.”
Though only 42 Maddox’s tenure with Wynn Resorts stretches back 15 years to its founding days, and he rose through the ranks to become chief financial officer in Macau and then president of the parent company in 2013.
An Arkansas native, he studied finance at Southern Methodist University and worked as an investment banker before joining Park Place Entertainment, the predecessor of Caesars Entertainment.
His employment agreement signed last year called for a base annual salary of $1.5 million and a grant of 200,000 shares of restricted stock worth $33 million based on last Tuesday’s closing price of $163.22.
“There is not a more trusted confidant than Maddox inside that company. He knows every inch of Wynn Resorts,” a Wall Street analyst said, speaking on condition of anonymity.
A former Wynn employee agreed, saying Maddox and Sinatra, the company’s general counsel, are the executives closest to Wynn.
Elsewhere, though, the allegations continue to reverberate negatively against the billionaire.
The University of Pennsylvania said it is stripping his name from a campus plaza he donated $7.5 million to build and revoking an honorary degree he received in 2006. It’s the first time in a century the school is revoking such a degree. The last time was in 1918 when the school withdrew degrees from German Kaiser Wilhelm II and the country’s U.S. ambassador at the time, Johann Heinrich von Bernstorf.
Penn also is removing Wynn’s name from a scholarship fund established through a $2 million donation he made in 2008.
“The nature, severity, and extent of these allegations, and the patterns of abusive behavior they describe, involve acts and conduct that are inimical to the core values of our University,” Penn President Amy Gutmann and Board Chairman David L. Cohen wrote in a note to the staff and student body.
Wynn is a graduate of the school’s Wharton School of Business and a former trustee of the university.
Also last week, the University of Iowa announced it was removing the name Stephen A. Wynn from its Institute for Vision Research.
“It is incongruous with the university’s values to maintain the Wynn name on our program and building,” President Bruce Harreld said in a statement.
The school named the institute after Wynn, who suffers from a degenerative eye disease, committed $25 million toward research to cure hereditary blindness. He has donated $20 million to date, the school said.
