MGM in Talks With Wynn to Buy Everett Casino

MGM Entertainment is reportedly in talks with Wynn Resorts about buying the Wynn Boston Harbor (l.), which still has a year before its scheduled opening. If the sale were made it would remove Wynn from regulatory hot water with Massachusetts gaming regulators but create new problems for MGM because one company can only own one casino in the state.

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.