Wynn Resorts has gone from a company that, Hamlet-like, wasn’t sure it wanted to stay and do business in the Bay State after being hit with a $35 million fine, to one where CEO Matthew Maddox last week told nearly 5,000 Encore Boston Harbor employees that the casino wasn’t for sale.
Maddox’s declaration came during several orientation events of employees less than two weeks out from the June 23, 10 a.m. scheduled opening of the $2.6 billion mega-casino that sits in the town of Everett on 33 acres along the shores of the Mystic River facing the Boston skyline.
The casino resort includes a 27-story hotel in the signature Wynn style, with 671 rooms, 15 food and beverage options, a spa, salon, meeting rooms, boutique retail and a 210,000 square foot casino floor with 3,158 slots and 242 gaming tables.
Maddox’s pique and humiliation after the Massachusetts Gaming Commission singled him out for his supposed lack of leadership in the year that followed the departure of founder and former CEO Steve Wynn in a sexual harassment accusation scandal that rocked the company was widely reported—and his speech to the employees was the first solid indication since then that Wynn is in it to stay.
Michael Weaver, MGM’s spokesman told the Boston Herald: “Mr. Maddox spoke at each of the events and made that statement at each of the events. It was Matt Maddox to the employees that Encore is not for sale.”
Last month Wynn and its rival in Springfield, MGM Resorts, had very publicly held negotiations for the possible sale of the Boston metro casino to MGM following the announcement in April by the MGC of its verdict against the company. This included a $35 million fine of the company, and $500,000 levied against Maddox personally, and its requirements that Maddox undergo leadership coaching, and Wynn be saddled by an independent monitor for at least three years, among other conditions. Many in the industry found the commission’s punishment excessive and humiliating.
So a public commitment by Maddox that his company was committed to its Massachusetts was welcome for many local officials. Among them Everett City Councilor Mike McLaughlin, who told the Herald, “I’m very happy to hear that Encore is not looking to sell the development because the people of Everett, as I have said numerous times, want Wynn to develop the casino they supported in 2013.”
He added, “That’s what we voted for, that’s who we accepted. Our partnership has grown into a strong relationship and they feel confident to stay here in Massachusetts. In less than three weeks from now, they will open up the greatest single-phase development in the state of Massachusetts.”
The company had previously announced that it would pay the $35.5 million to the MGC in order to keep its license to operate the Encore, but made it clear it was doing so under protest.
The board of directors issued a statement disagreed with the MGC’s findings, but made clear that it wouldn’t appeal: “That appeal would delay the final conclusion of this matter, and therefore we appreciate Matt’s decision to forego an appeal in order to allow closure for the Company.” It added, “The Company will pay the fine imposed on him and has today delivered payment of that, and the Company’s fine, to the Commission.”
Now that Maddox has made it crystal clear that the casino will open on schedule—without the two week delay that he once hinted at—the company is in a mad sprint to what Robert DeSalvio, president of the Encore, told commissioners last week: “Because literally, once we open the door to the public, the place will be open 24/7/365 — forever.”
DeSalvio, told the regulators, “I wouldn’t lie to you, there are quite a few things I’m worried about. But I think we have them all under control,” he said, and added, “everything’s on track.”
Some of the 5,800 employees have begun training. In the interim before the official June 23 opening the company will host a number of test openings of restaurants and eventually of the gaming floor. These will be for employees, family and friends and a few select customers who have supported it from the beginning.
Although Wynn and MGM very publicly flirted with Wynn selling to MGM, which would then have had to find a buyer for its Springfield property since Massachusetts law forbids one company from operating more than one casino in the state, it’s very possible that both companies realized that the cards were stacked against such a deal ever happening.
These negotiations came in the middle of May when they issued a joint statement: “They are very preliminary and of the nature that publicly traded corporations like ours often engage in, and in fact when opportunities such as this are presented, we are required to explore,” they said. “We cannot say today where these conversations will lead, however we can reaffirm our commitment to the communities where we operate today.”
Yet, by the very act of being in such talks, both companies were indicating that they were willing to break up with their two communities, Springfield and Everett.
This generated a wave of hostility from public officials at all levels, from Governor Charlie Baker on down to city councilmembers.
Officials in Springfield, where MGM opened its $960 million casino last August, wasted no time in pointing out that they had binding host city agreements with the gaming company that prevented it from simply selling its interests to whomever it pleased. Officials in Everett made the same point. Both city officials said they were concerned about the impact of any sale on the local economy and on local workers.
But then, within a matter of days, the talks were called off—really before the boomerang effect had a chance to do much damage. Quickly MGM issued a follow-up statement: “We have noted the anxiety raised by various stakeholders regarding a transaction and this troubles us at MGM,” it said. “We only wish to have a positive impact on communities in which we operate. We think the best course of action is to discontinue discussions concerning this opportunity.”
Later in the month the Globe reported that John Henry, the newspaper’s publisher and principal owner of the Boston Red Sox had explored buying the Encore with a group of investors. But he was rebuffed by Maddox whom, he said, told Henry that Wynn was committed to the Encore’s success.
Henry told the Globe reporter, “While we were serious, we had minimal conversations with Wynn. It has to be in everyone’s interest to see Encore open just as it is scheduled to do, without any internal or external disruption, and see first-hand the value of this project to the region.”
Once Wynn’s payment was in hand, the commission’s spokesman Elaine Driscoll issued this statement: “Pursuant to the Commission’s Decision and Order issued on April 30, Wynn Resorts has paid $35.5 million in fine payments and accepted the conditions outlined in the written decision.” Driscoll continued, “The five-member commission will now ensure compliance with the imposed requirements as they look forward to a successful June 23 opening of Encore Boston Harbor.”
Besides the fine, the commission also requires Maddox to take leadership training and to hire an independent monitor to assure that the company continues to move forward in implementing policies that are intended to make it easy to report and hard to cover-up allegations of harassment.
The commission two weeks ago published a notice seeking applications for the monitor’s position. The monitor will review Wynn’s human resource policies, executives’ communications with staff and the use of retractions, gag orders, confidentiality clauses or other provisions that might affect employees other than executives.
The leadership training reflects the commission’s public displeasure with the CEO’s lack of response to warning signs about his former boss Steve Wynn before publication of the January 2018 expose in the Wall Street Journal. Such as his lack of curiosity in 2014 and 2015 when he heard reports that Wynn had asked employees for “sensual massage,” and that he defended Wynn to employees after the Journal article.
The majority of the commission decided that Maddox’s “shortcomings bear primarily on his competence, not his suitability.”
The commission “was unanimous in its concern that he routinely failed to exercise the proper diligence, express the requisite level of concern, and understands the magnitude of the risk and legal implications associated with much of the information of which he was, or should have been, aware.”
Some industry observers consider the record fines and the humiliating treatment of Maddox to be excessive. Andrew Klebanow, senior partner at Global Market Advisors, told the Globe, “That is a pretty insulting message to the CEO of one the most successful casino companies and one that had previously received awards and accolades as great places to work.”
Wynn itself pointed out that Maddox remained in good standing in Nevada after it imposed a $20 million fine on the company. “We believe Matt’s leadership has been, and will continue to be, essential in our transformation from a founder-led company to an innovative global corporation,” the board wrote. “Matt has created a more diverse, inclusive and respectful workplace culture – all while maintaining focus on executing the Company’s business plan.”
Brendan Bussman, also a partner at Global Market Advisors, told the Globe, “Nevada recognized this leadership change, and it is unfortunate the Massachusetts did not recognize this as well with their ruling,” he said. “I am not sure I would have taken one for the team as Mr. Maddox did today for his company.”
The commission’s yearlong investigation of the company did not get into whether or not Steve Wynn actually committed the acts that he is accused of—he still insists that he didn’t do any of things alleged—but rather how the company dealt with it. Such as the findings that the company’s former executives tried to hide the allegations from the commission when it was holding suitability hearings on the company’s bid for the Boston metro license.
The investigation lasted more than a year, in part because Wynn himself sued to keep the commissioners investigators from having access to some company records that his lawyers described as covered by attorney client privilege.
Then came three days of sometimes harsh hearings in April when various Wynn officials, but especially Maddox, were held under the broiler by sharp questioning commissioners.
After the commission’s judgment was announced, there followed the short period when Wynn and MGM set off a firestorm of speculation about a possible sale.
Now, with the fines paid, that’s all in the past.
The commission was asked how the $35 million Wynn paid will be spent. Chairman Cathy Judd-Stein explained, “They are handled similarly to gross gaming revenue, and the allocations of funds is determined by the gaming law.” State law mandates that 20 percent will go to local aid. Fifteen percent goes to the transportation infrastructure fund and 14 percent to education. The rest goes to a variety of funds for “rainy day,” horse racing, tourism and the Massachusetts Cultural Council.
MGM Springfield
Whales, a gaming term for high-rollers, rarely visit the MGM Springfield, according to the casino’s president, Mike Mathis. Players from eastern Massachusetts are also not regulars, he told The Republican in an interview.
Visitors seem more interested in fine dining than the high-limit games, said Mathis. “We’re definitely underperforming what we hoped would be some of our early revenue,” he said.
Prior to its August 2018 opening, the casino operators had told the Massachusetts Gaming Commission they expected to rake in $418 million in gross earnings during the first year. That works out to be about $34.8.
Instead, the average monthly profits have been about $22.6 million. Mathis is optimistic that business will pick up this summer. “The other piece of this is the seasonability within a year,” he said.
The casino has many features designed to take advantage of that time of year, including an outdoor courtyard, an outdoor marketplace, and the ability to hold concerts and other events there were included in the design plans. It was sold that way in 2012 to city officials when the casino was just a gleam in the eye of MGM’s more visionary officials, one of whom was Mathis.
The courtyard’s utility fades during the winter. This is inspiring MGM to become more create about what it will plan during the colder, wetter months, said Mathis. “I think something we’ve learned early on is we really need to take advantage of the good weather,” he said.
MGM probably didn’t take into account all of the effects of a more competitive New England gaming market when it was making its initial projections.
That includes Plainridge Park, operated by Penn National Gaming, the soon-to-open Encore Boston Harbor, the enhanced Twin River casinos in Rhode Island, and the efforts by the Mohegan and Mashantucket Pequot tribes to blunt the effects of the Springfield casino on their two casinos in Connecticut by opening a satellite casino in East Windsor.
The MGM Springfield may also be the victim of demographics, i.e. the sliding popularity of casinos among the younger generations who are replacing the Baby Boomers. A recent survey by YouGov found that 47 percent of 18 to 34 year olds think casinos are depressing. Thirty-three percent disagrees.
Those factors didn’t affect the Springfield casino’s bottom line as much as a lack of high rollers and customers from the eastern part of the state. ‘We’re seeing the same number of visitors we hoped we’d see,” Mathis told the Republican. “What they’re spending and on what tiers is a bit different than what we hoped for.”
In 2014 MGM cited a study that predicted its casino would take 80 percent of the gaming market share in the western part of the state, 25 percent in the central state and 15 percent from the Boston area.
What it didn’t expect was to see as much business as it has from the 1-91 corridor, which includes Vermont and parts of Connecticut but less from the Boston area.
It all means changing tactics, says Mathis. “We’re really reinvesting and focusing on our customers on this side of the state, on the I-91 corridor, knowing we have an opportunity to grow in Eastern Mass,” he said. He added, “It’s complicated to look at any snapshot of early revenues as any projection of future performance.”
