After very public talks between Wynn Resorts and MGM Resorts International over MGM’s possible purchase of the $2.6 billion Encore Boston Harbor just weeks before it is due to open, the potential suitors have just as publicly walked away from each other.
The intense opposition that the potential sale, reported by the Boston Globe late last week sparked among Massachusetts state officials, up to and including Governor Charlie Baker, as well as the mayors of both Everett and Springfield, who could all have stuck a wrench in the gears of any sales obviously played a role. One complication piling on another may have persuaded Wynn CEO Matt Maddox that swallowing the bitter pill that the Massachusetts Gaming Commission has prescribed for his company and him personally might be better than trying to pack up and leave the Bay State in a huff.
But MGM wasn’t the only suitor. The Globe reported late last week that John Henry, the owner of the Boston Red Sox, had approached Wynn CEO Matt Maddox soon after Steve Wynn was forced by his scandal to leave the company.
“I told him that I had been approached and I was sure that we could put together a very strong group of local buyers who would want to become minority investors or even purchase the project outright,” Henry said in an e-mail exchange with Globe reporter Mark Arsenault.
“I wouldn’t say that initially I wanted to buy it, but I began to study the situation,” Henry said. “As I did, it became clear that Wynn was investing an extraordinary sum to create a world-class resort—one that was going to provide considerable long-term benefits to the community. It was logical to assume that if, in fact, Wynn was going to sell, local ownership committed to the community would be a big, big plus. So the next step was to call Matt Maddox to inquire if they were contemplating options.”
While Maddox respectfully turned down Henry’s approach—twice, again right before the commission decision was made—Henry said he remains open to any deal.
While we were serious, we had minimal conversations with Wynn,” he told the Globe. “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.”
The killer complications of the Wynn-MGM deal were these: 1) That no gaming company is allowed by state law to operate more than one casino in the state. This would have required MGM to leave Springfield in order to buy the Everett property. 2) That any deal made must be agreed to by both host cities. 3) That the MGC would also have to approve of any license transfer. 4) That stockholders of both companies disapproved of the idea.
Shortly after the Globe broke the story the two companies jointly confirmed that they were in “very preliminary” discussions.
No one, it seemed, liked the idea. Newspapers used sports analogies, like quitting before the end of the Boston Marathon, and instead hailing a cab; or “punting” when they are at the “one-yard line.”
Then, early this week the two companies announced in separate statements that they were ending talks on MGM picking up the 671-room hotel-casino complex in Everett.
MGM reaffirmed its commitment to the $960 million MGM Springfield, which opened last summer. It released a statement that said: “We are committed to our Springfield community and proud of what we have accomplished including thousands of jobs and millions of dollars of revenue for small businesses in the area.”
The statement by Debra DeShong continued: “We have noted the anxiety raised by various stakeholders regarding a transaction and this troubles us at MGM. We only wish to have a positive impact on communities in which we operate.”
MGM explained that its talks with Wynn had been intended to “explore ways to deepen our engagement in the commonwealth. Our discussions regarding the Everett resort were in that spirit. We think the best course of action is to discontinue discussions concerning this opportunity.”
MGM added, “We wish Wynn and the Everett community all the best and look forward to visiting their beautiful resort when it opens and welcoming the 5,600 employees to our industry.”
Wynn spokesman Deanna Petit-Irestone explained that the sales talks had been inspired because “world class assets attract the attention of others and our board takes seriously its fiduciary duty to review such interest.” But, “after careful consideration we have agreed to cease discussions with MGM Resorts. We remain committed to opening and operating Encore Boston Harbor as only Wynn Resorts is able to do.”
Wynn may not have had that much of a choice in the matter.
A year-long investigation was prompted a Wall Street Journal expose in January 2018 of multiple allegations of sexual misconduct against Wynn founder and CEO Steve Wynn, who quickly departed the scene in early 2018, and sold off all his interests. His exit left new CEO Matt Maddox and a largely new board of directors head by new Chairman Phil Satre holding the very stinky bag and with a huge mess to clean up after and try to survive.
Last month the MGC fined the company $35 million and Maddox personally $500,000 and tacked on all sorts of humiliating requirements, such as an independent monitor who will oversee the company’s Bay State operations for five years, and a requirement that the CEO get leadership tutoring.
As the May 31 deadline for the company to agree to these conditions approached, speculation ran rampant that Wynn would abandon the field. Then the two companies admitted that they were talking.
As soon as they did so, stocks in both companies dropped. MGM closed down 64 cents, 2.4 percent, then fell another 56 cents, 2.2 percent. Wynn plummeted $5.89, 4.6 percent, regained 3 cents, less than 1 percent, ending at $131.42 a share.
If MGM bought the Everett property, it would have to sell its Springfield casino, but to whom? The Mashantucket Pequot Tribal Nation, owners of Foxwoods, threw cold water on the idea that it would be to them. Even though the possibility must have looked attractive, since it would have meant they and their partners the Mohegan tribe wouldn’t need to finish building their $300 million satellite casino in East Windsor to fight the Springfield casino. Chairman Rodney Butler told the Hartford Courant that the casino wouldn’t be worth what it cost to build. “MGM just spent $1 billion in Springfield. You can’t pay what it’s currently valued at because it’s not hitting its earnings,” he said.
At the same time Maddox was sending out conflicting signals. Earlier in May during a first quarter earnings call, he told analysts that he was “very confident that (Encore Boston Harbor) will be the nicest integrated resort on the east coast.” In this same phone call Maddox was forced to explain the company’s 3.7 percent decline in revenue. Although he did fuel speculation when he said the company was pushing back the casino’s opening from June 23, “to make sure the opening is flawless.” He also said at the time “We’re ready to open, but we may give ourselves another week, or not. We do not believe if we choose to appeal the regulators’ conditions it will impact our ability to open the project at the end of June.”
When MGM and Wynn admitted that they were talking about a possible sales, various public officials threw cold water on the idea.
Governor Charlie Baker early this week declared, “We don’t want to see anything happen with respect to either MGM’s position here or Wynn’s position in Everett that creates a significant disruption for either community. I mean people put a lot of time, effort, money, resources and lost opportunity into ensuring that both the MGM casino in Springfield would go up and be operational and that the Wynn facility would go up. People are going to expect those commitments are honored.”
Baker said the state government’s primary concern was the more than 5,000 employees at the MGM Springfield and similar number at the Wynn resort, and the impact on the cities of Springfield and Everett.
He implied that the commission held all the cards. “I would expect them to fully utilize the leverage and the authority that they have to ensure that the concerns that people who work at both those places, as well as those two communities, are paramount,” said the governor.
Unemployment in western Massachusetts is now 3.8 percent, compared to 9 percent several years ago. Many attribute this to jobs created by gaming, specifically the MGM Springfield.
Everett Mayor Carlo DeMaria announced through a spokesman that any transfer of licenses would happened, “over his dead body.” The host agreement between the city and Wynn, says the city most approve of any such action. On Facebook he wrote that he “had the foresight to include section 10 in the host community agreement that states, ‘Neither Wynn nor the city shall transfer or assign its rights or obligations under this agreement without prior written authorization of the other party.’ ”
He added, “It’s not going to happen I don’t think I would have done a host agreement with anyone else. And now they’re going to sell it? No.”
Robert DeLeo, speaker of the Massachusetts House, and one of the chief architects of the 2011 casino expansion bill, noted that the law had anticipated such maneuvers by casino operators. “It is a contingency that we as policymakers anticipated and addressed,” he said in a statement. The law requires the MGC to reject any license transfer that is “disadvantageous to the interests of the commonwealth,” he added.
“I plan to closely monitor these negotiations between Wynn Resorts and MGM Resorts and will work to ensure that the interests of the Commonwealth, including the host communities of Everett and Springfield, remain the focus.”
Former state senator Stanley C. Rosenberg, one of the authors of the 2011 law complained, “I have no clue, absolutely no clue. This is not going to be a slam-dunk by any means. This isn’t a Monopoly game.”
The commission itself, responding to the public maneuverings by Wynn, issued a statement through its spokesman Elaine Driscoll that nothing had changed. “The deadline for fine payment and notice of appeal is May 31. The MGC continues to focus its efforts on the significant amount of regulatory preparations required before Encore’s opening,” she said.
In Springfield, the city council’s casino oversight committee Chairman Mike Fenton told Western Mass News: “They [MGM] can’t leave their Host Community Agreement with their commitments in Springfield without our permission. They haven’t asked for permission so I think it is very early.” He added, “Essentially, they can’t sell their contract with the city to a third party without our content and without the contact of the MGC.”
Fenton added, “There were rumors about this in the past. MGM is a business and they are entitled to explore business opportunities.”
Springfield’s chief development office, Kevin Kennedy, observed that MGM, had
“an obligation to their shareholders to explore an option like this.”
The mayor, Dominic Sarno said that he had been very “hard-nosed” in his dealings with MGM and “If anything should change it puts me in a position of leverage to be able to extract more benefits for the city of Springfield. Nothing could occur without the OK from myself and the Gaming Commission. So let’s see what plays out and what doesn’t play out.”
Under MGM’s agreement with the city it pays $25 million a year in property taxes and various other taxes and grants.
Senator James To. Welch, who represents Springfield, asked “Would the company that would be coming in be of equal reputation? Would it have the ability to deliver on what “MGM sold to our community, which was: ‘We can bring in the top-level entertainment, we’re going to run a first-class resort facility.’ Is that still all going to be true?”
The Boston Globe speculated that Wynn had contemplated the sale because he was “mad” about the conditions that the MGC had imposed on his company: “shortly after Wynn Resorts executives told the Massachusetts Gaming Commission they couldn’t wait to bring jobs and other fabulous benefits to the local community.”
The Globe reported that the chief reason Wynn was considering a sale “was Maddox was peeved by long-term monitoring conditions; the $500,000 fine assessed personally against him; and the commission’s demand that he get leadership coaching.”
Michael Weaver, a company spokesman confirmed that Wynn continued to be concerned about the implications of the monitor requirement: the company is “working with the commission to understand the intent of the monitor condition in their recent decision,” he said.
When the commissioned handed down its verdict, it stated that the company would be saddled with an independent monitor who would review compliance with human resources policies, anti-harassment training, confidentiality clauses such as gag orders and the use of outside counsel and internal reporting channels.
The monitor would be paid by Wynn and would be looking over the company’s shoulder for at least three years and possibly five.
When the talks broke off between Wynn and MGM, Richard McGowan, a Boston College professor who studies the gaming industry told the Republican that he wasn’t surprised. “It is exactly the way I thought it would end. There is too much political opposition and MGM could not obtain the finances.” He added, “Plus the Wynn brass has cooled off and become rational.”
Andrew Klebanow, senior partner at Global Market Advisors, said Wynn officials were right to be outraged. “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.”
Privately Wynn officials have complained that they have been mistreated by the state after they spent millions cleaning up the toxically polluted Mystic river banks, and built the largest private development in the state’s history, and have become one of the largest employers in the Bay State. What’s more, they did this without tax incentives, and instead will pay 25 percent of their profits to the government.
Alan R. Woinski, CEO of Gaming USA, takes the opposite view, that the company was refusing to face up to its responsibilities and was trying to get out of them by selling the Everett property. “Did they really think they were going to get off scot-free?” he commented to the Republican.
Some had speculated that Wynn never understood the different nature of the Bay State’s gaming regulatory environment, which is light years away from what they deal with casinos in Las Vegas (Although perhaps not that different, since Nevada hit Wynn with a $20 million fine.) Ever since the Expanded Gaming Act was enacted in 2011 the Bay State has marched to a different drummer from almost any state in how it has treated casinos. Others that the Boston market doesn’t look so shiny to Wynn as when it first competed for the license in 2014.
Klebanow says the whole situation makes the Bay State look like it’s a hard jurisdiction to do business in if you are a gaming company. “While there are not many opportunities to develop new casinos in the United States, most casino companies will probably look at other jurisdictions for opportunities or, if they are intent on growing rapidly, look at acquisitions,” he told the Republican.
The state is still feeling its way along. For example, the MGM Springfield’s April revenues were 15 percent lower than the month before. Slots revenues in the first casino that opened in Massachusetts, Plainridge Park, was 11.8 percent lower than March.
Some critics, like the Boston Herald’s columnist Jaclyn Cashman, blame the gaming commission itself, for approving two Las Vegas casino companies, Wynn and MGM, instead of going with the regional bidders, Suffolk Downs and the Mohegan Sun. She wrote, “Massachusetts has been gamed. An inept Gaming Commission allowed it. The commissioners need to make things right, shut down this backroom deal, and reopen bidding for the Boston-area license.”
Greg Sullivan of the Pioneer Institute told the Herald, “The commissioners are not instilling us with a lot of confidence these days. It’s almost like Wynn treats them like minor leaguers.”
David Tuerck, executive director of the Beacon Hill Institute, was also caustic: “It’s time for a new Gaming Commission with new personnel. The process seems to be going off the rails.”
Besides all of the hostility generated among state and city officials by the talks of a possible buyout, it’s entirely possible that MGM wasn’t able to raise the money for such a purchase.
MGM recently announced a cost and expense reduction strategy dubbed MGM 2020 that calls for increasing cash flow by $300 million a year by 2021, which will result in hundreds of employees being laid off. At the same time, the company announced last week that it could possibly spend as much as $800 million settling lawsuits resulting from the October 1, 2017 sniper killings of 58 people at the Mandalay Bay in Las Vegas.
Now that the negotiations between Wynn and MGM have ended, officials took a collective sigh of relief. Mayor Sarno said he had always doubted the discussions would amount to anything. “I’ve said all along it didn’t make any sense.”
He told the Republican, “We have a good relationship with MGM, they are a good corporate citizen and they are the cream of the crop. I’m happy. We work well together.”
Everett Mayor DeMaria declared, “I understand that this could have been a great opportunity for them, but I appreciate their loyalty to the Springfield community.” He added, “Here in Everett, we are looking forward to opening day, and to a continued partnership with Encore Boston Harbor.”
City councilmember Michael McLaughlin called himself “beyond pleased,” and added,
“I hope this will end these talks and we can get back to working on opening plans.”
Drinking Until 4 a.m.
Meanwhile, things moved back to normal when the Massachusetts Gaming Commission voted 4-1 to grant Wynn’s request that it serve complimentary alcohol until 4 a.m. only on the gaming floor and only to those who are “actively gaming.”
Eileen O’Brien, who voted no, said “My preference would be having this conversation in six months out from opening.” She added, “The density and size of this gives me pause. I remain in the same position I was when MGM asked that, my position at this point would not be inclined to allow the 2 to 4 (a.m.) — to see how things go before we go to that.”
Commissioner Gayle Cameron said she was open to looking at the decision again in as few months. “I do understand international business. I do understand the need to compete with other casinos in the region, but I needed to be assured that everyone was taking this really seriously.”
Robert DeSalvio, president of Encore Boston Harbor, told the panel: “Like the commission, we are also concerned about public safety, I want to make sure that people come and enjoy the facility in a very responsible way.” He added, “We take the issue of responsible alcohol service very, very seriously. … We give full authority to our employees to make sure that, if they see even a remote possibility that somebody should not be appropriately driving a motor vehicle and attempting to leave the property, we’re more than happy to offer them a Lyft home. If that case does arise, we will gladly do it and will pay for it.”
Boston Mayor Martin Walsh, who had opposed the waiver for the casino, told reporters after the vote, “They support it, that’s fine. There’s nothing we can do about it. I just want to make sure we’re going to be careful. I just hope they enforce the law — that anyone who drinks too much, they don’t leave in their car because those folks will be driving through the city of Everett and Boston and other places. I just want them to be very careful on making sure they’re not over serving people.”
The city had written to the MGC: “Extending the hours of alcohol service prior to a casino even opening, and without any demonstration of need for an extension, is premature,” the city wrote in its letter to the commission. “We respectfully request that this application be denied until any negative impacts to area businesses that have not been afforded the same late-night option are reviewed.”
On the other hand, Everett Mayor had written “The availability of alcoholic beverage service is an amenity that many international visitors expect.”
The change applies to 23 licensed outlets, including three restaurants that stay open late. None of the drink stations will be auto servers, i.e. they will be “physical bartenders” unlike the MGM Springfield which has some robot bartenders.
Commissioners had expressed concerns that customers not be over-served, and how the casino would deal with customers wanting to leave while intoxicated. This is a concern since mass transit has ceased operating by that time and the casino sits along a water front.
DeSalvio had said servers and security are trained to be able to identify those who have had too much to drink and are authorized to provide transportation via a service like Uber, by bus, or to help a patron contact a friend.
“I make sure our staff 100% knows that if they have a question about a customer … they have the full authority to provide them a ride home,” DeSalvio commented.
