The biggest news in the gaming world for five days in May was the sale of Wynn Resorts’ Encore Boston Harbor to MGM Resorts International. The Boston Globe broke the story on May 17th, a Friday, in the late afternoon. By Wednesday morning, May 22nd, both companies had released statements saying the discussions had stopped and no sale was being contemplated. In between those days, hundreds of articles appeared around the country with different slants on the possibilities and implications of the sale.
There were many theories about why Wynn would give up just short of the opening day. CDC columnist John L. Smith compared it to a marathon runner quitting with the finish line in sight. The marathon metaphor is apt. Encore is very close to Boston, the home of the world-famous Boston Marathon. Wynn resorts has indeed been engaged in a marathon-like process to build and open Boston Harbor.
It has been five years since Wynn was awarded a casino license. The license was to “develop and construct” a casino resort in the town of Everett; the fee was $85 million. The competitive bidding process was long and contentious. But even with the license in hand, building the resort has not been a simple straightforward construction project. The construction was delayed by lawsuits and other conditions caused by the unique situation in Massachusetts. Wynn finally broke ground and started construction in August 2016. All seemed to be going well until the Wall Street Journal published an article accusing company founder and chairman of the board, Steve Wynn, of sexual misconduct. Within weeks Steve Wynn resigned from the company and sold his stock.
Wynn’s resignation did not end the issue for Massachusetts. The Massachusetts Gaming Commission immediately began its own investigation into the behavior of Steve Wynn and Wynn Resorts. A year later, on April 30th, the commission announced it had found Wynn Resorts and CEO suitable for licensure. However, there were some conditions. Wynn Resorts was to pay a $35 million fine and employ an outside firm to audit the company’s compliance to the conditions. In addition, the CEO Matt Maddox was personally fined $500,000 and forced to undergo leadership training. Wynn Resorts reacted cautiously and is said to still be considering its options, including an appeal.
Wynn Resorts was clearly dissatisfied with the commission’s conditions. In the atmosphere of that discontent, the Boston Globe article was published. The article was followed by another article questioning the motives of Wynn Resorts and CEO Matt Maddox. The Globe speculated that Maddox was angry, implying he was looking for a way out of Massachusetts and the hassle. The Globe made Maddox seem like a temperamental child who quits a game and takes his ball with him. Although, it now appears the Globe had an ulterior motive for its articles condemning Wynn Resorts. Stephanie Solis of the Springfield Republican reported on May 24th that Boston Globe owner John Henry has twice tried to buy Encore; once in 2018 and again recently.
Articles in other publications wondered if MGM was the driving force behind the talks, reasoning that MGM wanted out of Springfield due to the poor performance of the MGM Springfield casino. MGM could only have one license in Massachusetts so buying Encore would mean selling MGM Springfield. Investors in both companies criticized a sale as being bad for Wynn and MGM.
The negotiations also fired up some politicians in Massachusetts. The mayors of Boston, Everett and Springfield all warned MGM and Wynn that no deal was possible without their permission. The mayors did not say what the price of approval would be, but there is an implication they intended to ask for some compensation. The gaming commission and the governor were equally displeased. Both promised to monitor the situation, letting observers know that the deal would not be easy to accomplish. The speculation and dissatisfaction might have influenced the decision by MGM and Wynn to cease the talks.
A statement was issued by each company explaining the decision to break off negotiations. MGM said it wasn’t really interested in Encore and was very happy with Springfield. Wynn said it wanted to focus on Encore and get the property open. So why were they talking in the first place and why did they let anyone know they were in negotiation? The answer to both parts of the question is in the nature of public companies. One of the statements from Wynn said that when an overture is made the company and board of directors have a fiduciary duty to consider it. MGM and Wynn are also bound by SEC regulations, under which, anything that might have a material impact on the company and its stock has to be disclosed to stockholders.
Operating a public company is not like operating a private company. It is more like living in a glass house. Privately owned companies do not have to disclose any discussions. A private company is not even required to publicly announce a sale. A sign in the window: “Under New Management” might be the only official announcement. Neither MGM nor Wynn has that luxury. Any major action either company contemplates is open to public scrutiny. Wall Street, the media, the regulators and banks are informed. Because those things are public, speculation, criticism and even ridicule are common. The five-day tale of a very short negotiation illustrates just how brutal that public exposure can be. Ironically, that was one of the reasons Steve Wynn gave for selling Mirage Resorts to MGM in 2000. Steve was tired of quarterly conference calls and the unrelenting criticism and second-guessing. He was tired of living in a glass house. There is no word yet about how Jim Murren, CEO of MGM, feels about it.
