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Caesars Entertainment's Boston Loss Is Wynn's Gain

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It's been a tough few days for Caesars Entertainment (NASDAQ: CZR  ) . Late last week, the company announced that it was backing out of a deal with Suffolk Downs to seek a gaming license in Boston, reports surfaced that regulators are looking into money laundering at the company, and it was announced that Gansevoort Hotel Group is no longer partnering to transform Bill's Gamblin' Hall & Saloon in Las Vegas. This hurts the company's growth potential and at the very least damages its reputation, if not worse.

It also puts Wynn Resorts (NASDAQ: WYNN  ) in the driver's seat for the Boston Gaming license, although Suffolk Downs isn't out of the race. It's just hamstrung by not having a major gaming partner like Caesars.

Boston is off the table
It appears that the Gansevoort Hotel Group and money laundering investigation were both part of the reason Boston regulators asked Caesars to step away from its partnership with Suffolk Downs. A background check revealed that one of Gansevoort's business partners allegedly had ties to organized crime in Russia, putting the company in a sticky situation in dealing with a regulated gaming company. Gansevoort president Michael Achenbaum said the company is leaving to "minimize any controversy for Caesars." Caesars said the project will still open on time in 2014.

The money laundering allegations are even more serious. Caesars says the Treasury Department's Financial Crimes Enforcement Network is looking at its subsidiary Desert Palace and a federal grand jury is also looking into the issue. To put potential punishment into perspective, earlier this year, Las Vegas Sands agreed to pay $47 million in a deal to resolve a federal investigation over noncompliance with reporting suspicious customer behavior. Caesars is already drowning in $19.3 billion of net debt, so a fine wouldn't be good for the company's balance sheet.

Wynn pulls ahead in Boston
Wynn Resorts has already won a local referendum, allowing it to move forward with its $1.2 billion resort in Everett, Mass. Suffolk Downs is facing the same vote in early November and it's now scrambling to find a new partner.

I've projected that a win in Boston for Wynn would result in about $200 million in new EBITDA, and this is a small help for the company's bid. At the very least, we know Caesars won't be winning in Boston and the company is in for a long investigation from federal regulators, something no investor wants.

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  • Report this Comment On October 22, 2013, at 7:48 PM, geneeva wrote:

    first of all, caesars is not being investigated for money laundering. the govt is making sure they file required papers on customers like banks do looking for money laundering, big difference. second, there r no current or even factual ties to the russian mafia by one of the minority owners of the Gans hotel. the rumors, like gossip hens, go back to the early 90's, nothing since and mostly about an elderly uncle. the investor has never even been indicted let alone found guilty of anything of ill repute. the gaming commission cameron is a lunatic who thinks the mafia exists in gaming today like it is the 40's. she is nuts.

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9/27/2016 4:00 PM
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