Gaming companies have a long history of spending billions of dollars on resorts in Las Vegas and Macau. Wynn Resorts (NASDAQ:WYNN) alone spent $5 billion to build Wynn Las Vegas and $4.4 billion on the recently opened Wynn Palace on Macau's Cotai Strip.
Those two locales are the biggest gaming markets in the world, so the returns on multibillion-dollar resorts built in them are fairly predictable, and that's why companies are willing to bet big. But Wynn Resorts is planning to spend as much as $2.4 billion on the resort it's constructing near downtown Boston. That's an untested market for gaming, which makes it a bigger risk for Wynn.
Wynn's plans in Boston
Wynn Boston Harbor is actually in Everett, Massachusetts, a short drive or ferry ride from downtown Boston and the airport. The resort will be about 3.1 million square feet, with 671 hotel rooms, 56,602 square feet of retail, and 4,250 gaming positions. A quarter of the gross gaming revenue, however, will be paid to the Commonwealth of Massachusetts, which is a fairly high tax rate for the industry.
By Las Vegas standards, the hotel is fairly small -- Wynn Las Vegas, for example, has 4,750 hotel rooms. But the Wynn Boston Harbor gaming floor may be comparable in size to Wynn Las Vegas, which had 236 table games and 1,906 slot machines as of Q1 2017.
Steve Wynn's intention here is to build an entertainment destination for Boston. If he's successful at creating a mix of entertainment, restaurants, and shopping that draws visitors, some of whom gamble, the resort could be a financial success. But profitability is no guarantee given the price tag.
How Wynn Boston Harbor stacks up
A 10% annual return on investment (measured by EBITDA/initial investment) is the minimum Wynn Resorts should expect from a resort of this size. Hitting that mark would mean $240 million in EBITDA annually, which is no small feat for a resort even in Las Vegas.
Among public gaming companies, Las Vegas Sands (NYSE:LVS) owns the resort that's most comparable to what Wynn is attempting in Boston: Sands Bethlehem in Bethlehem, Pennsylvania. Last year, that site generated $571 million in revenue and $141 million in property EBITDA. That's from a gaming floor that's bigger than is planned for Wynn Boston Harbor, but a hotel about half its size.
The advantage Wynn's new resort will have is its proximity to the urban area of Boston. And with a high-end resort, it has a fighting chance to earn more than $240 million in EBITDA annually.
Wynn's risky bet on the East Coast
Steve Wynn has made plenty of big bets on new gaming markets, and Boston is his next big gamble. But this one will have to generate a tremendous amount of revenue every day to be profitable and generate a return for investors. And given the challenge he'll have in building a gaming market from a single casino, it's a bet I'm still surprised he's making.