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Risk Rises for Wynn Resorts as Steve Wynn Resigns

By Rich Duprey - Feb 7, 2018 at 8:12PM

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The sudden announcement gives way to the possibility of a takeover or breakup, though the hurdle remains high.

Few people are as responsible for the Las Vegas we know today as Steve Wynn. But in the wake of recent allegations of sexual misconduct leveled against him, he has resigned from his post as chairman and CEO of Wynn Resorts (WYNN 12.05%).

If the allegations are true, then being held accountable for his conduct is essential regardless of his past contributions to the industry. However, it also brings into question what the future holds for his casino empire as it enters a critical juncture in its history.

Wynn Las Vegas and Encore

Image source: Wynn Resorts.

Many irons in the fire

Wynn Resorts faces a number of milestones in the immediate future. It's about to embark on a seemingly massive set of construction projects in Las Vegas. First, there's the $1.6 billion Paradise Park, which will feature a 20-acre lagoon and a white-sand beachfront, as well as a 47-story, 1,500-room hotel. Then, there's the new hotel that's to be built on the vast 34-acre site just purchased in December. In short, Wynn Resorts was making a big bet on a Las Vegas comeback, but regulators are reviewing these latest developments, which could have an impact on the company's license to operate.

It's the same thing in Massachusetts where Wynn will have sunk $2.4 billion into its new Boston Harbor resort, set to go live in 2019. And in Macau, Wynn Resorts is facing a license renewal for its properties as concessions undergo a review. Might regulators use the opportunity to open up the industry to different players? It's possible, though it would seem unlikely considering the significant investments the resort operator has invested in the region.

And arguably most uncertain is the concession the company hopes to win in Japan when that country finalizes all of its integrated resort legislation and establishes a regulatory framework to oversee the new casino industry.

Without Steve Wynn overseeing this empire of world-class resorts, it's possible Wynn Resorts could be sold or broken up into smaller businesses.

Too big to buy?

Shares of the casino operator lost about 20% of their value in the aftermath of the allegations, but with an enterprise value of $24 billion, it would like be difficult for any gaming industry rival to take over the whole company.

Las Vegas Sands (LVS 5.86%), with a $60 billion market cap and an enterprise value north of $66 billion, is the biggest player in the business, but it also carries $9.5 billion in long-term debt and only $2 billion in cash, making it hard to believe it would be able to arrange the financing necessary to buy out its competitor, even if regulators were to approve such a deal.

Sands doesn't have a particularly large presence in Vegas, as it derives most of its revenue from Macau. Though the company has reportedly been trying to sell its Pennsylvania resort without luck, Bethlehem Sands still generates more casino revenue than its two Vegas properties combined, and it just might want to consider branching further out into the regional market.

MGM Resorts (MGM 11.30%), on the other hand, has said it was done with expansion after having spent $7 billion over the past few years. Instead, it wants to focus its future capital expenditures on improving existing properties. Unlike Wynn and Sands, most of its revenue comes from Vegas, but it has also made bets on regional markets and has a resort under construction in Massachusetts that is scheduled to open later this year.

That would likely preclude it from being able to acquire Boston Harbor, but Wynn's Vegas properties might be attractive (though MGM also carries $13 billion of debt).

Still a high hurdle

Any challenge to Wynn Resorts, whether in the form of a takeover or a sale of its parts, would still have to confront the fact that Steve Wynn controls more than one fifth of the voting stock of the casino operator, making any change of control in full or in part difficult to accomplish.

Of course, it's too early to determine what if anything will occur. Given Wynn's decision to resign his posts, he may have mitigated any regulatory action against the company. Shareholders were certainly heartened by the news, with shares rallying about 10% as of this writing.

The longer term outlook is still unclear, and there may just be enough uncertainty that investors should avoid rolling the dice with Wynn Resorts until the company presents a clear plan for the future.

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Stocks Mentioned

Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
$58.29 (12.05%) $6.27
MGM Resorts International Stock Quote
MGM Resorts International
$30.24 (11.30%) $3.07
Las Vegas Sands Stock Quote
Las Vegas Sands
$33.43 (5.86%) $1.85

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