Encore Boston Harbor, Wynn Resorts, Limited's (NASDAQ:WYNN) $2.5 billion resort under construction near downtown Boston, may be up for sale -- again -- as gaming regulators mull whether the company will keep its gaming license in the state. Regulators have been concerned about Wynn's corporate governance since allegations of sexual misconduct against founder Steve Wynn came to light earlier this year.
New CEO Matt Maddox explored a sale of Encore Boston Harbor earlier this year, but couldn't find a buyer at a price that was attractive to Wynn. With regulators considering the possibility of pulling Wynn's gaming license, it's not surprising a sale could be back on the table again. The latest rumors of a possible sale come via a website citing a person "close to the discussions."
A $2.5 billion resort is at risk
At a hearing in mid-August, Massachusetts Gaming Commission Chairman Stephen Crosby said that Wynn Resorts' gaming license in Massachusetts could be at risk. Without a gaming license, the resort couldn't offer gaming and (likely) wouldn't be able to turn a profit, so this was big news for Wynn Resorts and investors.
There's not yet a concrete proposal to pull Wynn Resorts' gaming license. Regulators have had a contentious relationship with the company, so this could be posturing. But if there's any risk at all that Wynn Resorts could lose its gaming license, it's worth considering a sale if Maddox can find a buyer.
Encore Boston Harbor's potential buyers
There are only a handful of companies that could conceivably buy Encore Boston Harbor for anywhere near its $2.5 billion construction price. MGM Resorts could do it, but recently opened MGM Springfield in Massachusetts, the only other casino approved by the state. It likely would need to sell MGM Springfield to buy Encore Boston Harbor, which is unlikely right now.
Caesars Entertainment (NASDAQ:CZR) may have the structure and balance sheet that could enable an acquisition. The company has a REIT arm called VICI Properties Inc (NYSE:VICI) that could fund well over half of the acquisition price by simply buying the real estate. Caesars would be able to leverage its nationwide footprint and Total Rewards program to attract customers and would benefit from a premier location on the East Coast.
Penn National Gaming, Inc. (NASDAQ:PENN) may not be the first company that comes to mind when a big casino acquisition comes up, but it might be the perfect fit for Encore Boston Harbor. Its REIT, Gaming and Leisure Properties Inc (NASDAQ:GLPI), could fund most of the acquisition by buying real estate, and Penn National could acquire the operations. The company's pending acquisition of Pinnacle Entertainment would complicate any deal, but the combination of a large regional presence and a strong REIT make Penn National a potential dark horse in bidding for Encore Boston Harbor.
The owners of the Mohegan Sun Resorts in Connecticut could be another possible buyer, although the longest shot in this group. The company was the loser to Wynn Resorts' bid in Massachusetts, so they clearly see value in the region. But with only one major resort, it's unclear if they have the balance sheet to pull off a $2.5 billion acquisition.
No easy answers
Wynn Resorts could take a risk and hold onto Encore Boston Harbor, but it has to test the waters and see if another company might be interested in the property. The biggest hurdle to finding a buyer might be the potential $2.5 billion price tag, which is a big pill for most gaming companies to swallow. That could be the biggest obstacle to selling a resort that's had its fair share of drama a year before opening its doors.