In a little over three months, Wynn Resorts Limited (NASDAQ:WYNN) will open its first new resort in the United States in more than a decade. Encore Boston Harbor will be the only full casino in the Boston area, and it aims to draw wealthy locals and visitors a few miles north to the town of Everett.
Building on the East Coast isn't a trivial investment for any gaming company. Atlantic City has been a disaster for operators over the last decade, and casinos have expanded into Pennsylvania, Virginia, and now Massachusetts. There's no guarantee Encore Boston Harbor will succeed, especially with a $2.6 billion construction price tag.
Betting big on the East Coast
When Wynn Resorts bets, it bets big. From a cost standpoint, there's no casino on the East Coast that compares to Encore Boston Harbor's budget -- the closest is Revel in Las Vegas, which also cost $2.6 billion. And Revel went bankrupt shortly after opening.
MGM Resorts' (NYSE:MGM) National Harbor resort outside of Washington, D.C. is probably the most comparable resort today and may be a good proxy for what to expect given its age and proximity to a population center. It generated $800.8 million in revenue in 2018 and $195.1 million of property EBITDA.
Encore Boston Harbor needs to generate more revenue and EBITDA than National Harbor to be considered a win: If it can pull in over $1.2 billion of revenue and generate over $300 million of EBITDA it would be considered a success. And there may be ways to reduce risk near term.
Ways Wynn can reduce its risk
Wynn could take some of its chips off the table in the Boston region by selling some of its real estate. MGM Resorts sold the real estate from the $1.4 billion National Harbor to its REIT for $1.2 billion, dramatically reducing the outlay it had to put on its balance sheet. You can see below that $7.2 billion of net debt is already on Wynn's balance sheet, and it can't afford to take on much more leverage.
Wynn could also choose to sell off pieces of the resort. The company sold a 49.9% stake in the shopping mall in Wynn Las Vegas for $472 million, freeing up cash in that property. It could do something similar in Boston, although the proceeds may be significantly lower.
Will Boston pay off for Wynn Resorts?
Building a multi-billion dollar resort in a town like Everett, Massachusetts, which isn't known for luxury resorts or high tourist spending, is a risky bet for Wynn Resorts. The company's first foray into the East Coast will not only be financially taxing but also stretch the brand to places it's never gone before. This summer, we'll begin to learn if the bet is finally going to pay off for the gaming giant.