Last week, Wynn Resorts (NASDAQ:WYNN) won a bid to build a $1.6 billion casino in the Boston suburb of Everett, beating out a bid by Mohegan Sun and Suffolk Downs to add a casino to the racetrack. Wynn's new property will be the second casino in Massachusetts along with a resort built by MGM Resorts (NYSE:MGM) in western Massachusetts, but it comes with a lot of questions for both the region and gaming investors.
Massachusetts casinos are part of a broad gaming expansion on the East Coast, which has put pressure on the traditional gaming hub of Atlantic City. Suddenly, Pennsylvania is the second largest gaming state in the nation and Atlantic City is watching resort after resort go bankrupt. Atlantic City's failure is in stark contrast to the massive success Wynn, MGM, and others have had in Macau and the single resort in the Boston area has more in common with Singapore's limited market than Atlantic City.
So, will Boston be more like Atlantic City or the massively successful gaming additions in Singapore, where a downtown resort from Las Vegas Sands (NYSE:LVS) has brought in billions in profit?
Boston is no Atlantic City
To understand how Wynn Resorts and its investors are looking at Boston we should go back to when gaming was legalized in Atlantic City in the late 1970s. New Jersey voters passed a referendum that allowed casinos in Atlantic City in part to revitalize an area that was struggling through economic hardship. New Jersey was also taking advantage of its close proximity to New York City's wealth and population base to offer entertainment and gambling that wasn't available in other parts of the region.
This gaming has lasted for nearly three decades, mostly unchallenged, but in the 2000s surrounding states like Connecticut, Pennsylvania, Maryland, and now Massachusetts expanded gaming to collect tax revenue and balance state budgets. This has put pressure on Atlantic City and many resorts have gone out of business as a result of the decline in gaming in the city.
Boston is part of the expansion in gaming, but what makes Wynn's Boston location different from Atlantic City is its close proximity to downtown Boston. It's less than a 20 minute drive from downtown, making it a potential local entertainment and gaming hub. It'll be affected by the growth in regional gaming, but it'll also have a captive market in metro Boston.
Boston is no Singapore
But before we start expecting Wynn's Boston property to generate $3.1 billion in revenue like Las Vegas Sands' Marina Bay Sands in Singapore we should also set the market.
Singapore is an international trade hub with billions of hungry Asian gamblers just a short plane ride away. Boston will likely view its new gaming resort as an attraction, but the U.S. has far more gaming supply than Asia does, increasing competition, and it's not going to have the same volume of customers as Marina Bay Sands does.
If you're thinking Boston will suddenly be a massive gaming market, the resort's performance will likely be a disappointment. But Steve Wynn also doesn't view the resort the same as other developers do on the East Coast.
How Steve Wynn views the Boston market
Bidding in Boston was never about making a game-changing investment for Steve Wynn. Boston won't be more than a blip on the financial statement when compared to Macau and Las Vegas.
Instead, he views this as a way to expand his brand to the East Coast and build a property that can command strong revenue from rooms, entertainment, and food & beverage while offering a casino as icing on the cake.
Keep in mind that even in Las Vegas, which is known for gambling, Wynn generates more revenue from non-gaming activities than it does from gambling. So, when Wynn says the casino won't be the central attraction there's some credence to what he says.
At the end of the day, Wynn's new Boston project should be seen as a large hotel and entertainment attraction that could generate $100 million to $300 million in EBITDA, or cash flow, annually. But at the end of the day it'll be more important to introduce more people to the Wynn brand with a premier regional offering than just the profits Wynn may generate from Boston. The city just isn't the opportunity that Asia presents, but Wynn is also hoping it doesn't come with the pitfalls of Atlantic City either.
Travis Hoium manages an account that owns shares of Wynn Resorts, Limited. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.