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Politics, not finances, got in the way of MGM-Wynn deal

Wynn Resorts chief executive Matthew Maddox (left) and others tied to Wynn met with the state Gaming Commission in April. (David L. Ryan/Globe Staff/file 2019)
Wynn Resorts chief executive Matthew Maddox (left) and others tied to Wynn met with the state Gaming Commission in April. (David L. Ryan/Globe Staff/file 2019)Globe Staff

An investment bank made a compelling financial case on Monday for MGM Resorts’ potential purchase of the $2.6 billion Encore Boston Harbor casino in Everett from its rival, Wynn Resorts.

So much for that idea.

MGM issued a statement Tuesday night saying it was ending discussions with Wynn for the Everett casino, which is set to open next month. MGM will stick with its new Springfield casino instead.

The finances might have worked out with a Wynn deal. The politics proved insurmountable.

In its statement, MGM said its executives were troubled by “the anxiety raised by various stakeholders” regarding the Wynn-MGM discussions and indicated it would end the talks as a result.

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MGM could have afforded the steep price tag, and even paid enough for Wynn to reap a modest profit, according to a scenario outlined in a report from Nomura, an investment bank that closely tracks the casino industry. Nomura’s Instinet equity research group released its memo on Monday, three days after the two casino companies had confirmed discussions about a possible deal to transfer the Wynn casino in Everett, on Boston’s border, to MGM. Nomura’s quick math shows MGM could have paid Wynn more than $3 billion and still increased MGM’s earnings, after a “ramp up” period following the casino’s opening.

How could MGM have pulled it off? By using an affiliate, MGM Growth Properties, and breaking the deal into two: one transaction for the real estate associated with the Everett complex, another for the operating casino business. MGM set up the affiliate as a separately traded real estate investment trust, although the casino operator still holds a controlling stake in it.

The Nomura analysts had estimated MGM Growth could have paid $2.2 billion-plus for the real estate, potentially issuing new stock and borrowing money to pay for the deal, with MGM paying at least $1 billion for the operating business.

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You don’t need to look further than MGM’s disappointing revenue numbers at its nine-month old casino in Springfield to know the New England gaming market is getting saturated.

But the Greater Boston license represents the region’s grand prize, one that might be worth a premium even with all the competition.

But it won’t be MGM’s prize, after all.

Rumors about a possible deal between the two Nevada-based companies first emerged last year, soon after the state Gaming Commission began investigating how Wynn Resorts handled sexual misconduct allegations against founder Steve Wynn.

The Gaming Commission ended up deciding to fine the company $35 million and hit Wynn chief executive Matthew Maddox up for another $500,000, but allowed them to stay in charge in Everett.

Reports of the MGM-Wynn discussions had suddenly cast a shadow over the team in Everett, with just weeks to go before the June 23 scheduled opening date. The casino will employ more than 5,000 people. Now, MGM’s exit should provide some certainty for them.

Even though MGM could apparently afford to finance the deal, the logistics were always going to be complicated.

State law limits license holders to just one casino in Massachusetts. That means MGM would have had to sell its Springfield casino to make the leap into Greater Boston.

And finding a taker for the nearly $1 billion casino in Springfield was no sure thing.

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The fun wouldn’t have stopped there. Both transfers would need the blessing of the state Gaming Commission. Mayor Carlo DeMaria of Everett would get to approve any sale of Encore Boston Harbor, and Mayor Domenic Sarno of Springfield would call the shots regarding a sale of the casino in his city.

Neither mayor has been particularly happy about a potential switcheroo, and they’ve made their unhappiness clear. Naturally, they prefer the companies that they’ve been working with all along.

This new Nomura report provided a road map for how the finances of an MGM-Wynn deal would work. But the politics? That’s an entirely different sort of equation, the kind of tricky math that can’t be calculated on Wall Street.


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.