When Massachusetts legalized gambling in 2011, one of the four locations approved was to be sited in the Boston metropolitan area, clearly the pick of the Bay State litter. After all, Boston-area gamblers fueled the two Connecticut tribal casinos, so why not put a casino in their backyard?
While there was lots of initial interest from the usual suspects, the two proposals left standing at the end were Wynn Resorts for an integrated resort casino located in Everett, across the Mystic River from Boston, and from the Suffolk Downs racetrack, managed by Mohegan Gaming & Entertainment (which replaced Caesars Entertainment after a messy licensing hearing). Finally, the choice was made: the proposal by Wynn Resorts echoed the company’s classy properties in Las Vegas and Macau. Its community involvement and commitment to excellence resonated with regulators.
But then the wheels almost came off. When the Wall Street Journal reported in January 2019 that Steve Wynn, the company co-founder and chairman, was involved in a #MeToo scandal, Massachusetts regulators paid close attention to the actions of the company to determine that it was, indeed, fit for a casino license. (See “No Wynn Situation” on page 22.) And then after reports that Wynn would sell the yet-to-open property to MGM Resorts, the future was even more uncertain.
Luckily for Wynn Resorts, its former chairman had made a good choice in picking Robert DeSalvio as president of Encore Boston Harbor. It was DeSalvio’s steady hand that guided the property and its employees through the troubled waters and to the June 23 opening.
DeSalvio says his message to the troops was “stay focused.”
“The first day that the announcement came out about a possible sale, we immediately held a team meeting,” he says. “One thing I have learned early on is just be straight with folks. There wasn’t really much I could say, but it was pretty obvious that it was out there, with both companies talking about it. What I told everyone to do was exactly what I did myself. We had to focus on opening the resort. And so I told them to compartmentalize this, and put it aside. I told them I didn’t know where it was going, but at the end of the day, we had to have our eyes on the prize. And the prize is that we were going to open on June 23, regardless of anything.
“I told them I’ve read it, I’ve now put that on the side, and I’m now back to doing what I do every single day, and we needed the team to do exactly the same thing. Which is what they did. And so, it was a little bit of a surprise, but at the end of the day, they were true professionals. Went right back to work, and we never skipped a beat.”
DeSalvio has a deep talent for launching properties. He opened Sands Bethlehem for Las Vegas Sands, convincing a skeptical community to which Sands made a commitment, and would live up to it. The company hired thousands of local employees and helped to start the revitalization of the former steel town.
Even with that experience, DeSalvio said he was surprised by the overwhelming number of applications from Boston-area job seekers.
“One of the biggest parts of the success that the team has had is the fact that we had over 130,000 applicants for the 5,000 or so jobs that are here,” he says. “That was actually somewhat surprising in this low-unemployment environment, and we were thrilled that we got that many applications—a lot of folks who had some great experience in hospitality. It may not have been in gaming, but they might have come from some of the top hotel companies, and so we just had a great selection. The one thing I’ve heard over and over again is people are very happy with the team and the way they are experiencing the service levels in the property, even in this early time frame.”
Another parallel with Sands Bethlehem was the polluted sites both properties had to start with.
“Sands Bethlehem started out as an industrial site,” he says. “There was remediation involved, there was a tremendous amount of community work. It was bringing, in a sense, an integrated resort into an area that previously never had one, and with that comes all the complications and the hundreds of community meetings that you have to go through in order to make sure that people understand that you’re going to be a good corporate citizen. And that at the end of the day, they’ll be very proud of the project, and they’ll feel like they made a great decision in welcoming you to the community.”
In Boston, the site was even worse. For over 100 years, the site was used as a chemical plant, producing arsenic for most of that time. An early visitor to the site said the land squished under your feet as you walked across it. DeSalvio said Wynn spent almost $70 million just to clean it up.
“It entailed removing 840,000 tons of contaminated soil,” he says. “And it was interesting; we wanted to do it and create minimal impacts on the local roads. So, there happens to be a rail line behind the project. We built a spur, and every day, we’d have two 26-car trains, and we’d load them up at midnight, and at 12 noon. And then the contaminated soil would go to its appointed rounds. And it went all over the place—Georgia, New England, Canada. And each trip would take about two weeks. So we had to lease 600 rail cars, and have them in perpetual motion for almost six months.”
But that wasn’t the end of it. Chemicals had leached into the surrounding wetlands, so the company arranged to mitigate that damage too.
“We had land below the water line to deal with, so we cleaned out seven acres of the harbor, and replaced that with 18 inches of clean fill. We were able to return the city of Everett to its waterfront, for the first time in over 100 years. So, the community was very appreciative of the fact that Wynn Resorts would actually tackle something as complicated and difficult as this, and yet be able to give the community rightfully back its waterfront.
“We got some recommendations from the Mystic River Watershed Association, that instead of bulkheading the property, we decided to do what’s called a living shoreline. And that’s much more ecologically friendly. We took into account sea level rise, we elevated the main access road 13 feet above mean sea level. We took the casino floor and podium level, brought it up 25 feet above. That puts us above the 500-year floodplain level. And basically, all of Boston has to be concerned about future sea level rise. So, we want to make sure that this property was actually built for the long haul, and it was sustainable, environmentally friendly, and a great example for others to use.”
Because Encore Boston Harbor is in the congested metropolitan area, DeSalvio says they had to be creative in designing ways to get people to the property. In addition to a 3,000-car parking garage underneath the property, there are connections to the local transit system, a pedestrian bridge over the Mystic River and even a water shuttle.
“It’s been extremely popular,” says DeSalvio. “We run out of the seaport at the World Trade Center, and at Long Wharf in the financial district. We bought three beautiful premium harbor water shuttles, from Boston BoatWorks, a local company in Charlestown. And public reaction has been very strong. It’s a great way to try something different, and to enjoy looking at Boston Harbor and the skyline from the water. And it was one of the different transportation methods we used to see if we could ease up a little bit on car traffic.”
Every Wynn project has a “wow” factor—the volcano at the Mirage, the water show at Bellagio and Wynn Palace in Macau, and the “mountain” at Wynn Las Vegas. For Encore Boston Harbor’s “wow” factor, DeSalvio says he’s got two choices.
“First, the six-and-a-half acres of outdoor space is almost unmatchable, anywhere. We had this beautiful site that was close to downtown Boston. Our lead horticulture landscape team that we use on almost all Wynn projects is Lifescapes International. We also used a local firm, Pam Shadley Associates out of Lexington. The combination of those two companies, plus the internal horticulture and floral teams at Wynn, put together a package that is visually stunning. We find people all the time that are using that outdoor public space, and I think that is a real gem. Especially when you approach from the water. It looks beautiful with the lighting and the colors of the landscaping. So, I would say that is a major ‘wow’ factor.
“The second is the arrival sequence, as you come in to the front of the building, and I think that is an architectural gem. You’ve got about 40-foot soaring ceilings, a beautiful skylight, you have the Preston Bailey feature, we have a Viola Frey beautiful vase that’s part of the curved escalator project that we’ve got. We did the escalators a little bit differently here. In Wynn and Encore in Vegas, as you go from Parasol up to down, we do have the escalators, except out there they’re parenthetical. Here we did them in tangent, so they literally meet in the middle, and it quickly became a fun ride, where you’re sort of passing the other person, right at that intersection point in the middle. When people enter the lobby, they literally stop and stare, and take photos. It’s a great Instagram moment.
“I will tell you, for me, professionally, it was one of the most rewarding times of my career, that I could actually work with this incredible team, and help put together a property like this.”
As in all Wynn properties, dining is a special occasion in Encore Boston Harbor. From the signature buffet, located directly adjacent to the casino floor, to Sinatra, the classy restaurant that got its start at Encore Las Vegas, dining is front and center. DeSalvio explains that they added some local flavor too.
“We took two very famous Boston-area restaurateurs, Frank DePasquale and Nick Varano,” he says. “Together they have about 13 different restaurants. And for the first time ever, they’re working together with Fratelli’s. So, it was our way to bring a little bit of the North End to Everett, and that worked out well.”
While Encore Boston Harbor doesn’t have a traditional theater, DeSalvio says the 37,000-square-foot ballroom—the second-largest in New England—in the meeting space will serve the property well. Already, Encore has hosted Paul Anka and Earth, Wind, & Fire, as well as the property’s first boxing event. DeSalvio says the lack of a theater was intentional.
“We decided not to go with an actual theater because there are so many venues that were available in the local market,” he says. “We wanted folks to go out and explore what’s available in Greater Boston. We have great suites at Fenway, at the TD Garden, at Gillette Stadium. At the Boch Center’s Wang Theatre; what a wonderful complex. With Live Nation, we did a package with them for their local venue. So, we want our guests to not only experience Encore, but go out and see what Greater Boston has to offer.”
DeSalvio plans to make good use of the meetings space, targeting certain groups.
“The life sciences, biotech area, and technology in general are all very strong,” he says. “And there’s a lot of customers that have previously visited Wynn or Encore in Vegas for their larger meetings, and they’re looking to hold a smaller, Northeast regional board meetings, those kinds of events, and they already know the brand well.
“Room rates are very strong in Greater Boston, so we think we’ll have high ADR along with good occupancy. And that dovetails beautifully, because that’s mainly mid-week business, with the casino business a little more skewed to the weekend. You’ll see the weekend casino blocks will be much higher. So, it’s a very nice way to complement our own resort, right on property.”
Marketing and Competition
As a company new to the East Coast, the process of building a database—a process that can make or break a property—has only just begun.
“That is one of the key components,” admits DeSalvio. “However, we did not start from zero, because Wynn Resorts already had a pretty significant database in the Northeast region. Of course, we contacted those customers because we certainly want to be their place of choice, right here in their backyard. So, I felt like that was an advantage for us.
“But, as you know, for every new casino property, especially if they’re even remotely regional in nature, it takes a while to ramp these properties. We’re trying to set proper expectations, and for all the aspects of the resort, we’re going to continue to develop the database. We know customers have certain loyalties. A lot of them have comp dollars and points built up at other places, and so, it doesn’t happen overnight.”
DeSalvio acknowledges the surrounding competition from the Connecticut and Rhode Island casinos, not to mention the two operating casinos in Massachusetts. He says he has a strategy for making Encore the destination of choice.
“We think of the business in three different segments. I’ll start with the locals. I call it the world’s greatest locals’ market. We have 6 million people or so in the Boston metropolitan area. We know a lot of them are gaming enthusiasts. They’ve been going to these places for years. So it’s up to us to present ourselves and attract them in, so that they see the building, experience the service, and hopefully we will gain their loyalty through visitation. So that’s a big part of what we do.
“However, there are two other segments that are interesting for us, that I think make us unique and give us the ability to be here for the long haul. Tourism from the rest of the United States will be a key driver for us. As you know, Boston already is rich in tourism assets.
“Then there are people that fly in and out of here all the time, whether they’re coming for the colleges, or the medical facilities. So, we’ve got the Greater Boston tourism community that we can connect with. And then there’s the international piece. Last year, Logan had 42 million passengers go through the airport. We’re now up to 56 international destinations, and that is intended to grow up to about 65. We have cities like Hong Kong, Beijing, Shanghai, all the big world capitals that are adding nonstop daily service in here.
“So, we think we can actually get a piece of the international tourism market. And the way we can position ourselves, then, is a little bit of something for everyone. The high-frequency local, the person that’s coming from all over the United States, and then visitors from all over the world. And that combination of segments hopefully will give us the ability to have this business be very successful for the long haul.”
While not much surprises the grizzled gaming veteran, DeSalvio says you can always learn something new.
“I’ll tell you the one thing that has truly surprised me, which is how many customers I run into on the casino floor who are brand-new to the gaming business,” he says. “Here’s how I can tell: I walk around and somebody says, ‘Hey, I saw somebody with a card; what does that do for me?’ That’s usually a tip-off.
“Or they look confused. You know how the slot machines have gotten slightly more complicated over the years, so they’re staring at the screen on a machine, and if they see you with a name badge, I constantly get waved over, and they ask simple things like ‘Where do I put my money?’ When you start hearing questions like that, you know that that’s not somebody who was a frequent player. The fact that we found that many new customers already is encouraging.”
In addition to the lack of a theater, Encore Boston Harbor is missing another Wynn signature element: a pool. DeSalvio says those items may be addressed in an expansion that could be considered after the property reaches its current potential.
“We’ve got about 11 acres or so, in the surrounding area to the property,” he says. “That’s public knowledge. Right now, it’s being temporarily used for parking. But I will tell you that (Everett) Mayor DeMaria and his administration in the city had designated—even long before we were on the scene—the Lower Broadway area in Everett as their entertainment/hospitality district. We created a wonderful anchor for that. We love the idea of connecting to the other tourism assets. So this future acreage could either be developed by third parties, or potentially even by us.
“What we’re doing here is no different than what we did in Las Vegas and/or Macau. In Las Vegas, when the opportunity presented itself, we bought that beautiful parcel across the street. I don’t know exactly where that’s heading yet, but to have the land is critical.
“We announced recently that we’re moving forward with phase one of an expansion in Macau, and the only reason that was possible was because the original concession there had some room to move on either side of the property. And so, that’s the way our company thinks about it. We may not have the plans today, but you have to set yourself up for the potential in the future. And at the end of the day, that’s a real estate play, and the land will always be valuable. No matter what happens.”
Macau, Las Vegas and now Boston, Wynn Resorts is racking up the numbers
There is an old saying that one gets rich by concentrating one’s investments, but one stays rich by diversifying them.
The same might be said to hold true for companies.
Wynn Resorts has gotten to be a $12 billion market cap company by concentrating on Macau. And in Macau it has concentrated on gambling—notably on high-end players, including VIPs who gamble in the private gaming rooms and whose play is measured as rolling chip handle as opposed to table drop.
The numbers are impressive. In the second quarter, for example, Wynn generated over 71 percent of its property EBITDA from Macau, $343.1 million from just two casinos. Win at the VIP tables ran close to $40,000 a day per table at Wynn Palace and nearly $31,000 at Wynn Macau. The so-called mass-market tables averaged $15,000 a day in win at both properties. By comparison, in Las Vegas, where Wynn also focuses on the high end, average daily win per table was $5,800.
No wonder Wynn is building the 1,300-hotel room Wynn Pavilion next to 1,700-room Wynn Palace with attractions to include what the company says will be one of the world’s biggest collections of Chinese art.
Yet, some investors are nervous about Wynn. Its stock, $110 a share as of this writing, was 30 percent off its 52-week high, more than 40 percent from its May 2018 high—and that was below 2014.
The concerns aren’t about the appeal of Wynn’s exquisite properties and splendid customer service. They aren’t about competition. They aren’t about market saturation when analyses show that Macau casinos penetrate a mere 2 percent of mainland China’s potential.
The concerns are political, and about the health of the Chinese economy. Will gaming concessions be renewed in Macau, and on what terms? Will the political protests in Hong Kong become a crisis that spills over into Macau’s casino industry? Will the U.S.-Chinese trade war slow the Chinese economy?
A solution to those concerns is diversification. If Wynn has more of its eggs in other baskets, it won’t be as reliant on Macau.
There are two ways to diversify: 1) open casinos in other markets; and 2) broaden revenue streams beyond gaming, and especially beyond the up-and-down VIP segment.
Wynn is attempting to do just that. The art at Wynn Pavilion is an example. CEO Matt Maddox notes that many big Chinese gamblers like to travel with their families. Art galleries, retail shops and entertainment venues make casino trips more attractive to a family than just a baccarat table. Nor does it hurt that developing non-gaming tourism is a Macau government priority.
The potential is clear. Chinese consumers spend billions of dollars on luxury goods and services. Casinos can tap into that growing stream.
The model is also clear—Las Vegas. Wynn Las Vegas and Encore get three-quarters of their revenues outside of gaming. Wynn’s Macau casinos got just 14 percent from non-gaming in the last quarter.
The potential for growing non-gaming revenues in Macau is much larger than the approximately $700 million it generated last year.
It also should be noted that, while gaming has always been the high-margin profit maker, non-gaming has become profitable, too. Las Vegas EBITDA margins based on total revenue neared 30 percent last quarter, about the same as Macau.
And even within gaming, revenue mix can change. Wynn is developing amenities in Macau to appeal to the growing affluent premium-mass segment, which enjoys higher margins and is less volatile than VIP.
The second kind of diversification actually began June 23 when Wynn opened Encore Boston Harbor. If Encore is as successful as many forecast, it will generate $250 million, maybe $300 million a year in EBITDA. That would have comprised 11 percent to 14 percent of Wynn’s total EBITDA in the past quarter.
The big fish, of course, is Japan. If Wynn lands one of the three Japanese casino licenses, it will have a property that generates profits on a Macau scale. Of course, landing a license is iffy. Some observers think Las Vegas Sands and MGM Resorts are the leading candidates, which, if so, might make it tough for an American company to get the third license. Even if Wynn lands a license, opening day is years away.
But there are other possibilities, such as Brazil if it opens, or in the U.S. if New York City or Atlanta happen.
On his second-quarter investor call, Maddox made it clear that Wynn will pursue opportunities that fit its integrated resort model, whether internationally or in the U.S.
And for that, he has said, Wynn has a model, too—Boston.
No Wynn Situation
The Steve Wynn scandal left Wynn Resorts with difficult decisions in Boston
It was Steve Wynn who made the decision on the site in Everett, Massachusetts.
It was Steve Wynn who used his magic to convince the Massachusetts Gaming Commission to grant his company a license over the competition, Suffolk Downs and the Mohegan Tribal Gaming Authority.
It was Steve Wynn who completed most of the design details on what is now Encore Boston Harbor.
It was Steve Wynn whose lightning-quick exit left his company, Wynn Resorts, with some hard decisions to make.
And Encore Boston Harbor is likely the final project to be created by the man who most observers acknowledge changed the industry multiple times—first with his entry into Atlantic City, second with his creation of the Mirage and later Bellagio and Wynn Las Vegas, and finally with his venture into China with Wynn Macau.
When the Wall Street Journal broke the news about Wynn’s alleged sexual misconduct in January 2019, the company took quick action to distance itself from its co-founder. Wynn quickly resigned as chairman and CEO, a few days later sold his shares, and finally moved out of the villa at Wynn Las Vegas where he had lived for the previous 10 years.
The name change in Massachusetts was an easy fix since Wynn and Encore are two brands the company uses in both Las Vegas and Macau, so Encore Boston Harbor it became.
Next task was to totally revamp the board of directors, removing any directors who had a personal or business relationship with Steve Wynn—and there were many. Today, four of the eight board members are women.
In addition, the largest shareholder is Wynn’s ex-wife and company co-founder Elaine Wynn. She also saw a way out of the scandal by adding former Harrah’s and IGT Chairman Phil Satre as chairman of the board. Satre’s impeccable reputation ensured a fair and objective hearing for the company. The addition of Ellen Whittemore as executive vice president and general counsel was also designed to make regulators comfortable with a professional and reliable voice.
The result at Encore Boston Harbor is a completely Wynn-wash. There are no references to the co-founder anywhere on the property. His legendary late-stage redesign didn’t occur following his departure. You’re hard-pressed to find even the elegant “W” logo of Wynn Resorts. While signature “Wynn” flourishes remain—a smaller version of the Bellagio/Wynn Las Vegas arboretum highlighted by a flower-covered carousel, the curved escalators, art installations across the property, and restaurants that echo previous Wynn properties—the man who created them no longer stands behind them.
The success that Wynn Resorts has had in separating itself from Steve Wynn has paid off in Massachusetts and will likely continue to succeed in Las Vegas and Macau, and maybe even later in Japan.
People used to wonder what would happen to Wynn Resorts in the inevitable absence of the leadership of Steve Wynn. But there’s no longer any reason to wonder or even be concerned. Wynn Resorts is going to remain a major player in the gaming industry for years to come.