Policy change causes panic, financial havoc
By JOSH RESNEK
What has happened in Springfield with MGM attempting to renegotiate its host agreement with the city there has now begun here with Encore.
The city’s savior, the brainchild of the mayor, has apparently changed the host agreement unilaterally by sidestepping Everett on a $10 million payment it owes in lieu of taxes.
Instead of paying the city what it owed since March as promised for July 15, Encore has apparently paid the state, and then the state will pay the city.
Several councilors have conceded that’s a nice how do you do coming at a perilous moment when the city’s finances are in question.
Expenses are exceeding income, and budget cuts, layoffs and salary reductions have been levied to bridge the income gap.
“It gives me great concern that Encore would pay the state rather than the city like they did in the first and second quarter. It’s a big concern they would do that,” said City Councilor Mike McLaughlin.
“It shows irresponsibility on the part of Encore. Out of four payments, they’ve only gotten one payment right and on time. Not a great track record,” he said.
For the mayor, who brought Encore to the city, the payment gaffe is an agonizing twist.
Encore was to have been a panacea for the city. The city’s financial difficulties were over with the coming of the casino, according to the mayor.
“Instead, it looks as though our money problems have multiplied,” said Councilor at Large Mike Marchese.
The pandemic serves as an exclamation point as to how the unknown can come out of the blue and upset the best laid plans of successful businesses.
“It shows that absolutely nothing is guaranteed when it comes to the casino and Wynn Resorts,” Marchese added.
“What the hell is the mayor going to do about this. Is he going to order Eric Demas to call the Department of Revenue? If I were the mayor, I’d head over there myself and demand our money. We need it. It’s ours,” said Marchese.
The closure of the casino for four months has not helped the situation, but then, the casino was behind in its payments to the city before the closure.
The four-month closure, the payment of its employees during the hiatus, then the furloughing of thousands and finally the recent reopening, have been an agonizing turn of events for everyone involved.
The reopening here has been successful.
The casino at least is open, and the hotel as well.
However, great crowds have not materialized here, or in Las Vegas or in Macao for Wynn Resorts, Encore’s parent corporation.
The hotel here is open from Thursday through Sunday. Bookings have been slim, according to an executive who works for Encore.
In Las Vegas, bookings have been so slim that they are not being taken for mid-week stays. In Macao, where Wynn Resorts earns 75% of its income, business is not near a fraction of what it used to be before the pandemic brought everything to a halt.
Short term, the picture presents one of disaster.
Encore did not take in a penny for longer than four months. Everyone was paid. The company’s cash burn rate to keep everyone paid and to upkeep their properties here, in Las Vegas and Macau amount to about $7 million a day. That is $210 million a month. That is $840 million for four months.
Wynn Resorts is rich with cash. Its corporate spread sheet itemizes about $3 billion on hand. The company can go quite a while doing little to no business.
However, stockholders at some point will require action to save what remains of their equity in the company.
Larger companies like Sheldon Adelson’s Sands could afford to buy Wynn Resorts even in the down market. There has been recent speculation that such an acquisition could be made of Wynn Resorts by Adelson.
Encore in Everett could be sold separately or as part of a package.
If Encore is sold, it is likely the business model for the casino and hotel would dramatically change.
In fact, it has already changed.
Symptomatic of that change is the hot dog “stand” now servicing casino gamblers at three hot dogs for $13. This is not exactly the signature of a five-star resort.
This effects Everett whether or not the mayor wishes to acknowledge it.
Long term, things will one day come back to normal – the new normal that is.
As this week began, Wynn Resorts stock was hovering just above $70 a share. Its market cap, that is, the value of all its outstanding stock, 75% of which is owned by investment institutions, was at $7.8 billion – a long way off from its market cap this time last year of more than $20 billion.
The four-month closure of the casino industry has rocked Wynn Resorts.
Profits are off. Income is off. Retained earning are off. The dividend has been stopped.
It is late making its payments to Everett, in fact, is no longer sending payments directly to the city.