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CEO Matt Maddox steadies Wynn Resorts, analysts say

Updated February 6, 2019 - 6:00 pm

Just one year ago, the future of Wynn Resorts Ltd. seemed dire.

Charismatic Founder, Chairman and CEO Steve Wynn stepped down Feb. 6, 2018 amid allegations that he sexually harassed female employees over decades, raising concerns about the company’s gambling licenses.

His ex-wife Elaine Wynn, positioned to become the largest activist shareholder, battled new CEO Matt Maddox and directors for control. Meanwhile, former Wynn Resorts owner Universal Entertainment was in court seeking to recover its stake worth more than $2 billion.

Nevada, Massachusetts and Macau gaming regulators soon opened investigations into the company over the sexual misconduct allegations, threatening its gaming license in Nevada and its ability to open a new resort outside Boston. Gaming analysts began to speculate which Strip or Macau operators could potentially take over the troubled company.

But twelve months to the day since being tapped to lead Wynn Resorts, Maddox — the company’s former chief financial officer and Steve Wynn protege — has helped stabilize the casino operator through quick decisive steps and compromises, analysts said.

“If you look at what he had done to steady the ship, they have been the right decisions,” said Harry Curtis, gaming analyst at Instinet in New York. “He has been a very good protector of the value embedded in the company.”

Recovery

The gravity of the allegations against Steve Wynn, who vehemently denies them, forced Maddox to push out colleagues and directors and launch new company policies, including training, to save the gaming licenses.

All executives who were aware of the sexual harassment allegations but failed to act have left.

General Counsel Kim Sinatra, who worked closely with Maddox, left in July after Elaine Wynn told a court Sinatra was aware of the allegations. Wynn Las Vegas President Maurice Wooden departed in January before a Nevada investigation was released claiming he knew of the allegations. Wynn Resorts last week said it could neither confirm nor deny Wooden knew.

Seven directors, including Steve Wynn, who had served on the board, have stepped down in the past year, replaced by a more diverse group without personal ties to company executives.

The extent of the changes seems to have satisfied the Nevada Gaming Control Board. The regulator said last week it will fine the company but would not seek to revoke or limit Wynn Resorts’ gaming licenses.

J.P.Morgan analyst Joseph Greff said he expects Massachusetts regulators to reach a similar deal with Wynn Resorts next month, effectively bringing the tumultuous saga to a close.

That will pave the way for Wynn Resorts to open its $2.6 billion resort outside Boston in June, a project that is expected to help drive revenue growth in the coming years.

Last year “was a year of transition for our company and that transition is now over,” Maddox confidently told Wall Street analysts as he began his fourth-quarter earnings call last week.

Wynn shareholders have now largely put the investigations behind them, said Jefferies analyst David Katz.

“It is not much of a discussion anymore. I don’t think the market is all that concerned about it,” he said.

Shares of Wynn Resorts fell from a high of $203 on Jan. 25, the day before the accusations surfaced to an interday low of $156 in March. They recovered to $202 by May in part as the company quickly distanced itself from Steve Wynn.

However, analysts question whether Maddox, known for his strong financial skills, can continue Steve Wynn’s tradition of building new, visionary casinos.

“There is concern the company is not going to be able to grow in the same way and do the same kinds of things without Steve,” said Katz.

That could chip away at the premium valuation investors give to Wynn Resorts shares compared with Strip competitors MGM Resorts International and Caesars Entertainment Corp.

Quick reaction

Maddox, who owns nearly $62 million of Wynn Resorts stock, did not take long to address the corporate fires upon becoming CEO.

Within weeks, the 43-year old flew to Hawaii to reach a $2.4 billion settlement with Universal to end the six-year lawsuit.

Maddox then reached out to Galaxy Entertainment Group, the Hong Kong-based casino operator, selling them nearly 5 percent of Wynn Resorts for $930 million.

The deal fortified the company’s balance sheet while also attracting an influential partner that could potentially help Wynn Resorts renew its Macau licenses and co-invest with the company in Japan.

Maddox also played a role in revamping the disgraced board, which was seen as too close to Steve Wynn. The six new directors include three women: former White House press secretary Dee Dee Myers, three-time CEO Betsy Atkins and Kestrel Advisors CEO Winifred Webb.

“The new board is much more independent and diverse and not just in gender, but in terms of thinking,” said Chad Beynon, an analyst at Macquarie.

The CEO also settled the company’s public fight with Elaine Wynn, agreeing to her choice for chairman — former Harrah’s Entertainment CEO Phil Satre — in exchange for her taking a passive role in company affairs. Elaine Wynn owns nearly 9 percent of the company.

“I think the company jumped on a lot of things quickly and they should get credit for that,” Katz said.

Elaine Wynn declined to comment.

Vegas spending slashed

Maddox’s influence on the company in his first year goes beyond settling lawsuits, revamping the board and mending the company’s image.

He has also had a major impact on the company’s growth strategy, most notably slashing his predecessor’s $3 billion in planned Las Vegas investments.

The multi-billion-dollar Paradise Park project much touted by Steve Wynn on conference calls has been reduced to a $360 million convention center. Maddox pulled the plugs on the hotel tower and lagoon featuring nightly shows. It will be replaced with a new golf course.

Wynn West, another billion-dollar resort project planned on the Alon site across the street, has been shelved for the time being. Maddox told Wall Street analysts last week that developing another casino with retail, slots and rooms “is not going to cut it.”

Gaming analysts have largely welcomed Maddox’s scaled-back Las Vegas investment plans.

Resorts World and The Drew will open near Wynn Resorts’ Strip properties in the coming years, adding 7,500 rooms to the market. Steve Wynn’s projects would have added at least 3,000 more, raising concerns about oversupply.

With Strip visitation having fallen the last two years and concerns growing about a slowdown — or even recession — in coming years, it makes little economic sense to pour billions into the ground now, analysts said.

Pausing development “was not only wise, but it was necessary. Why do you really want to challenge yourself at the end of an economic cycle with opening thousands of rooms?’’ said Curtis.

Maddox has focused future investment on Macau, the Chinese gaming enclave, where the gaming and visitation growth outlook over the next several years is greater than in Las Vegas. The company is expanding Wynn Palace with plans to add 1,300 rooms and is renovating Wynn Macau.

Wynn Resorts is now preparing to compete for a license in Japan, which could become a $26 billion market by 2026, according to Morningstar Research.

The research firm said in a report last year Las Vegas Sands and MGM Resorts have better chances in Japan.

Maddox told Wall Street analysts the company is well positioned to win in Japan, boasting last week to analysts the company will have the “most innovative and creative project.”

Roger Thomas and DeRuyter Butler, the designer and architect that helped Steve Wynn create his iconic casinos, are developing that project.

Nonetheless, the departure of Steve Wynn — highly regarded for his creativity — could impact how the project is perceived by potential partners and decision makers, analysts said.

“You might question if you are losing some creativity on the development side,” Curtis said.

Contact Todd Prince at 702-383-0386 or tprince@reviewjournal.com. Follow @toddprincetv on Twitter.

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