Is Massachusetts a Risky Bet for Casino Operators?
One is to be built by Wynn Resorts (WYNN) in the Boston suburb of Everett, and the other by MGM Resorts International (MGM) in the smaller city of Springfield. Both operators are coming to a region that's already thick with competition.
Big Crowd at the Table
Massachusetts is late to the Northeast casino game. Neighboring Connecticut has been drawing bettors for over 20 years with a pair of Native American-run gambling palaces, Pennsylvania has a host of casinos and New Jersey's Atlantic City is still trudging along.
A crowded market means that not every player can win. At the moment, both Connecticut casino projects (Foxwoods and Mohegan Sun) are struggling with heavy debt loads, while Atlantic City is in a dire state, with several casinos shutting their doors lately.
On top of all that, New York is set to award up to four casino licenses for projects in its upstate region.
Full House or Fold?
With all that in mind, at first blush it seems Wynn and MGM aren't placing smart bets on success. Their two Massachusetts projects are big, costly and not far away from rivals.
Wynn Everett is planned to be a $1.6 billion complex boasting around 500 luxury rooms, while MGM plans to slap down about half that amount for a 250-room hotel encompassing 125,000 square feet of gaming space in Springfield's city center.
But comparing those projects with the top Las Vegas assets of both companies reveals that the newcomers will be relatively small. The Wynn Las Vegas is an unmissable presence on that city's Strip, with over 2,700 rooms. The MGM Grand Las Vegas is the second-largest largest hotel in the world -- the hulking structure houses around 5,000 lodgings (which even include villas) across various budget categories. There's gambling aplenty, to the tune of 171,500 square feet of space.
And both companies also have a significant presence in the Chinese gambling enclave of Macau, with properties that have lower room counts, but significantly more square footage for gambling.
So it's not as if Wynn and MGM are staking their futures on the Massachusetts projects. Rather, these seem to be the focus of other ambitions.
Just after winning its concession, Wynn's namesake CEO Steve Wynn said he's set to build "the first grand hotel in decades." That statement, plus the facility's planned high room count and relatively limited casino space (less than 10 percent of the complex, according to the company) indicate a focus on the luxury resort aspects of the project instead of the gambling. Traditionally, the latter has been the money attraction of casino hotels.
MGM Springfield is more traditional, effectively a scaled-down version of a monster Vegas resort -- the company's usual stock in trade. In contrast to Wynn, which at the moment operates properties only in Las Vegas and Macau, MGM is active in several casino markets in this country (and a few abroad). Its only current operation in the Northeast, however, is The Borgata in Atlantic City, where it's a 50 percent stake joint venture partner with Boyd Gaming (BYD).
The company hasn't revealed its deeper motivations for pushing the Springfield investment, but judging by its history it's eager to spread its geographic reach, and shore up its operations in the Northeast. Springfield won't be massive, but it will give MGM a solid and conspicuous, (i.e., free PR-producing) presence in the area.
There'll Be Time Enough for Counting When the Dealing's Done
Of the two projects, Wynn Everett looks more likely to produce a higher return for its parent company. Its location is a short drive away from Boston, a big city full of potential customers. The casino will draw gamblers from there, while the resort aspects of the complex should attract big spenders looking to enjoy a luxury holiday.
MGM Springfield is in a much smaller city, and it will go up against not-very-far-away Mohegan Sun and Foxwoods. And depending on where the New York projects land, it'll probably have to fight for business with at least one.
Regardless of their level of success, though, the two projects are sure to alter the gambling landscape of the Northeast. The cards are being shuffled, the players are planting themselves at the tables. It'll be interesting to watch who wins the game -- and how.
Motley Fool contributor Eric Volkman has no position in any stocks mentioned, nor is he particularly good at betting in casinos. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. Check out our free report on one great stock to buy for 2015 and beyond.