Posted on Fri, Apr. 9, 2010
Wynn Resorts shocks city by terminating casino project
By Jennifer Lin
Inquirer Staff Writer
A news release from Wynn Resorts Ltd. in Las Vegas on Thursday afternoon sent seismic waves through Philadelphia: Gambling magnate Steve Wynn had changed his mind and did not want to build a casino on the Delaware River waterfront after all.
A lawyer for the original investors in the Foxwoods Casino project said he was "amazed."
Mayor Nutter, who had just met Wynn on Monday to review drawings of the proposed gaming hall, was "stunned."
And Gov. Rendell was uncharacteristically silent, issuing an official "No comment."
In a two-paragraph statement, Wynn Resorts said it had "terminated all agreements and negotiations."
"We are fascinated by the legalization of full gaming in Pennsylvania and stimulated by the opportunity that it presents for Wynn Resorts. But this particular project did not, in the end, present an opportunity that was appropriate for our company."
"I'm in a state of shock," said Stephen A. Cozen, a lawyer for the Foxwoods investor group.
Cozen said he heard the news at the same time as the public. "We're trying to find out what the reasons are for this and determine what, if anything, can be done about it," he said. "That's the only comment I can make."
Nutter offered only a hint of an explanation. He said Wynn Resorts general counsel Kim Sinatra reassured him "very directly and clearly that their decision had nothing to do with the city . . . and had to do with the actual transaction."
It was on Monday that Wynn had visited Nutter at City Hall to personally explain his vision for a riverfront casino in South Philadelphia on Columbus Boulevard between Tasker and Reed Streets.
"I've never seen anything like this before," said Nutter, speaking Thursday evening to reporters at 30th Street Station after returning from a trip to Washington.
The mayor said he had "a great meeting" with Wynn that lasted 75 minutes.
"I've never seen someone more enthusiastic about a project," Nutter said. "There was not one doubt in my mind after our meeting" that the casino project was moving forward.
The same day as his City Hall meeting, Wynn submitted detailed drawings of his project to the Pennsylvania Gaming Control Board in Harrisburg - three weeks before the state deadline.
A week earlier, he had turned over details of how he would pay for the project and how control would shift from the original group - called Philadelphia Entertainment & Development Partners (PEDP) - to Wynn Resorts.
Regulators, too, were caught off guard. "We certainly were made aware of [the termination of talks] taking place, but we don't have any details," said Richard McGarvey, a spokesman for the gaming board.
Industry observers said the announcement might be a negotiating ploy to get a better deal from the Foxwoods investor group. Or, they said, it could be a signal that Wynn had decided the project was too hard or too expensive to finish.
An analyst who did not want to be named speculated that a sticking point might have been the amount of debt Wynn was willing to assume. The investor group has more than $127 million in existing debt, more than half of which is the price of the land.
On Monday, Wynn had said the overall value of the project - taking on the debt and building the casino - would range from "$500 million to $600 million."
Analysts cited another possibility for his change of heart: Wynn may be interested in taking over the partially built Revel Casino, which needs a cash infusion of $1 billion. Wynn had traveled to Atlantic City on Tuesday. He had been one of the first casino operators in Atlantic City, but his company currently has no property there.
In an interview with The Inquirer on Monday, Wynn was eager to get moving on the Philadelphia property, which he said would be "Wynn top to bottom."
He said he had signed a "final term sheet" with the original investors, but indicated that time was an issue.
"We have to be on the ground by September to do it," Wynn said after meeting with Nutter. "The gaming board needs to do its investigation, the city has to do planning, and I have to go before community groups."
On March 3, when Wynn testified for the first time before the gaming board, he said the deal was conditioned on Wynn Resorts' getting an extension from state regulators to finish the project by the end of 2012, approval for a license, and all necessary city permits.
State Rep. Michael O'Brien, a Democrat who opposes using waterfront property for big-box casinos, said Wynn, after doing due diligence on the project, may have realized that there wasn't enough time to finish the project.
He said Foxwoods needed at least a dozen city, state, and federal permits, and, if there are riparian lands, state legislation to allow construction.
Wynn's decision, he said, was "proof conclusive of what we've been saying over the last four years - that this is simply not a developable site."
For that, "we all owe Mr. Wynn a great debt," said O'Brien, whose district includes communities directly across from the proposed site. His constituents have feared congestion along the commercial corridor of Columbus Boulevard.
Since last fall, the lead local investors in the Foxwoods project - Center City developer Ron Rubin, Comcast/Spectacor chairman Ed Snider, and New Jersey entrepreneur Lewis Katz - have been courting Wynn.
They needed to find a replacement for the Mashantucket Pequot tribe of Connecticut, which is facing financial problems of its own due to the recession.
Under the deal that went away, Wynn Resorts would have taken over 51 percent of the original PEDP partnership. According to sources, Wynn wanted to eventually buy out the others.
Wynn told The Inquirer earlier that he was offering to give PEDP investors shares of Wynn Resorts in exchange for their stakes in the project.
"They have a choice," he said. With his offer, "they can own stock and receive dividends, as well as have liquidity, which gives them something they don't have at the present time."
The Wynn deal is just the latest setback for the star-crossed project. From the get-go, the development faced intense community and political opposition.
In September 2008, the Foxwoods investors agreed to move the project to Center City, only to be ordered back to the waterfront by the state gaming board last August.
Wynn's pullout may doom the project.
"It's over," said City Councilman Frank DiCicco.
He said the state would either have to put up the license for bidding again, "or maybe they just do one [casino] for now."
EDITORIAL FOOTNOTE; Is Wynn a smart business man? Is the deal in Philadelphia a bad deal? How much is the casino going to pay off the top to the State of Pennsylvania and the City of Philadelphia? Will it be over 55% plus? Is paying out between $600 Million plus too much to build a casino? Is this a negotiating tool?
How much did the Mohegan Sun at Pocono Downs cost? Was it an estimated $600 Million plus? Has Pocono Downs ever made a profit? Is Pocono Downs a money pit? A dark hole? When or if will the casino make money? Could it be that the only one making money at Pocono Downs, is the State of Pennsylvania and the local communities in the form of taxes? Should the MTGA find a way to get out of Pocono Downs?
Is Wynn right not doing the deal in Pennsylvania? Could the Mohegan Tribe learn from observing Wynn? What about the Mashantucket Pequots? What do you think?