- Wynn Resorts has announced the termination of the pending merger agreement with Austerlitz Acquisition Corporation I.
- The proposed combination would have resulted in the spinoff of Wynn Interactive as a separate publicly traded company.
- Austerlitz Acquisition Corporation I was founded by William P. Foley II, best known as the owner of the NHL Vegas Golden Knights.
There have been several unexpected announcements coming out of Wynn Resorts over the past few days. The one that got the most traction in the gaming industry media is the pending departure of CEO Matt Maddox effective January 31, 2022. Maddox had served as CEO since Steve Wynn resigned in 2018 and his announcement was a shock within the gaming and financial industries. The impact of departure has been tempered by the naming of his replacement–Craig Billings, CEO of Wynn Interactive as well as president and CFO of Wynn Resorts will take over as CEO on February 1, 2022. Maddox will also remain on the Wynn Macau and Wynn Interactive boards through 2022 in order to lend his expertise to the gaming concession renewal process in Macau next year.
Another surprise announcement dropped several days later. Wynn Resorts has opted against a SPAC merger deal with Austerlitz Acquisition Corporation I. Although the press release announcing the move indicated that the decision to terminate the agreement was by ‘mutual agreement’ it was definitely Wynn’s decision. What this means is that the previously announced plan to spinoff Wynn Interactive–a plan that would have created a company valued in around $3.2 billion USD–won’t happen.
The press release was short and to the point–or at least as short as it could be with all of the necessary legal terms included:
Wynn Resorts, Limited (NASDAQ: WYNN) (“Wynn Resorts”) and Austerlitz Acquisition Corporation I (NYSE: AUS.U) (“Austerlitz I”) today announced that the companies have mutually agreed to terminate their previously announced agreement and plan of merger, which contemplated the combination of Austerlitz I and Wynn Interactive Ltd. (“Wynn Interactive”), a subsidiary of Wynn Resorts. The termination is effective immediately.
Craig Billings, CEO of Wynn Interactive–and CEO elect of Wynn Resorts–gave this comment though provided no specific rationale as to the decision to nix the spinoff:
“With our continued roll out of product features and planned new state launches, including New York, we remain excited about WynnBET’s future. As we discussed on the Wynn Resorts, Limited third quarter earnings conference call earlier this week, in light of elevated marketing and promotional spend in the sports betting industry, we are pivoting our user acquisition efforts to a more targeted ROI-focused strategy. In so doing, we expect the capital intensity of the business to decline meaningfully beginning in the first quarter of 2022. WynnBET’s best days lie ahead of us.”
Taking his comment at face value, it suggests that excessive bonuses to lure customer acquisition–what Deutsche Bank analyst Carlo Santarelli called ‘irrational customer acquisition behavior’–could be the motivator. There’s definitely truth to Santarelli’s characterization–‘deja vu all over again’ from the early days of the offshore betting industry–but I’m not sure that alone justifies putting the kibosh on the Wynn Interactive spinoff. Billings’ explanation sounds a bit ‘retrofitted’–like the decision was made for some other reason and now they’re claiming significantly reduced capital needs due to a change in customer acquisition strategy.
It’s also difficult for me to buy ‘irrational customer acquisition behavior’ as a concern when in the same press release quote Billings cites WynnBET’s future entry into the New York market. What Billings didn’t bother to mention is the insane 51% tax rate on gross gaming revenues. Here’s how one ‘source involved in the bid’ characterized this mess quoted in the essential Gaming Intelligence email newsletter:
“The New York Gaming Commission, with the Governor pushing them on, was smart in some ways. It has got nine operators, so plenty of choice for the consumer, and is getting a 51 per cent tax rate. But it is bad for the industry. It sets a dangerous precedent.”
There’s a lot more to this story that we’ll get into going forward. Wynn might not want to play the bonus competition game but market share will be essential if they’re planning on not losing their shirts in New York. Actually, it probably won’t matter how much market share they get–when you’re giving away more than half of your revenue it’s not something you can make up for with volume–but low conversions in New York would look horrible to financial industry types. I agree with the assessment of the ‘source’ but I also expect New York mobile sports betting revenues to pale so badly in comparison to New Jersey’s numbers that (hopefully) no one will be dumb enough to replicate the scheme. The more far reaching narrative–if the sports betting industry doesn’t concern itself more with shaping the US regulatory environment it will be disastrous for everyone concerned.
There’s plenty of other possible explanations, not the least of which is the volatile market for SPAC deals. The SPAC market had been cooling off significantly over the past few months though that appears to have changed of late. CNBC noted that October saw the highest level of SPAC issuance since March. Some analysts think that the unexpected departure of CEO Maddox and the naming of Billings as his successor could play a big part in the decision–if the plan was for Billings to continue to run Wynn Interactive post spinoff that might not have been tenable with the added responsibility of being Wynn Resorts CEO on his plate. It could be that Wynn Resorts wanted to keep interactive as a hedge against possibly losing their Macau gaming concession–though most observers think that is unlikely to happen.
Ultimately, it could just be an example of ‘discretion being the better part of valor’. For whatever reason, they didn’t think the move was right given the current industry environment. There could be more of a back story or maybe not. They can always revisit the spinoff plan in the future if they have a change of heart.
