Is MGM Becoming Grand Again?

MGM International Resorts has a storied history; founded by Kirk Kerkorian and called MGM Grand; it was the largest hotel casino in Las Vegas and it was indeed grand. However, with the mergers and acquisitions like that of Mirage Resorts, it morphed into another kind of company. MGM now owns the Bellagio, MGM Grand, Mandalay Bay and Mirage brands and operates casinos in Michigan, Mississippi, New Jersey, Nevada and Macau. MGM Resorts also owns 76 percent of MGM Growth Properties (MGP). MGP is a REIT that raised $1.05 billion in an IPO this spring and currently controls nine casinos.  Historically, MGM’s expansion outside of Las Vegas has been slow and selective, but the pace is picking up.

MGM Resorts decided it did want to be in Atlantic City in May after years of waffling.  In 2010, MGM was ready to give up its New Jersey license.  The company then called MGM Mirage told the Casino Control Commission a license in Macau was more valuable. It refused to throw away its partnership with Pansy Ho and its chances for a casino in Macau for a license to co-operate the Borgata.  Good thinking, today MGM gets 26 percent of its revenue from Macau; and is in the process of building another property in Pansy’s home town.  But back to Atlantic City, there were no buyers MGM’s 50 percent share of the Borgata and it was forced to become a holding company until New Jersey was willing to grant a casino license. In the world of plunging revenues, New Jersey regulators are no longer so difficult and now they think MGM is just right for Atlantic City.  MGM Resorts paid $900 million to buy Borgata from Boyd and immediately sold it to its REIT. With the purchase of Borgata the company has a 26 percent market share. That market share is likely to grow with the collapse of the Taj Mahal.  But control of Atlantic City is just the first step in becoming the dominant casino operator in the region.

In December, MGM National Harbor is scheduled to open just outside of Washington, D. C. in Maryland.  MGM CEO Jim Murren is really enthusiastic about the casino and its location; he is predicting MGM National Harbor will be the most profitable casino in the country.  MGM Springfield is expected to start operating in 2018.  At that point MGM will control three major markets on the east coast, in addition to Detroit where MGM Detroit is the most profitable casino in that market with a 42 percent market share.  But a word of caution, there are some challenges in all of this; MGM Springfield will only have about a year before a Wynn Resort opens very close to Boston; Wynn is certain to take some of MGM’s market share; and then across the border in Connecticut the Mohegan and Pequot tribes are planning a casino to further attack MGM’s market.

Detroit is struggling under the burden of competitive pressure from surrounding states, and as everyone knows Macau is not healthy.  MGM has postponed its Cotai property once again to sometime in mid-to-late 2017.  Having said that, the REIT appears to be working and MGM is certainly positioned to be extremely competitive in all of its markets, including of course its home base, the Las Vegas Strip.  In Las Vegas, the company continues to invest and improve its position and that begs the question, can we call MGM Grand again, even without a name change?  Kirk Kerkorian died a year ago, but I am certain he would have called this new and growing MGM just grand.



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August 2016
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