MGM Makes a Grand Statement with National Harbor


The most important casino opening of 2016 took place in National Harbor, Maryland late on the evening of December 8th.  The $1.4 billion MGM National Harbor threw open its doors and within 45 minutes was filled to capacity.  MGM played to capacity crowds all through its first weekend.  We will have to wait until sometime in early January before the first revenue numbers are released, but I suspect they will be impressive.  MGM National Harbor is important to its parent corporation and to the entire casino industry for a number of reasons.  It is situated in an ideal location and should be one of the most profitable casinos in the country.  MGM National Harbor signals the parent corporation’s intent to dominate the Eastern gaming market with resorts in major population centers.  And it marks an important strategic change for MGM from primarily a casino company to, first and foremost, a resort company.

According to an interview with James J. Murren, CEO of MGM, the opportunity for building a resort at National Harbor was an accident.  The site had been scheduled for a Disney park, but Disney changed its mind.  A developer suggested to Murren the location was worth a visit and took him to see the 23-acre hilltop site along the banks of the Potomac River. Murren was very impressed with the view and the potential, although it took another five years to realize.  The site certainly has potential.  The metro Washington D. C. area has six million people ranking sixth in the nation after New York, Los Angeles, Chicago, Dallas, and Houston.  It has more people than Philadelphia, Atlanta and Miami.  And within an hour’s drive there are another 3 million people.  Washington gets 19 million tourists a year that spend $7.1 billion.  Next to those five cities with more people, it is the best available location in the United States.

The nearest competitors are Maryland Live and Baltimore Horseshoe, less than an hour away.  Those two casinos have been generating approximately $75 million a month in gaming revenue, a number that will probably decline with the presence of the MGM.  And while the three may scrap over some customers, MGM did not build the resort at National Harbor to fight over the Baltimore market.  There is a grander plan; Murren says he will use MGM National Harbor as an example of what the company can do when he pitches an MGM resort for Atlanta in 2017.  And one has to suppose in time the other cities on the top ten population list will also entertain an MGM plan.  Except for Philadelphia, none of the other cities on the list has a casino.  Although Chicago has one nearby, New York has a racino and Los Angeles has Indian casinos in the region, none have a full-fledged resort of grand proportions.  Some of those cities on the list may never get around to considering a casino, but for those that do, MGM is a strong candidate with a great deal to offer as MGM National Harbor bears witness.  But of course the company has more than one casino resort; there are MGM resorts in Las Vegas, Atlantic City, Detroit, Mississippi, Maryland and soon Massachusetts.  With Caesars on the ropes, MGM is the biggest, most successful and capable gaming company in the country.

There is yet another part of the MGM strategy that National Harbor heralds.  MGM is positioning itself to be something even grander; it wants to be one of the premier resort companies in the world.  Besides  those cities in the United States without casinos, there are only a few places with large populations in the world which also might legalize gaming in the future.  Japan has the most potential; Korea, Vietnam and the Philippines still have some additional possibilities.  Russia is permitting casinos in some locations, Barcelona has a casino on the drawing board and there may be one or two other cities in Spain.  Greece has authorized one casino, India might legalize casino gambling and some African countries are still possibilities.  But for the most part opportunities are drying up internationally just as they are in this country.  Growth is going to be hard to come by in the next decade or so.  What is a company do?  Go resort is the MGM answer.

MGM renamed itself MGM Resorts International in 2010 and it did it with a purpose in mind.  The strategy is to move beyond operating casinos into resorts.  Of course MGM will be willing to build a casino into any resort where it is legal, but it is no longer the primary consideration.  MGM is not likely to be alone in considering a rebranding from casino-resort company to resort company.  Gaming companies of all sizes are going to run up against the same wall.  We are quickly getting to a point where growth by expanding into new jurisdictions is no longer possible.  At that point, there are just two options, mergers or acquisitions and expanding outside of gaming. MGM is pointing the way to transitioning into resorts.  It is also leading the way into the most populous metro areas in the country, but few will have the resources to follow.

Let’s give Jim Murren, MGM Chairman and CEO, the last word on the resorts.  He does not equivocate when proclaiming MGM’s real identity:  “Calling a company like MGM a gaming company is like calling today’s Verizon a telephone company or Google a search engine. It’s like believing Disney’s growth is still driven primarily by Mickey Mouse.”  

 

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