Do you see MGM Resorts surviving in it's present form

These Fotune 500 numbers look pretty bad for MGM Resorts. It looks as if Sands may pass them as early as this year in revenue with their Singapore resort.

Fortune 1000	Corporation	Revenue	Profit
#264	Harrah's Entertainment	$8,907.4	$827.6
#360	MGM Resorts	$5,978.6	-$1,291.7
#456	Las Vegas Sands	$4,563.1	-$354.5
#634	Wynn Resorts	$3,045.6	$20.7
#962	Boyd Gaming	$1,641.0	$4.2

What will happen to MGM?

Penn National Gaming is now over $2.5 billion in revenue. Combined Sands and Wynn are closing in on Harrah's Entertainment Corporation.

I think MGM will have to divest more than one property to survive. It appears that Circus Circus, Luxor, and Mandalay would be my likely candidates, just because they are on opposite ends of the strip and MGM seems to be focusing on their "core" of the strip between Bellagio and MGM Grand.

It will be interesting to see what happens with Penn - they seem to be sending mixed signals of whether they are interested or not.

-B

It seems like it would be difficult to sell Mandalay Bay, Luxor, Excalibur seperately since they are so tightly connected between the shopping mall/hallways and the free tram. MB is doing very poorly, Luxor is doing bad, and Excalibur is doing excellently (as a percentage, not in dollars). But

The transaction for all the properties on April 26, 2005 was for $7.9 billion.

Mandalay Bay, Las Vegas, Nevada
Luxor, Las Vegas, Nevada
Excalibur, Las Vegas, Nevada

Monte Carlo, Las Vegas, Nevada (Joint ownership)
Slots-A-Fun Casino, Las Vegas, Nevada [subsequently taken under Circus Circus license]
Circus Circus, Las Vegas, Nevada
Circus Circus Reno, Reno, Nevada
Silver Legacy Resort Casino, Reno, Nevada (Joint ownership)
Colorado Belle Hotel & Casino, Laughlin, Nevada [sold to Anthony Marnell III prior to his opening M Resort]
Edgewater, Laughlin, Nevada [sold to Anthony Marnell III prior to his opening M Resort]
Gold Strike Hotel and Gambling Hall, Jean, Nevada
Nevada Landing Hotel and Casino, Jean, Nevada [subsequently demolished]
Gold Strike Resort and Casino, Tunica, Mississippi
Railroad Pass Hotel and Casino, Henderson, Nevada
Grand Victoria, Elgin, Illinois (Joint ownership)
MotorCity Casino, Detroit, Michigan

It would be hard to predict how much money MGM Resorts would take to part with the big three properties in 2010. I don't know if Penn National could pay for them. But as you say, they may want to concentrate on their core properties. With Mandalay Bay losing money it might be difficult to fight the war on so many fronts.

Most speculation is that MGM will sell the Mirage since it is detached and worth over a billion. But the Mirage makes a good profit. Jim McMurren repeatedly denies that the Mirage is for sale (which of course means nothing).

Penn National is not really sending mixed signals. They want a good property for a fraction of what it cost to build. They don't seem to want an old casino. They are just waiting until someone gets desperate enough.

In the first quarter of 2010 Luxor and Mandalay Bay are producing almost a tiny percentage of the companies operating income, so they may want to give up on these troubled properties. The standard argument is that MB is taking a beating because of the loss of convention business.

Casino	2010	2009	Change
Mandalay Bay	$1,867	$18,646	-90%
Luxor	$1,437	$8,477	-83%
Excalibur	$8,238	$10,748	-23%
New York-NY	$11,013	$13,318	-17%
Monte Carlo	$456	$23,302	-98%
Bellagio	$37,564	$39,138	-4%
MGM Grand Las Vegas	$18,383	$20,159	-9%
The Mirage	$9,819	$13,054	-25%
Circus Circus	-$3,646	$411
TOTAL	$85,131	$147,253	-42%

Quote: pacomartin

It seems like it would be difficult to sell Mandalay Bay, Luxor, Excalibur seperately since they are so tightly connected between the shopping mall/hallways and the free tram. MB is doing very poorly, Luxor is doing bad, and Excalibur is doing excellently (as a percentage, not in dollars). But

The transaction for all the properties on April 26, 2005 was for $7.9 billion.


MotorCity Casino, Detroit, Michigan

I think you might mean MGM Grand Detroit... MotorCity is owned by the people who own Little Caesars I think.

Quote: Tiltpoul

Quote: pacomartin

It seems like it would be difficult to sell Mandalay Bay, Luxor, Excalibur seperately since they are so tightly connected between the shopping mall/hallways and the free tram. MB is doing very poorly, Luxor is doing bad, and Excalibur is doing excellently (as a percentage, not in dollars). But

The transaction for all the properties on April 26, 2005 was for $7.9 billion.


MotorCity Casino, Detroit, Michigan

I think you might mean MGM Grand Detroit... MotorCity is owned by the people who own Little Caesars I think.

At the time of the 2005 sale, Mandalay Resorts Group was the owner of MotorCity. When MGM bought Mandalay, MGM had to divest its interest in MC because it already owned MGM Grand. That's when they sold it to Mrs. Illitch / Little Caesars.

Repost: also under business at Sands Business
The 2nd quarter Sands Report is in, and even though Singapore has been open only 65 days in the quarter the results as expected are pretty spectacular. MGM has not released their quarterly report so comparison is done with last quarter:
$1,457,392 total revenue for 1st quarter 2010 MGM Resorts
$1,594,476 total revenue for 2nd quarter 2010 Sands Corporation

By next quarter when Sands has the Singapore operation completely open (with all rooms open and the casino running for a full 90 days) it should blow past MGM-Resorts. Singapore only had 55% occupancy on the rooms.

The casino in Singapore made $190.8 million in 65 days, compared to Venetian/Palazzo making $102.9 million in Vegas.


Total casino revenue for the company was $1,294,301,000 for the 2nd quarter, slightly more than double the $610,757,000 for MGM Resorts for the 1st quarter.

Macau operation made $225,229 operating income compared to $2,923 in Vegas and $3,679 in Bethlehem PA. I am surprsied to see that Bethlehem with no hotel and only slot machines having a higher income than Vegas. Singapore made $52,043 in operating income for the quarter (still burdened by startup costs).

The Las Vegas Operations are barely turning a positive operating income of $2.9 million this quarter, which of course beats the massive $(137.5) million loss for the same quarter last year.

The company is currently constructing a 6,400-room complex at the COTAI STRIP in Macau, which will feature the Shangri-La, Traders, Sheraton, and St. Regis hotel brands. It could conceivably pass Harrah's Entertainment revenue in a few years.

Quote: toastcmu

I think MGM will have to divest more than one property to survive.

It has already started. They just reached agreement, under state pressure, to sell the land under the Borgata to the old Two Guys for %73 million. They have two more properties in Atlantic City, but do not face a state deadline on them.

The 2nd quarter MGM Report is in
$1,537,695 total revenue for 2nd quarter 2010 MGM Resorts
$1,594,476 total revenue for 2nd quarter 2010 Sands Corporation

So Sands has officially replaced MGM Resorts as the second largest casino corporation in the world (by 3.7%).

CEO Jim Murren concedes that Sands corporation will widen their lead as the Singapore casino continues to heat up and the new SANDS casino project in COTAI Strip resumes construction after a 21 month hiatus.

Monte Carlo and MGM Grand had slight upticks in revenue compared to last year, while every other casino on the strip dropped. Total for the 9 casinos was down 3.7%.

Drastic cuts in operating expenses has put Circus Circus back into the black.

City Center (of course) is bleeding money on every level of their operation (casino, retail, boutique hotels, residential condominium sales).

I expect MGM to merge with Harrah's Entertainment Corporation, and to rename the merged company Ceasars or MGM-Ceasars. I think the Nevada Gaming Comission will make a lot of noise about having a single company with so much clout on the strip, but they will eventually fold. Perhaps the requirement will be that no single company can hold more than 50% of Nevada statewide, forcing the megacorporation to spin off some minor assets around Nevada. I just don't see MGM RESORTS surviving this kind of bloodbath.

Quote: pacomartin

City Center (of course) is bleeding money on every level of their operation (casino, retail, boutique hotels, residential condominium sales).

I expect MGM to merge with Harrah's Entertainment Corporation, and to rename the merged company Ceasars or MGM-Ceasars. I think the Nevada Gaming Comission will make a lot of noise about having a single company with so much clout on the strip, but they will eventually fold. Perhaps the requirement will be that no single company can hold more than 50% of Nevada statewide, forcing the megacorporation to spin off some minor assets around Nevada. I just don't see MGM RESORTS surviving this kind of bloodbath.

It amazes me to think that only 3 years ago City Center seemed to be THE end-all-be-all for the strip. I remember thinking that everybody was shaking at the knees to try to figure out the next best thing. Now, CC has become MGM's Waterloo... unbelievable what a few years will do.

Quote: pacomartin

I expect MGM to merge with Harrah's Entertainment Corporation, and to rename the merged company Ceasars or MGM-Ceasars. I think the Nevada Gaming Comission will make a lot of noise about having a single company with so much clout on the strip, but they will eventually fold. Perhaps the requirement will be that no single company can hold more than 50% of Nevada statewide, forcing the megacorporation to spin off some minor assets around Nevada. I just don't see MGM RESORTS surviving this kind of bloodbath.

If MGM and Harrah's merge - wouldn't that make the combined debt of both companies close to 36 Billion Dollars? With both companies struggling to pay down debt, that would be a lot more debt 'exchange' to survive the economy, wouldn't it?

I guess you could say it is playing out much like the airline industry - ever since deregulation, the biggest companies have been gobbling up each other and getting bigger in the process (United-Continental as an example).

I'm just wondering if more people like Ruffin and Gaughan would pick up an 'extra' casino in the interim as well.

-B

Quote: toastcmu

If MGM and Harrah's merge - wouldn't that make the combined debt of both companies close to 36 Billion Dollars? With both companies struggling to pay down debt, that would be a lot more debt 'exchange' to survive the economy, wouldn't it?

I guess you could say it is playing out much like the airline industry - ever since deregulation, the biggest companies have been gobbling up each other and getting bigger in the process (United-Continental as an example).

I'm just wondering if more people like Ruffin and Gaughan would pick up an 'extra' casino in the interim as well.

-B

I can't see MGM and Harrah's merging. They are both deep in debt, and two big holes only make a huge one.

Quote: toastcmu

If MGM and Harrah's merge - wouldn't that make the combined debt of both companies close to 36 Billion Dollars? With both companies struggling to pay down debt, that would be a lot more debt 'exchange' to survive the economy, wouldn't it?

I guess you could say it is playing out much like the airline industry - ever since deregulation, the biggest companies have been gobbling up each other and getting bigger in the process (United-Continental as an example).

I'm just wondering if more people like Ruffin and Gaughan would pick up an 'extra' casino in the interim as well.

-B

Phil Ruffin is a 74 year old man married to a 26 year old supermodel (Aleksandra Nikolaenko). I believe that ownership of a casino is a lifestyle choice that is more glamarous than trucks, convenience stores, and steel fabrication (his other businesses). I doubt that he will ever buy another casino in his life.

Michael Gaughan (age 67) has stated flat out that South Point is his swan song. He sees the development of this property as the culmination of his career.

Carl Icahn has made a career out of looking for wounded companies (or casino properties). But he tends to favor companies that have assets worth more than their debt (not MGM ). I think he would have enough trying to deal with Fountainbleau.

Sam Nazarian's dream of a desert hotspot to steal from The Palms casino seems to have died in a mountain of debt when he purchased The Sahara. Instead of improving the place he shut down one tower, the buffet, and the Mexican restaurant. It is a haven for NASCAR afficiandos and low limit blackjack players.

Hard Rock Casino has gone from a reliable predictable money maker to a money sink. They are not going to be purchasing more casinos.

While there may be several people or companies that could purchase some of MGM properties and make a profit (Penn Gaming for instance), they all want to purchase them at bargain prices. That won't help MGM Resorts at all. If they sold all their properties they couldn't cover their debt.

Mergers tend to reduce the back office expenses (sometimes called general and administrative or GT&A) by merging loyalty programs, accounting, etc.

The strip casinos have laid off thousands of employees. Total employment (strip casinos only) was 114,465 in FY2008 and is reduced to 98,711 in FY2009. G&A employement went down by 2500 people bringing G&A payroll down by $52 million (a small dent in the loss of over a $ billion in revenue).

It's the way that downtown casinos keep operating when gaming revenue peaked in 1992. They simply reduce payroll and other expenses every year. When times are good they make money on the room rates and sundries. They reduce the free food and beverage expenditures.

Plus a single corporate entity controlling 3/4 of the strip will be able to push through monorail extensions to the airport or some kind of mass transit to LA (or Victorville).

BTW I am not implying that this merger will be better for the player (or the tourist). I just think it is how the corporations will have to handle this new era of global and domestic wide competition and reduced revenue.

I don't see a MGM/Harrah's merger as likely at all. These companies are already behemoths and have acheived about as much economies of scale as they are going to. Why either company would want a larger share of the LV strip is beyond me. I see it much more likely they will begin selling off properties both in and out of LV to raise cash and pay down debt, as they attempt to ride out the economy. I have no clue what MGM has that could actually be marketable. No one in their right mind would buy LV strip property right now unless it was an absoulute fire-sale. City Center is obvioulsy a disaster - I still can't believe the concept ever made it past the drawing room.

Its been known for the last decade that gaming growth was in Asia (mainly Macau), but MGM decided to double down in LV.

Quote: ruascott

I don't see a MGM/Harrah's merger as likely at all. These companies are already behemoths and have acheived about as much economies of scale as they are going to. Why either company would want a larger share of the LV strip is beyond me. I see it much more likely they will begin selling off properties both in and out of LV to raise cash and pay down debt, as they attempt to ride out the economy. I have no clue what MGM has that could actually be marketable. No one in their right mind would buy LV strip property right now unless it was an absoulute fire-sale. City Center is obvioulsy a disaster - I still can't believe the concept ever made it past the drawing room.

Its been known for the last decade that gaming growth was in Asia (mainly Macau), but MGM decided to double down in LV.

In press releases, the CEO of MGM has stated that they basically regretted selling Treasure Island, but the large amount of cash was absolutely critical at the time. They do not want to sell the MIRAGE casino (which seems like the most likely property since it is physically detached). Harrah's attempts to sell the Rio obviously did not produce a tempting offer.

MGM briefly tried to sell their Detroit casinos, but backed away from that as well. If we consider the Monte/Carlo-City Center-Bellagio-MGM Grand to be the core of the company it is clear that this portion is not currently financially viable. Selling some or all of the non-core properties will never reduce debt enough to make a serious difference.

In their corporate history (since year 2000) they have actually sold very few properties. I can think of only four. The Golden Nugget downtown and the Primm properties and the two Laughlin properties (Colorado Belle & Edgewater Hotel and Casino).

They still have half a dozen oddball properties which they haven't sold.
Circus Circus Reno, Reno, Nevada
Silver Legacy Resort Casino, Reno, Nevada (50% owner in partnership with Eldorado Hotel Casino)
Railroad Pass, Henderson, Nevada
Gold Strike Resort and Casino, Tunica Resorts, Mississippi
Grand Victoria, Elgin, Illinois (50% owned and operated by RBG, LLP, a subsidiary of Hyatt)
Gold Strike Hotel and Gambling Hall, Jean, Nevada
Nevada Landing Hotel and Casino, Jean, Nevada (Closed March 20, 2007)


The debt on City Center is simply too massive. You can't sell enough to reduce it and become profitable. Unless Revenue begins to soar again (which seems very unlikely) I think that the only way to reduce expenses enough is by more economy of scale. Since Harrah's clearly can't purchage MGM outright, it would be some kind of merger.

Quote: ruascott

Its been known for the last decade that gaming growth was in Asia (mainly Macau), but MGM decided to double down in LV.

I doubt that anyone in the year 2000 predicted that Macau would so completely outstrip the Vegas Strip in revenue.

Asset Management? What is the value of the much maligned Circus Circus? Its mainly the Real Estate. And perhaps its viewed as a long term feeder property. Lure the young marrieds and you capture a loyal customer who may be a high roller in a couple of decades.

Value may get re-adjusted in the bankruptcy courts or in the boardrooms of hedge funds but often primary value is real estate. My understanding is that the footprint of the Circus Circus property is large and despite its value having taken a plunge recently if the days of fifty million an acre ever return someone would really regret letting Circus Circus go at fire sale prices.

MGM Resorts did announce a 50/50 project with the company that built the Atlantis Hotel and Casino in Bahamas. They were going to build next to Circus Circus, but with the eventual plan of knocking down CC and building a new resort there. A press release was issued sometime in 2007. Sol Kerzner owns the Atlantis.

Yes, the argument for keeping CC is that if it makes only $1 in profit, it is holding on to the real estate for future development. I think that letting it go at fire sale only makes sense if CC goes back in the red.

The fundamental problem that MGM faces is how to handle the huge debt caused by City Center. I don't think they can raise revenue that fast. Selling older casinos is not the answer. Dubai World could decide to eventually walk away from the development, declining to stop losing so much money. Dubai World's property assets have exceeded USD 120 billion, so that it could cover its debt of USD 57 billion.

The advantage to a merger, is that a combined company with reduced expenses could better wait out the depression. Despite HET's problems, it is still making a profit based on their large number of regional casinos which weren't as hard hit as the destination cities. The midwest casinos are still doing OK compared to AC and VEGAS.

I don't see a merger. It just doesn't make that much sense.

There would be some VERY small reduced expenses but not that much. The casinos all operate separately so even if Bellagio and Caesars are owned by the same company it doesn't mean they can lay off staff and cut costs. On the back end yea maybe a bit but i'm sure they are pretty lean right now anyway.

The advantage to this would be more control - room rates, restaurant prices, farther walks for people to get to a competitor.

The trouble is right now they can't hike room rates just because they want to.

My bet is on a slow bleed with some asset sales when/if there is a bump up in values.

Even if the recession suddenly ends there is more competition everywhere.

If they could get the high speed train from LA/OC that would be a big boost.

Quote: CFTCFT

If they could get the high speed train from LA/OC that would be a big boost.

Does California or Nevada state have the budget for it, as I don't see a private enterprise paying for it...

Quote: thecesspit

Does California or Nevada state have the budget for it, as I don't see a private enterprise paying for it...

The Desert X Press was originally going to be privately funded. Total estimated cost was $4 billion for 186 miles at a max speed of 150 mph (250 kph). However, the train would only go to Victorville, have no intermediate stops, and would depend initially on people in Los Angeles driving or taking a bus to Victorville. Several other options to get to Victorville (extension of Metrolink from San Bernardino) and or a link to Palmdale Metrolink station (with a hope to connect to the new CA high speed rail are unfunded proposals to make the link into the LA Basin much easier in the future.

CA's priority is to get a link from LA to San Francisco. Connections to Orange County, San Diego, and Sacramento would still have priority over a link to Las Vegas.

Vegas is the 7th highest destination by passengers for LAX airport. When LAX is capped by it's legally binding agreement with the local residents (once passenger usage hits 75 million, a maximum of 2 gates a year for up to five years will be closed, which theoretically will limit maximum growth to 79 million passengers a year), the flights to Vegas will have to be curtailed, as it is the only airport that can easily be reached by bus instead of an airplane.

LAX is at 56 million since the recession. Still unknown will be when it reachest 75 million.


Rank City Passengers per 12 months Top Carriers
1 San Francisco, CA 1,440,000 American, Delta, Southwest, United, Virgin America
2 New York, NY 1,372,000 American, Delta, JetBlue, United, Virgin America
3 Chicago, IL 1,035,000 American, United
4 Honolulu, HI 938,000 American, Continental, Delta, Hawaiian, United
5 Denver, CO 898,000 American, Frontier, Southwest, United
6 Atlanta, GA 889,000 AirTran, Delta
7 Las Vegas, NV 888,000 American, Delta, Southwest, US Airways, United
8 Dallas/Fort Worth, TX 861,000 American, United
9 Seattle, WA 750,000 Alaska, United, Virgin America
10 Dulles, VA 681,000 American, United, Virgin America

The Hoover Dam bypass project should be open in November. I would hope that would be good for a few million room sales to Phoenix & Tucson residents.

Room nights occupied in Las Vegas
41,986,134 in 2009
42,967,252 in 2008
43,978,733 in 2007
43,496,236 in 2006

The theme has not changed with the latest numbers. The drop in gaming revenue from October 2007 to the strip low in October 2009 has only shown any real recovery in baccarat plus a small dollar recovery in sports bet.

Type	Year ending Oct-2007	Year ending Oct-2009	drop %	Year ending Feb-2011	recovery %	recovery $
slot	$3,513,608	$2,824,471	-20%	$2,818,381	-0%	$(6,090)
race	$45,455	$28,728	-37%	$26,320	-8%	$(2,408)
sports	$90,630	$57,909	-36%	$64,237	11%	$6,328
poker	$97,114	$85,835	-12%	$81,227	-5%	$(4,608)
other games	$1,149,292	$911,808	-21%	$911,401	-0%	$(407)
blackjack	$1,078,626	$739,244	-31%	$733,382	-1%	$(5,862)
baccarat	$970,726	$838,123	-14%	$1,074,735	28%	$236,612
total	$6,945,451	$5,486,118	-21%	$5,709,683	+4%	$223,565

With baccarat numbers slacking off over the last 4 months, presumably because of the Singapore competition, it doesn't look like anything is going to change.

Although it doesn't take a genius to make this proclamation, I think that MGM should simply close the money losing Circus Circus. While only a fraction of those people may come tp Excalibur it should have some kind of domino effect and increase the value of the other rooms, as the Excalibur people move to Luxor and the Luxor people move to New York NY, etc.

Comparing October Sports to Feb Sports must leave out one important factor... the take during the Superbowl

Quote: thecesspit

Comparing October Sports to Feb Sports must leave out one important factor... the take during the Superbowl

I am comparing annual totals for the 12 months ending on the month above. Your right, you can't compare a February to and October, but each number in the table includes all 12 months.

I forget to say that, but I am so used to seeing a number add up to $5 or $6 billion, and I know that they are yearly totals.

Lately, February often carries the double whammy of being Chinese New Year's and the Super Bowl, so February is usually one of the top 3 months.

Quote: pacomartin

The theme has not changed with the latest numbers. The drop in gaming revenue from October 2007 to the strip low in October 2009 has only shown any real recovery in baccarat plus a small dollar recovery in sports bet.

Any explanation for why most of the numbers continue to drop? By any other measure, the US economy has recovered in the past 1½-2 years. Not to the point where it was pre-2008, but much better than early/mid 2009.

Quote: 7outlineaway

Any explanation for why most of the numbers continue to drop? By any other measure, the US economy has recovered in the past 1½-2 years. Not to the point where it was pre-2008, but much better than early/mid 2009.

My personal thought is that we are now able to better separate the decay due to the economy, and the decay due to the increased competition from the other states. New Jersey started dropping in 2007, and continues to drop until today. While several of the numbers for Vegas are negative over the last 16 months, they are fairly small percentages.

My point is that the recovery in gaming is solely based on baccarat, which now appears to be at some risk. There is also a small increase in non-gaming revenue as visitation starts to slowly rise.

But stabilization of revenue is sufficient only if you can cut your operating expenses. With the huge amount of debt that all corporations are carrying they will still be in trouble when the loans come due.

The total revenue (gaming & non-gaming) for downtown stayed within about $10K for three straight years. But income went from near zero to almost 4% because of cost cutting.

Fiscal - Beg-End----------profit--- REVENUE
FY02 Jul 2001-Jun 2002 0.05% $1,085.73
FY03 Jul 2002-Jun 2003 2.20% $1,085.72
FY04 Jul 2003-Jun 2004 3.88% $1,085.73