MGM Resorts International had a pretty good year in 2023. The company generated $16 billion in revenue, up 23 percent from the previous year, with net income of $1.1 billion. CEO Bill Hornbuckle said, “Our Las Vegas Strip resorts and MGM China set new all-time records for full-year and fourth-quarter Adjusted Property EBITDAR.”
In Macau, MGM terminated a $750 million loan from the parent company and is paying a dividend to shareholders. Macau is in a recovery phase after years of COVID-related travel restrictions. MGM, like the other operators in the one gambling enclave with direct access to China and its 1.4 billion people, is set to profit from the rebound.
In Las Vegas, the company’s 12 properties benefited from the Formula 1 race, the growing sports and entertainment tourism, and the other perks from being on the Strip. Currently, the Strip is the prime driver for MGM, although there is a potential for international business to overtake Las Vegas. A resort in Japan is in the making and Thailand recently announced a change in its position on legalized gambling, and MGM would certainly be a contender for a license in Thailand. Then there is the wildcard, the Middle East. MGM is going to build a resort in Dubai, hoping in time gambling will be legal. There is a great deal of potential outside of the United States and MGM is well positioned to take advantage of any opportunity that surfaces.
MGM’s operations in regional markets have not been quite as successful. For the fourth quarter, the EBITDAR was down 22 percent. MGM faced a number of challenges, including a 47-day strike in Detroit, difficult weather conditions, and competitive pressures in other jurisdictions. In particular, Mississippi and Atlantic City are under unrelenting pressures from nearby casinos and other forms of gaming.
It has been widely reported that MGM wants to unload its properties in Springfield, Massachusetts, and Northfield, Ohio. Both have consistently unperformed. Eliminating those two would improve the company’s performance and clear the decks for New York City. MGM bought Empire City, a racino just outside the city in Yonkers, in 2019 for $850 million. It sold the real estate to Vici Properties for $625 million. Empire City generates about $50 million in slot revenue on a monthly basis.
Empire City is considered a shoo-in for one of the three New York City-area licenses. The nine potential bidders include Wynn, Hard Rock, Las Vegas Sands, and Caesars, with their associated developers. Those bids are running in the billions of dollars, but MGM has an ongoing operation and is seen as a preferred option. A resort won’t cost MGM as much as the other bids, but it won’t be cheap. The state is demanding $500 million upfront and a minimum additional $500 million in investment in the property. That is a billion at least.
The New York property could in two or three years be right up with Macau and Las Vegas as a top producer. However, a word of caution. Harrah’s in New Orleans and Bally’s in Chicago were once thought to have tremendous potential, but failed to deliver. Actually, Springfield is also in that category. Bill Hornbuckle admitted to regulators and local officials that the company badly misjudged the market potential in Springfield. Overestimating a market is easy to do. It is especially easy in a bidding process when everyone is trying to win a license and deliver the best possible result to the city and state. New York City will be no exception. MGM is uniquely positioned to spend and promise less and therefore to be more successful.
While MGM is planning for more investment in Macau, Japan, Dubai, and New York City, it is reassessing its current operations and adjusting its strategies, like most of its peers. Springfield and Northfield Park are part of that reassessment. It is an industrywide trend.
The gaming industry is beginning to flatten out. The burst of profits, growth, and enthusiasm that was part of 2021, 2022, and even into 2023 is not part of 2024. Most gaming companies have entered 2024 with an intent to reduce debt, expenses, and expectations. For example, Golden Entertainment, like MGM, is trimming back its assets back, seeking to keep the best and unload the rest. Others are certain to follow suit.
It is a natural part of economic cycles. When business is booming and companies are expanding, counting beans is not the most important way to spend time. However, when the blush is off the rose, the bean counters push aside the marketers and take things in hand. In public companies, the process is also driven by Wall Street; investors and analysts demand better results and higher stock prices. In general, gaming-stock prices are in a minor recovery mode. The prices hit a peak last July, then dropped slowly and consistently until November-December. The major companies recovered to about 75 percent of the high mark.
MGM is very much a part of the national cycle; its earnings are projected to decline 6 percent each year at least until 2027. Interestingly, the stock price is expected to grow 20 percent in that same period. The 2024 version of MGM is not Kirk Kerkorian’s MGM Grand, but it is healthy and filled with potential, grand in its own way. Not a bad position in the post-pandemic era.
