MGM approved for takeover of Cosmo amid questions about monopoly on Strip

MGM approved for takeover of Cosmo amid questions about monopoly on Strip

  • Buck Wargo, CDC Gaming Reports
May 12, 2022 10:45 PM
  • Buck Wargo, CDC Gaming Reports
  • Other

The Nevada Gaming Commission Thursday unanimously approved MGM Resorts International taking over the operations of 3,000-room Cosmopolitan of Las Vegas, giving the company 40% of the hotel rooms on the Strip. The Commission wondered aloud about what percentage should be considered a monopoly in the future.

During a special meeting, no members of the Commission said they thought 40% was too much market share, but Commissioner Steven Cohen was concerned about that number surpassing 50%.

MGM legal counsel Chandler Pohl said the company doesn’t have a monopoly in the Las Vegas market and with the acquisition of The Cosmo would have the same number of properties on the Strip as it had in 2009.

MGM is set to close the deal with the Blackstone Group on May 17 for $1.6 billion, part of a $5.65 billion deal in which investors will own the real estate underneath and MGM will pay $200 million per year in a 30-year lease. The Federal Trade Commission’s review period expired Monday and the transaction can close now that the Nevada Gaming Commission has signed off.

Pohl said that in 2009, the Commission determined that the opening of Aria at CityCenter would not create a monopoly and since that time, MGM has divested five casinos in Nevada, including Circus Circus in Las Vegas.

“The addition of The Cosmopolitan would result in MGM having fewer properties in Nevada than it had in 2009,” Pohl said. “As for the Las Vegas Strip, MGM has one less property than it had in November 2009, thus the addition of The Cosmopolitan is net even.”

Once MGM completes the sale of the Mirage to Hard Rock International for the Seminole Tribe of Florida by the end of this year, MGM will lose 3,000 rooms under its control.

Pohl said there’s a lot of competitors with multiple properties on the Strip and cited Caesars Entertainment, The Venetian and Palazzo, Wynn Resorts’ two properties, casino-owner Phil Ruffin’s properties Treasure Island and Circus Circus, and Resorts World Las Vegas.

“MGM’s acquisition of The Cosmopolitan would not materially alter the competitive landscape in Las Vegas or in the Las Vegas Strip area,” Pohl said. “The acquisition will not significantly change the competition in Nevada statewide, countywide, or the Strip.”

Cohen then raised questions about MGM’s hotel room percentage going to 40.29% on The Strip once The Cosmo sale is completed. He asked if each property sets its own room rates.

Cohen noted that the Gaming Control Board staff has opined that they don’t think the acquisition is anti-competitive.

“I don’t have any concerns that this is monopolistic or anti-competitive,” Cohen said. “I also see a number of 40.29% of available hotel rooms starting to bump up, and maybe that’s something that needs to be looked at.”

MGM Chief Operating Officer Corey Sanders said Cosmo will be part of a pod, with the adjacent Aria and Vdarra at CityCenter. Executives said the properties have symmetry as higher-end luxury.

“Each property has a specific clientele and its own price point,” Sanders said. “That’s the reason we have it structured that way.”

The Cosmopolitan will have its own management team that directly reports to Anton Nikodemus, the COO and President of Aria, Sanders said. At other pods, there are executives who operate multiple properties.

“For the near future, we look at (The Cosmo) as a substantial one that warrants its own management team and looking at it today, I think that’s how we would continue to operate it,” Sanders said.

Commissioner Ben Kieckhefer followed Cohen by asking MGM executives at what point they would start having concerns about hotel-room concentrations.

Pat Madamba, senior vice president and legal counsel, said at this moment that question can’t be answered. He cited “significant competition in Las Vegas that drives rates up and down.”

Kieckhefer responded that he doesn’t think it creates a monopoly, but is only broaching the subject as a new member of the Commission.

“Las Vegas is its own entity,” Sanders told the Commission. “I don’t think there’s ever a case, unless you own more than 50%, that you would have any control and ability to set pricing. This business is about getting people to come and stay in the hotels and less about the room rates. As we look at our business, we don’t have pricing power per se. It’s where the market is and we all leverage off the market.”

Commissioner Ogonna Brown said she doesn’t have any concerns about a monopoly and that commissioners should look at the larger picture. MGM has about 25% of the hotel rooms statewide, she said.

“I think it’s misleading to say you have 42.29% of the Las Vegas Strip,” Brown said. “While that’s a significant number, I don’t have anything that gives me pause.”

Cohen responded that he doesn’t have any concerns about the 42%, but wants to make sure “everything is operating independently, so that when there comes a time when we’re asked to approve another acquisition, there will be a good answer. In my mind, I think 50% rings a bell. That may not be applicable.”

Acquiring The Cosmo is a “wonderful opportunity” for MGM, said Cohen, who added he always thought the property should be part of MGM as it sits between CityCenter and Bellagio. “It’s wonderful for the state, Strip, and employees.”

Commissioner Rosa Solis-Rainey said she would like to know MGM’s historic room percentages if more acquisitions come forward, but she had no concerns about the deal. “I think it is a good acquisition for MGM and a good acquisition for the city in the long run and Strip employees this is going to affect.”

MGM CEO Bill Hornbuckle said they “couldn’t be more excited” in adding The Cosmo into its product offerings.

“It’s a product niche we don’t necessarily cater to,” Hornbuckle said. “It’s a younger demographic with a high retail spend, and it’s something I think given what this created today, combined with many of the amenities we have, will be additive not only to The Cosmopolitan, but Las Vegas as a destination in general.”