MGM Resorts International CFO Jonathan Halkyard told investors Monday that there’s plenty of upside in Las Vegas tourism now that the omicon variant wave has passed. He also said he expects a convention business, thus far slow to rebound, to reach 90% of 2019 levels by the end of the year and possibly surpass it in 2023.
Halkyard spoke at the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum at Wynn Las Vegas. It was broadcast virtually by MGM.
“Our outlook on the consumer, generally, is really positive right now,” Halkyard said. “It’s been a wild year in twists and turns and almost constantly changing demand dynamics and constraints on our ability to provide the type of product and services we’re capable of. I would say right now that almost a year from the time that we saw demand pick up (in early March 2021), we just had an increasingly strong backdrop in consumer demand.”
In Las Vegas, the consumer demand has been broad, with a few exceptions. One of those is the group segment, which started to return in October, but slowed in early January during the omicron wave.
“It takes a bit of time for that demand to ultimately be monetized through our properties and casinos with room nights, but we’re starting to see that build in the first quarter and expect it to continue in the second quarter,” Halkyard said. “By the end of the year, we expect our group business to be at 90% of 2019 levels. These groups, particularly the larger ones above 1,000 participants, book several years out. The groups we had that canceled in the first few weeks of January and February, some of them have rebooked later in the year. Some wanted to, but were unable, because we’re at capacity as we get into the high-demand period in September and October.”
As they look at group bookings for 2023 and beyond, Halkyard said they’re comfortable MGM will be at or above those 2019 levels.
When asked why demand remains so strong, while room rates and other prices are higher than they were in 2019, Halkyard said they’ve been sold out for the weekends for many months in what was driven by leisure demand.
“There’s an incredible desire to visit Las Vegas now and that has enabled us and others in Las Vegas to have that kind of price compression without resulting in reduced demand,” Halkyard said. “It’s just about aggregate demand on the weekends, which has been incredibly strong. I can’t tell you how many people say, ‘I’ve waited two years to travel and this is the first trip I’ve taken.’ We’re fortunate to experience that type of resurgence here.”
Halkyard said, however, it’s not just room rates that gain revenue for group business. Catering and banquet revenue is a $350 million a year business in Las Vegas.
Regional properties have been less affected by COVID spikes, because they’re driven by casino demand, except where restrictions were put in place because of omicron, Halkyard said. Margins were close to 40% for most of 2021, but fell to 34% to 35% in the fourth quarter. “By and large, the regional properties have continued to perform well.”
As for capital and its uses, Halkyard said MGM’s moves to acquire the other half of CityCenter on the Strip, an agreement to acquire The Cosmopolitan, and the sale of the Mirage to Hard Rock at what he said is “a very attractive valuation” have created additional liquidity for the company. They’ve been deploying that in almost $2 billion in share repurchases. By selling assets to real estate investment trusts and leasing back those properties, MGM will have about $3 billion of liquidity, including what’s available under their credit facility.
“That still leaves a significant amount of investable capital for the company,” Halkyard said. “Our priorities are going to be investing in projects that we think have an attractive rate of return and investing in our own stock, which we think at these levels present a very attractive value. We’ll be retiring some of our more traditional debt. It’s a balanced approach, but I really like our position right now in terms of liquidity.”
When asked about continued consolidation in the igaming and sports betting industry, Halkyard expects that to continue. He said they expected aggressive spending to acquire customers in the early days of legalization of igaming and online sports betting in new jurisdictions.
“We think we’ve remained disciplined at BetMGM and sticking to our playbook in the acquisition of customers, but none of this has really surprised us,” Halkyard said. “I do expect this will continue. The math will be dependent upon the customer-acquisition cost associated with going in and spending to acquire customers or move customers from one operator to another versus acquiring those customers of that database through the acquisition of a competitor. What we’ll also see are competitors operating perhaps with two different brands within the marketplace. This has happened in many other industries. Nowhere is it written that each participant has to compete with a single brand, so we might see that offensive M&A continue, yet certain brands remain.”
Halkyard told the J.P. Morgan analysts that customers who sign up for BetMGM are automatically enrolled in the re-branded MGM Rewards program. MGM and its partner Entain see longer-term benefits from using its database, as opposed to some peers that may be forced to make acquisitions for customer acquisition, Halkyard said.
So far, MGM offers a combined igaming and sports betting in two markets, Michigan and New Jersey.
“With igaming, it is in the early days. We’ve begun doing some work around those customers who are playing only in the casino or only digitally or both,” Halkyard said. “What we are seeing is those customers who are playing with us are spending quite a lot more than just those who play with us in one channel. There’s clearly been dramatic growth in the igaming side. I think it’s a little early for us to determine what that impact has been, but it’s clearly been additive so far.”
Halkyard said they’re already seeing the benefit of those who open a BetMGM account being automatically enrolled and earning MGM Rewards. He said there’s more incentive for players to stay at MGM properties when they’re in Las Vegas than in the past.
“When they come to Las Vegas, they can participate in the comps and the benefits that our land-based customers get,” Halkyard said. “During Super Bowl weekend, we had a large group of BetMGM players here in Las Vegas enjoying the amenities of our properties. We think that’s a differentiator from our competitors that don’t have this kind of network of properties.”
