MGM exec hints at potential of south Strip casino-resort development

MGM exec hints at potential of south Strip casino-resort development

  • Buck Wargo, CDC Gaming Reports
December 2, 2021 2:37 AM
  • Buck Wargo, CDC Gaming Reports
  • Other

The south end of the Strip could get another resort-casino courtesy of MGM Resorts International, which is also working on a strategy to attract more of its regional customers to Las Vegas.

MGM’s Chief Financial Officer Jonathan Halkyard brought up those possibilities when he spoke Wednesday to the investment community during Morgan Stanley’s Virtual Global Consumer & Retail Conference.

MGM announced in September its acquisition of The Cosmopolitan at the center Strip and Halkyard said with T-Mobile Arena and Allegiant Stadium in that corridor, “the energy on the Strip” has been moving in that direction.

“We very much like that,” Halkyard said. “That’s our neighborhood down toward New York-New York, Excalibur, Mandalay Bay and Luxor, MGM Grand, and Park MGM. The reality is — and not many people appreciate this — that there’s a substantial opportunity for our company to do additional development in that area if that’s something we think (is a good move for shareholders). There’s seven acres in front of the Excalibur. That’s equal to the entire footprint of The Cosmopolitan. I’m not suggesting we’re going to build a 3,000-room tower there, but that’s a significant development opportunity potentially.”

In addition, Halkyard noted that the MGM Grand is somewhat difficult to access by pedestrians. There’s an opportunity to improve that connectivity over time, he said.

“Those are the most significant ones,” Halkyward said. “Clearly, we’re allocating capital in Las Vegas in the form of the acquisition of the Cosmopolitan. We think that’s going to drive terrific returns for our shareholders and be a great benefit for our guests. In the near term, that’s the most allocation of capital we’ll be making in this market.”

With omicron showing up in California Wednesday in the nation’s first case of the new COVID variant, Halkyard said it’s had no impact so far on tourist and convention bookings that are looking strong so far into 2022. That growing segment is expected to make up for any decreased spending by patrons next year.

“It’s not reflected in the current business we’re seeing or in our bookings right now,” Halkyard said of omicron. “You can be sure we’re looking closely at all the booking channels and talking to the meeting planners and the rest, but the truth is, right now we’re not seeing an impact.”

Halkyard said the gaming industry continues to be resilient and performing well. Strip gaming revenue rose 30% in October compared to 2019; casinos in other states are showing strong gains as well.

“I think those revenues are sustainable for different reasons,” Halkyard said. “We’re seeing an elevated level of spend from both rated and unrated players. Much of this is due to our marketing communications and the strength of our brand. It’s also believed it’s due to other factors —some are sustainable and some will probably taper over time.”

Halkyard said they’re still not seeing the pre-pandemic number of 65-plus guests with as much frequency in the regional properties. That older demographic, important in the regional markets, has started coming back, but is still lagging well behind other groups in terms of visitation and frequency.

“I think a counteracting mechanism over the next several months will be the continued return of that demographic, which would more than offset any normalization and spend levels we’re getting from some of those rated and unrated guests,” Halkyard said.

As for sustainability of revenues in Las Vegas, Halkyard said they’re optimistic, because MGM is operating at about half of the group, convention, and meeting business that it would normally have this time of year.

“We see that increasing in 2022 and by the end of 2022 getting to our historic levels of group and meeting business,” Halkyard said. “We’re delivering these record results with one hand tied behind our backs, which is the group and meeting business.”

Halkyard said the frequency with which regional customers visit MGM’s Las Vegas properties can also improve, much like Caesars Entertainment has done historically. Patrons are not spending as much time at MGM properties as they could.

“That’s the thing we’ll be addressing next year and beyond. It’s a huge opportunity for the company. We’re moving from a model of less frequent engagement to one potentially of more frequent engagement. I think that’s a sea change for the industry and for our company. I don’t think this is being too boastful, but the potential for MGM to do that is far greater within Las Vegas, given the diversity of our offerings.”

Comparing Las Vegas to Macau’s recovery, which has been hurt by COVID-19 and visitation from mainland China and Hong Kong, Halkyard said they’re cautious on how that will develop and expect it to be “bumpy” over the next six to 12 months. “I have greater conviction in the return of the group and meeting business to Las Vegas.”

Beyond group business, Halkyard said igaming and sports betting are the greatest financial and brand opportunities for the company since the beginning of riverboat gaming in the Midwest 30 years ago.

“It wasn’t too long ago that the vast majority of MGM guests were just visiting properties here in Las Vegas one to two times a year, and now we’re in a situation where we have eight regional businesses in major markets and greater connectivity between those businesses and our Las Vegas properties, and we now have BetMGM present in 16 states with online sports betting and five in igaming. That’s millions of customers engaging with our brand almost on a daily basis — a huge change from what this company was a few years ago.”

Halkyard talked of the continuing difficulty in hiring, with about 4,000 open positions, many on the front lines. MGM has learned to do more with less by relying on technology, process improvements and changes to the operating model, he said.

“We’ve been delivering the occupancy numbers with a substantially smaller labor complement, but that has helped our margins,” Halkyard said. “We believe it’s important to bring most, if not all, of those folks back in order to staff our properties appropriately and provide the level of service we commit to our customers.”

Marketing and promotional costs have been lower, because the business hasn’t been as competitive as it has in the past, Halkyard said. That should continue with a strong market position and disciplined competitors.

New York is a “significant opportunity for the company,” with the ability to have the Empire City Casino be a full-fledged casino with table games. Halkyard said he loves having that as an option in the future.

“Between our operations in Atlantic City and database for Las Vegas and of course our digital offerings, having a full-fledged brick-and-mortar casino in New York would be very appealing.”