In July, MGM Resorts International and Marriott International forged an agreement that drew interest from Wall Street analysts during Wednesday’s earnings call.
When the deal is finalized in October, the partnership will bring 40,000 MGM rooms at 17 resorts under Marriott’s booking umbrella.
During the call, MGM Chief Financial Officer Jonathan Halkyard said the company believes it can “replace approximately 5% to 7% of our lowest yielding rooms with Marriott direct bookings, representing 600,000 to 800,000 rooms per year. Upgrading these lower yielding room nights with Marriott brings a lower customer acquisition cost, higher ADR (average daily rate), and a higher yielding customer with more on-property spend based on our research.”
UBS Stock Analyst Robin Farley asked if the venture between MGM and Marriott was a franchise agreement, which suggests that MGM is paying a share of rooms revenue. Farley also asked if MGM was paying a share of room revenue from the “90-plus percent of rooms in the agreement.”
“The whole agreement is basically a hybrid, given the nature of Las Vegas, given our occupancies,” said MGM CEO and President Bill Hornbuckle. “So yes, we’re paying fees on some rooms, not all. I think you’ll understand the nature of the story here and what we’re trying to do and what we’ve been able to do. … This goes a little deeper and longer, but it’s rewarded on performance. So the more rooms they (Marriott) drive and the more room nights they bring us, the better they do and ultimately, I think, the better we will do.
“But it’s a hybrid deal. It wouldn’t be in the general context of how you think about a franchise agreement.”
Earlier during the call, Hornbuckle stated that the events scheduled for Las Vegas during the third quarter, including concerts (notably Beyoncé at Allegiant Stadium on August 27) and the Formula 1 Las Vegas Grand Prix in November, bode well for the company’s occupancy rates. He also expects the Las Vegas Raiders to have a positive impact.
“We’ve got a great fall home schedule for the Raiders,” Hornbuckle said, “which will have fans flocking into Vegas from Green Bay, Pittsburgh, Kansas City, and New England, among other cities, that all travel well.”
Hornbuckle was also bullish on MGM’s prospects in Macau. For the quarter, revenue from the Macau property reached $741 million compared to $143 million in the same 2022 time period, an increase of 418%. He also mentioned the year-over-year increase in Macau’s EBITDAR to $209 million from a loss of $52 million in 2022.
“We’re focused on four key priorities,” Hornbuckle said regarding Macau. “Activating our incremental 200 tables, making optimal changes to our casino floor to maximize yield, taking care of our premium-mass customers, and driving international customers to our property through our global branc-office network. We’re committed to helping shape the future of Macau as a global tourism destination and to our concession commitments with investments beginning this year.”
