Rumor has it that MGM’s sale of the MGM Grand in Las Vegas is just the start of the company divesting it’s assets in Sin City.
It came as a surprise to many when MGM sold Circus Circus last year and then sold Bellagio to Blackstone Group, only to acquire it back in a tenant-lease agreement, but according to a source who is close to the Las Vegas situation it’s just the start.
It has already been widely reported that MGM is looking to sell the MGM Grand in a similar type of agreement that they have with Blackstone for the Bellagio, and that deal will likely be completed in the coming months, plus they are shopping around Mandalay Bay. But the source said all Las Vegas properties owned by MGM Resorts International are on the chopping block. The source said the likely order of sales after the two mentioned are its shares in City Centre, Luxor, Excalibur, New York, New York, The Mirage and Park MGM. Most likely the properties will be sold with the agreement to lease them back, although one or two of the properties could be sold outright.
“From everything I’ve heard MGM believes the properties in Vegas have peaked and will only decline in value over the next few years so they want to maximize the value of the properties now. They still want a presence in Nevada but they believe the sale and leaseback agreement like the one they have with Bellagio is in their best interests.”
Of course, the company needs to free up capital to pursue what they believe will be the greatest growth potential, namely resort casinos in currently untapped markets. It’s well known that MGM is prepared to go all-in to win the bid for a Japan casino, likely with Tokyo as the preference and they are also looking at other countries that are mulling about new resort casinos, including Brazil. And MGM is still hopeful that the Chinese strong arm tactics being used to stop casinos in places like Vietnam and Malaysia will loosen up so they can expand their Asian presence more. Currently MGM only has a partnership agreement in Macau for the Asian market. It is also believed that MGM management hasn’t given up completely on a downtown Toronto bid. While Great Canadian Gaming has been awarded the right to develop and run casinos at Woodbine Racetrack in the far western part of the city, as well as in the eastern suburb of Pickering, it is still believed that the city (the fourth largest in North America) would benefit from a casino right downtown. The provincial plan, which was released about a decade ago, still allows for a large resort casino in addition to Woodbine. Plus, the current provincial government is far more gambling friendly than the previous government and the Premiere of Ontario has not ruled out giving up the current Ontario Place site, which is owned by the province, for that purpose.
That said, where MGM is really licking their lips is with large U.S. cities possibly looking to increase their casino presence. Rivers Casino, in Des Plaines Illinois is growing rapidly and MGM is hoping that with the expansion into sports betting the state would consider a casino in Chicago property, possibly near the Navy Pier or Magnificent Mile. And MGM knows that would be a gold mine. And the company is also very excited about a possible New York City casino. They purchased Yonkers Raceway and Empire City Casino in Yonkers, New York to be the first with a casino in the area, but the company apparently views a Manhattan and/or Brooklyn casino as the ultimate goal. Plus, it is well known that if California ever arrived at an agreement with the tribes to allow commercial casinos (although that happening any time soon is slim to none), that MGM would be first in line for a resort casino in Los Angeles. MGM would no doubt love to run a casino in Houston or Dallas also, but that would require a whole new philosophy by the state that just isn’t going to happen any time soon.
It’s uncertain what affect these sales, if the rumor proves true, would have on MGM Growth Properties, although the logical assumption is that MGM would significantly reduce its 70% ownership in that also. But any way you slice it, the rumors combined with the actual sales of casinos by MGM and Caesars in the last couple of years, is proof that Las Vegas may be entering the downward part of the curve for the product life cycle.