According to Deutsche Bank analyst Carlo Santarelli, the 1Q22 numbers for MGM Resorts International were “better than forecast” in Las Vegas and regionally, nor as bad as expected from Macao. Losses from BetMGM were worse than anticipated. Santarelli predicted cash flow of $633 million and Leo the Lion delivered $670 million. The analyst only expects things to get better on the Las Vegas Strip, with high-margin The Cosmopolitan of Las Vegas displacing low-margin The Mirage. BetMGM was a $184 million drag on the balance sheet, more than the $162 million Santarelli was expecting but “the shortfall was not entirely surprising, given the lower hold experienced on the sports side in the period, as well as the spend levels associated with the New York launch. Importantly, MGM continues to outperform in the longer term margin friendly iCasino segment,” he wrote. MGM China contributed [?] a $26 million negative ROI.
Over the past four months, MGM has repurchased 29.5 million shares, a program for which Santarelli’s “aggressive” characterization seems almost an understatement. He added, “While we expect MGM to remain aggressive with respect to share repurchases, we remain of the view that liquidity, given both the rent expenses and maintenance requirements, as well as the potential future development capital needs, make it such that buybacks are likely to slow in 2023, relative to 2022.” Management was quick to temper expectations for Japan (“a long way off”) and New York City (“a work in progress”). Can’t argue with that. Santarelli ended the conference call feeling upbeat about Las Vegas, regional casinos and BetMGM … as an i-casino play, not a sports-betting one. (He didn’t diss sports betting but his omission spoke volumes.)
Credit Suisse‘s Ben Chaiken dashed off a quick note to observe that the share buybacks will surely continue, with MGM having spent $1 billion to date, with another $2.2 billion in dry powder. He, too, was impressed with Las Vegas’ performance, “which is particularly compelling given slow start to the year.” For the record, the Strip generated $1.7 billion in revenue, regional casinos $891 million and MGM China $268.5 million. The company still managed to post a $35 million loss. Blame it on BetMGM.
If Santarelli’s expectations were conservative for MGM, Barry Jonas of Truist Securities was so optimistic that the numbers constituted a “slight miss.” He fretted just a bit about inflation, while conceding that no impacts were showing up yet in the MGM balance sheet. He chronicled, “MGM has not seen any impact on customer behavior from unfavorable macro conditions so far. [Management] noted pricing power is still strong, and F&B continues to break records.” Jonas added, “The Strip was challenged in Jan by Omicron though recovered quickly with record Q1 results at a number of properties.”
Occupancy ran at 78%, characterized by month-to-month improvement, with MGM leadership leaking that it had accelerated to 92% in April. Events in Vegas were characterized as “robust” and should also be so next quarter, what with the Grammy Awards, BTS concerts and NFL draft all positively affecting the bottom line. “Though still behind pre-COVID levels, MGM noted midweek occupancy trends continue to improve each quarter with group/convention business expected to return to 90% of pre-COVID levels in” the summer/fall months. International flight capacity (if perhaps not passenger loads) are expected to reach 80% of pre-pandemic levels this summer as well.
Despite BetMGM’s struggles with profitability, the lion house is doubling down on the i-gaming sphere, offering $607 million for overseas operator LeoVegas. ““We have achieved remarkable success with BetMGM in the US and with the acquisition of LeoVegas in Europe we will expand our online gaming presence globally,” explained CEO Bill Hornbuckle. LeoVegas has until the end of August to accept. If consummated, the deal would give MGM immediate online access to eight European countries.
Foreseeing acceptance by LeoVegas, Santarelli highlighted the fact that “the deal is an all cash deal, as stock deals with European operators have been challenging.” He continued, “In short, we do not find the transaction to be all that surprising. MGM has considerable cash and management has been vocal as it pertains to broadening its scope in the iGaming business globally. Further, we believe the acquisition of a profitable operator at a reasonable price [eight times cash flow], regardless of the regulatory overhangs that exist in Europe at present, will be well received.”
Santarelli added that the deal, when closed, would add 455,000 customers to the MGM database, strengthen the company’s reach into Canada and shore up the i-gaming side of BetMGM, as LeoVegas is 85% i-casino. Also, LeoVegas has virtually no debt to speak of ($8 million), making this an easy lift for MGM. Jonas termed the deal a “match made in zoo … While relatively modest from a financial perspective and the markets are clearly cooler these days on interactive gaming, MGM will acquire 100% of a profitable international online gaming company not reliant on Entain,” he explained. Year One of a merged BetMGM/LeoVegas should see at least $456 million and a $55 million ROI, perhaps better still.
Big Gaming has got its finger on the scales of the upcoming California vote on sports betting. As always with ballot initiatives, the devil is in the details and this is a doozy. The ballot question sponsored by DraftKings, BetMGM and FanDuel would require operators in the Golden State to A) pony up $100 million for a license, B) be licensed in 10 other states and C) operate 12 casinos (!). Calling the proposal “absolute nonsense,” Oklahoma State University gaming-policy prof John Holden cut to the nub of the issue, saying, “what’s effectively happening is, basically, the five to 10 frontrunners in the market have decided ‘All right, let’s ensure that there’s no one else who can compete by agreeing to pay these exorbitant license fees.’”
Five or 10? It’s highly doubtful that there are 10 OSB operators in the U.S. who could clear those hurdles. DraftKings and FanDuel don’t operate casinos either but they’ve figured out a way around that requirement. Not only would startups be hors de combat, smaller operators like Colorado‘s MaximBet can take their ball and go home, too. “California is best served by creating a safe and tightly regulated sports betting market, one where customers can know they are working with experienced platforms with a proven track record of safe and responsible operation in other markets,” rationalized campaign flack Nathan Click. Perhaps, but why does no other state require operators to already be licensed elsewhere? And why is the price of admission four times greater than that of New York State?
Besides, “To presume that a company that could spend a lot of money is ethical and a company that could spend a small amount of money is not ethical is very dubious logic,” argues Baruch College law professor Marc Edelman. “The goal of this seems to be to create an oligopoly market for sports betting.”
Only tribal casinos would be exempted from the $100 million entry fee, paying $10 million apiece. Revenues would be taxed at 10%, which pays for regulation, support for non-participating tribes and homeless services. Although it’s likely to qualify for the ballot, Big Gaming’s proposal doesn’t have enough signatures yet. It will eventually throw down between two initiatives backed by rival tribes. One would make sports betting the province of tribal casinos and horse tracks, the other would maintain sole tribal exclusivity. Faced with a confusing welter of ballot options, voters could nix them all—or approve more than one, at which point the fun really begins.
Forget “holes in the desert”: “Barrels in the lake” may be the new operative phrase for Mob hits. A corpse in a barrel washed up on the receding shoreline of Lake Mead this week and law enforcement expects more to manifest themselves over time. We don’t know it was a Mob rubout but think it’s a pretty good likelihood.
Jottings: The palm for the first Virginia casino goes to Hard Rock International, newly issued an operating license for the temporary iteration of Hard Rock Bristol. The interim casino will open in July with 870 slots and 21 tables—a fraction of the permanent casino’s 2,700 slots, 100 tables and seven restaurants … Maine Gov. Janet Mills (D) has signed tribal exclusivity for mobile sports betting into law. Let the litigation begin … California‘s troubled Bicycle Hotel & Casino has gone to Parkwest Casinos for $102 million. The card club’s taxes prop up the city of Bell Gardens‘ budget … Another Las Vegas buffet has croaked. Boyd Gaming‘s Fremont Hotel is scrapping its one in favor of six fast-food outlets, which will necessitate an expansion of the building. The casino floor will also be enlarged … Electric cars are now available to rent from Resorts World Las Vegas. The megaresort will let you have a variety of Tesla models, from $199 to $349 a day. Sin City has become so expensive we’d almost count that as a bargain … Sports betting in Massachusetts is far from a done deal. A state Senate ban on collegiate wagering could be a “dealbreaker” in conference, even though Gov. Charlie Baker (R) has dropped his support for the ban, sidestepping toward the House version.