J.P. Morgan analyst Joseph Greff was pretty blunt about MGM Resorts International‘s mixed bag of 2Q23 numbers. “Carried by Macau,” he headlined his report, adding that the Las Vegas Strip was in line with expectations but regional casinos came up short. Of $3.9 billion in net revenue, $2.1 billion came from Sin City but the biggest noise was heard out of Macao, where revenues shot up from $143 million last year to $741 million this year. The Las Vegas numbers were but a $9.5 million improvement on 2Q22 while regional casinos slipped 3.5% to $926 million. Inside the Vegas result were some interesting stats: MGM appears to making its nut off hotel occupancies (96%), where revenues nudged 2% higher while casino haul was 4% down. Slot coin-in rose 13%, barely outpacing house win that was up 12%. Table wagering was up 4% but win only 2% higher.
Greff wasn’t discouraged about the Strip, saying that “the outlook is positive,” driven by special events too familiar to list. “While we aren’t changing our 2H23 or 2024 LV forecasts, which we have characterized as reasonably based, there probably is less upside to these estimates than we thought prior to the 2Q23 print,” he cautioned. Meanwhile, he ratcheted up Macanese estimates by as much as 7%, particularly given a comeback in mass-market play. Digitally speaking, Greff said he’d be “surprised” to see MGM make a play for Entain, co-parent of BetMGM, a viewpoint which some of us will greet with relief. Perhaps that is because MGM has pricey irons in the fire in the form of Japan and New York City. Greff hinted as much.
In the regional properties, lower-margin F&B gains (5%) and other non-gaming ones (9%) fought for dominance with weaker casino play. Slot coin-in was up 4% but table wagering fell 9%. Getting back to Macao, MGM is banking heavily on adding more table games but has already deployed 150 of its new 200, so we’ll see how long that benefit redounds to MGM China. Analysts breathed a side of relief that BetMGM only posted negative ROI of $22 million as opposed to the $23 million-$25 million they were expecting. The company still hopes to be ROI-positive the rest of the year and to score at least $1.8 billion in revenue, a number that Greff said “appears conservative.”
Greff’s opposite number at Deutsche Bank, the colorful Carlo Santarelli, said the MGM earnings were “unlikely to be well received.” Defending his continued “Buy” rating, he concluded, “Bluntly, Las Vegas was spot on in line with our forecast, regional properties were weaker, as peer reports have telegraphed, BetMGM was known, and Macau was nicely ahead of forecasts.” He broke down the earnings call into bull and bear cases for MGM, skipping over the regional properties.
The Las Vegas bearish outlook is “2Q22 margins were overly inflated, given limited labor and amenities, and margins have now settled into a sustainable range, should revenue remain firm.” For bears it is, among other things, that promotional activity is getting out of hand. Also, “While the upcoming F1 event and the Super Bowl are big events, they are also well telegraphed, and the Super Bowl is essentially a one-time event. With the low end likely softening, and resort markets in other areas of the US seeing softer traffic … trends, it is likely only a matter of time until the malaise hits Las Vegas.”
Turning to Macao, “there is little reason to question MGM’s progress to and through $1bn of property EBITDAR in Macau over the 2024/2025 time frame, well above the current Consensus Metrix Consensus forecasts of $868 mm and $957 mm for 2024 and 2025, respectively.” On the other hand, “Though MGM’s performance has been exceptional, especially relative to peers, the market has not truly embraced the recovery in Macau given China macro-economic concerns, geopolitical fears, capital expenditure requirements, and questions around the ceiling for the VIP and mass gaming segments.” Plus, MGM only owns 56% of MGM China, unlike its wholly owned rivals in Red China.
Santarelli’s case pro BetMGM boiled down essentially to its strong market share in Internet casinos, with the possibility that it is “meaningfully undervalued.” On the downside, BetMGM is losing market share and the joint-venture structure is wont “to be less optimal, as the entity turns to profit.” Given such qualms, Santarelli’s faith in the stock is a mite surprising, if admirable.
His faith was shared by Truist Securities analyst Barry Jonas, who dismissed a “slight miss” and opined that the “outlook remains strong.” Also sticking with a “Buy” rating, Jonas allowed that there were more misses than beats in the earnings report. Average hotel rates on the Strip remain a pricey $234/night and Jonas thinks higher labor costs could be offset by Las Vegas Grand Prix and Las Vegas Raiders largesse. Also, smoke-free Park MGM is “experiencing its best year on record,” helped by T-Mobile Arena events and a strong convention calendar. (More on this below.)
Also resilient is the luxury segment, which accounts for 65% of room revenues: “Mgmt highlighted strong 3Q programming, including Black Cat at Mandalay Bay, Magic at Convention Center and Beyoncé at Allegiant as drivers for the strength in bookings.” (We have never seen Beyoncé referenced in an earnings note before, but we hope it’s not for the last ime.) Looking further ahead (and no small thanks to inflated rates), 4Q23 will see an all-time record in hotel revenue, with occupancy double 2022’s and rates four times higher than 4Q22. 70% of the company’s Formula One ticket inventory is already spoken for, “a portion of which are set aside for gaming customers, as mgmt expects F1 to be an all-time record casino event for the company.”
Room rates for the Super Bowl are also through the roof (3X-4X early 2o23), while convention-related room bookings are up 6% and described as “robust.” The weaker regional numbers were attributed to a variety of factors, including the absence of Gold Strike Tunica, poor hold at MGM Grand Detroit and the displacement of special events at Borgata (above). Even so, MGM leadership “also noted no visible impact from the macro across its domestic regions.”
Jonas was the only of the three analysts to touch upon the blockbuster deal with Marriott International. MGM hopes to replace as much as 7% of its lowest-end room nights (think Excalibur) with Marriott customers, to the tune of as many as 800,000 bookings a year. Marriott regulars are also expected to be bigger spenders, resulting in $100 more room profit per night. The deal’s benefits aren’t expected to be fully seen until 2o25, by which time “a meaningful segment” of MGM room nights will be occupied by Marriott partisans.
How those customers will feel about smoke-befogged air remains to be seen. Americans for Nonsmokers Rights is frowning upon the MGM/Marriott pact, concerned that it will dilute the latter’s commitment to smoke-free air. ANR appears to be fretful that Marriott will feel compelled to roll back its 16-year nonsmoking policy. So are we. As ANR President Cynthia Hallett wrote, “While this may seem like a minor inconvenience, it’s significant because it flies in the face of what loyal Marriott customers have come to expect, and because the research has repeatedly shown that even brief exposure to secondhand smoke is harmful to human health. Marriott members will now be exposed to dangerous carcinogens.” Hallett does hold out the hope that Marriott can leverage its new clout to get MGM to rethink its pro-smoking policy. In the meantime, not all of those MGM Collection patrons are going to be able to fit into Park MGM.
Denver Broncos head coach Sean Payton needs to climb down off his cross and doff his hair shirt. His martyr of choice, Eyioma Uwazurike, has been fingered in a growing scandal involving betting on collegiate games by college players. Uwazurike stands accused of making forbidden wagers on four Iowa State University football game during his tenure there, including two in which he played. So far nobody outside of Alabama has been nabbed for throwing a sporting match but the fouls are piling up thick and fast. Like several other Cyclones players, Uwazurike tried to conceal his activity by routing his wagers through a third party. The ploy does not seem to have worked. Further turning up the heat, Colorado authorities are investigating the 32 wagers (including prop bets on teammates) that Uwazurike made while with the Broncos. Colorado has a sports-wagering ban not dissimilar from the NFL‘s.
Neither the college ban nor the NFL’s is rocket science. When in doubt, don’t f***ing bet, guys. While some of Uwazurike’s teammates took their action to DraftKings, this fellow placed his wagers with FanDuel. Guess that’s why there #1 in the U.S. But seriously, how stupid or conniving do you have to be to break such clear-cut bans? The use of third-party beards indicates consciousness of guilt and all the Cyclones swirling in this controversy deserve to have the book thrown at them.
Seen at Circa …
This is the missus’ birthday movie of choice. Jason Statham versus the biggest shark ever seen on the planet? That poor shark doesn’t stand a chance.