MGM beats the Street; The wrath of Loveman

Not only did MGM Resorts International swing from a loss to a profit in 2Q14, its revenues exceeded Wall Street’s expectations. Analyst consensus foresaw $0.10/share in earnings and MGM delivered more than twice that. Revenues at every MGM property were up, not counting “Other Resort Operations” (read: Illinois), down 6% and a 1% slippage at MGM Grand Paradise in Macao, which still grossed almost as much as Bellagio, MGM Grand and Mandalay Bay — the top three domestic earners — combined. Even in markets that have withstood challenges lately (Detroit, Mississippi), MGM gained.

On the domestic front, Strip room revenues were up 6% and overall gaming revenues also rose 6%. The company also took a $29 million writedown on its Grand Victoria riverboat, whose earning power has vastly shriveled from the pre-smoking ban, pre-Great Recession, pre-Rivers Casino years.

Deutsche Bank‘s Carlo Santarelli would only call the results “a tad better than expectations” and “mixed,” his sentiments weighed down by the soft quarter in Macao. Crystals is back on the market and expected to fetch $1 billion, which would retire a nice chunk of debt, should MGM take that route. The cost of MGM’s National Harbor project continues to suffer ‘mission creep,’ having reached $1.2 billion and construction delays on MGM Cotai are a possibility “given permitting ambiguity.”

Favorable Strip results were bolstered by MGM’s bargain tier of casinos “as RevPAR was again strong at the lower ends of the MGM chain scale.” (Never underestimate Circus Circus, I guess.) CityCenter ROI continues to trundle along at a 4% pace. Still, cash flow of $78 million from your Las Vegas flagship does look anemic compared to the $210 million coming from Macao.

* Woe betide those who draw upon themselves the wrath of Caesars Entertainment CEO/President/Chairman/Generalissimo Gary Loveman. Caesars is suing a large group of first- and second-lien noteholders who have been trying to preserve the guarantees on their notes in recent months. They stand accused of blocking Caesars’ attempts to restructure. According to Caesars, Elliott Management Co. and its co-defendants have “have sought to injure” it by trying to force a default. The institutional investors have indeed filed a notice of default upon Caesars, which calls the action “baseless.” It also apparently seeks to muzzle the dissident investors from complaining to regulators, although the insurgents’ pleadings have forever fallen on deaf ears when addressed to gaming commissions.

With that characteristic tendency toward bombast, Loveman declared, “We refuse to be held hostage by speculators who appear to be betting against the long-term health of our enterprise as well as our more than 60,000 employees and the communities in which we operate.” Wilmington Savings Fund Society effectively replied by countersuing Caesars, seeking to thwart some recent ledger-demain asset transfers, which it says are fraudulent and which Caesars contends have built up capital.

Added Loveman, “Neither Caesars nor [the operating company] have ever missed an interest or principal payment despite the extremely challenging environment.”

* Meanwhile, a serio-comic Caesars scenario is playing out at Harrah’s Metropolis. While retiring the riverboat, the company is converting its convention center into a casino. An absurd Illinois law requires gambling to be conducted “over water.” (I believe it can be done on land but you have to pay heftily for the privilege.) Caesars has come up with some means to placate this ridiculous mandate, but it’s not yet known exactly how it’s going to be done. Still, it’s hard to keep a straight face while reading that the (liquid) solution might involve “putting  water bladders under the convention center. Like a giant hot water bottle.”

Yes, Metropolis Mayor Billy McDaniel really said that. His city needs every penny it can wring from the casino, which hasn’t been the same since 2007, when the city’s take was $10 million. Now it’s $4 million, which is why city leaders are helping brainstorm how to turn a land-bound meeting space into a “boat.” It’ll probably be the strangest darn ship you ever saw.