MGM: They’ll take Yonkers; Vegas gets flunked

MGM Resorts International‘s pursuit of a casino in Bridgeport has been revealed as the sham that it is. How? Because MGM and MGM Growth Properties just plunked down $850 million for Empire City Casino in Yonkers, putting them squarely in the much-coveted New York City market, 15 miles from Times Square. (Genting Group‘s Resorts World Catskills is officially toast.) Of the total purchase price, $625 million will be paid from MGM to MGP in the form of rent. An additional $50 million will be paid to Empire City’s current owners if MGM can get table games by Dec. 31, 2024. On top of $245 million in debt, MGM will chip in $260 million in new equity to Empire City. “It is noteworthy to us that the seller preferred to take MGM equity versus the high-dividend-yielding MGP,” wrote JP Morgan analyst Joseph Greff.  Empire City is projected to generate $230 million in revenue and $70 million in cash flow this year. MGM paid an exceptional 12X cash flow for the racino, but this drops to 7.5X when redundancies are eliminated and is hoped to fall still farther, to 6X, after MGM makes its planned enhancements to the property. (Understandably, MGM prefers the latter number.)

“Overall, if MGM is able to execute on targeted costs and revenue enhancements, we view this as an attractive, geographically diversifying, not-bet-the-ranch type of tuck-in acquisition,” Greff concluded. His opposite number at Deutsche Bank, analyst Carlo Santarelli, noted that MGM “will also receive a right of first offer on undeveloped land adjacent to the property.” Knowing MGM, it’s not its style to merely run racinos. Expect it to double down on its purchase with some stylish amenities and sooner rather than later. Except Genting’s Resorts World New York, all other operators have been checkmated in their attempts to get at the lucrative New York City market. Well played.

* As for MGM’s home turf, Las Vegas, blogger Irma Zandl takes a slice of life in Sin City and doesn’t like the way things are trending: “Notably fewer tourists and way more homelessness … My overall impression of Vegas based on this last trip: shabby, cheerless, defeated. A city that has seen better days.” You’d think she was talking about Atlantic City before the big casino shakeout. Zandl cites several factors but zeroes in on the #MeToo movement as inhibiting a business base of randy conventioneers. “If I were a CEO of a major firm, especially one with a predominantly male sales and executive team, I would put the kibosh on all Vegas trips. Erring on the side of caution is the only way to go for the foreseeable future,” Zandl opines.

She adds, “I anticipate we will see more conventions relocating to less salacious cities, ones with greater cultural offerings that appeal to both genders,” a really worrisome trend were it to manifest itself. Zandl’s take on Vegas is so negative it would make Las Vegas Convention & Visitors Authority President Rossi Ralenkotter blow his brains out, especially when Zandl gets around to predicting a five-year slump in business in Vegas, maybe longer. “There are simply too many temptations and too much can (and will) go wrong. It’s not worth the risk to the business,” she argues. It’s a minority report these days but a 10-month slide in visitation does give on cause for concern. We’re definitely keeping a watching brief on Vegas tourism.