Two Way Hard Three | Las Vegas Casino & Design Blog

March 14, 2009

WSJ: MGM Mirage Facing Breakup

Posted by Hunter

An article in the Wall Street Journal today discusses the possibility of more asset sales at MGM Mirage - perhaps enough that it may look more like a breakup of the company than just shedding a few hotel rooms.

(if that doesn't work, you can probably access through Google here)

While MGM Mirage shareholders might not love the idea of the best assets being sold off at potential fire-sale prices, maybe this would be good for The Strip and Las Vegas.

As others have said, when ARIA opens, will Bellagio suffer? If it had a different set of owners, they could compete head-on, full bore.

One thing is for sure - MGM Mirage has bet the farm on City Center.


Read archived comments (38 so far)
March 14, 2009 9:12 PM Posted by TC from Boston

I think MGM should keep City Center, Bellagio and MGM Grand, everything else must go. As silly as that sounds. They should keep core properties that they can hold onto, rally around and survive with. For the time being they need to focus solely on them and the market each one would bring in. With Bellagio and City Center, they can keep there big names and stay after the high end markets and conventions. With MGM Grand its big enough and diverse enough (the arena and what not) that they can continue to hit basically every other market that needs to be targeted on the strip, while not stretching themselves to far. Everything else, why bother trying now. If i'm on that board I want to salvage basically everything I can, and rallying around a few properties that will work for the company and not just sell for selling sake, remake the brand into something that will work for them.

March 14, 2009 9:18 PM Posted by Hunter

I haven't given this all that much thought but I think you could argue they'd be better off keeping something like:

* City Center
* Mandalay Bay
* Circus Circus
* The Mirage
* MGM Grand
* Beau Rivage
* MGM Grand Macau
* MGM Grand Detroit (if they don't get an offer they can't refuse)

and selling the rest. That gives them a toe hold in a bunch of different market segments, less overlap (i.e. Bellagio vs. Aria) and clearly if they can get anything near what they are worth, a ton of cash to 'fix' the company.

It also lets them keep their name and have it make sense, though I would assume that's a secondary concern.

March 14, 2009 10:10 PM Posted by mike_ch

People seem to not enjoy the idea of Bellagio as anything but a top property, but it's already owned and paid for, right? If they ran it as a lesser, sub-Aria property, they wouldn't make as much money but they'd be full every night. They also wouldn't necessarily be losing any money either, just losing potential money they might make if Bellagio ran against Aria as top properties, which would be really difficult to do.

On the other hand, if they want to sell, the deadline is about this fall. Past that point, you can't really tell buyers it's one of the best places in town unless some more sites are halted.

I think this whole maximizing returns business where an imaginary dollar lost is as tragic as a real one has to be cut back on. It's that kind of thinking that led to these shackles of debt in the first place. I know for whatever reason Wynn did an about-face on his "fill the rooms" strategy (maybe because his operational costs are very high) and the short-term minded Wall Street people approved of it, but in the case of something like Bellagio, you only NEED to make enough money to keep paying the bills to stay open, however much above that is gravy.

I guess what I'm saying is, if you priced Bellagio more in line with where lower-end Caesars and MGM Grand and Planet Ho and I guess Paris are right now, it would lose some prestige (but probably maintain some out of nostalgia ala Caesars) but almost certainly dominate that price level. When demand is tumbling so fast and there's this much supply, it's worth losing some POTENTIAL profits to be made by catering to high-end clientele to be the go-to place for a lower market. Especially if you already have a high-end place.

March 14, 2009 10:23 PM Posted by Hunter

What makes you think that the operating costs at Bellagio aren't just as high?

5 star service is expensive and from what I hear, it's already cut to the bone over there. Losing their best casino hosts, hotel managers and housekeepers to the new place next door will not help Bellagio's competitive position.

If they can sell Bellagio for a good price (big IF - I know), why not offload it when it is a top earner (it still is) versus a year from now when things are even worst than they are today.

March 14, 2009 11:45 PM Posted by John

First-hand occupancy numbers... absolute low-end 83%. This weekend that property is still killing it, 100% for Friday and Saturday. Whatever they do to fill those rooms, it is still working.

Does anyone else feel that older Vegas-goers are put off the scope and size of CityCenter? Half of the complaints I hear from the B's guests are that it's going too modern. Bellagio is still pretty large, but it still feels smaller compared to The Venetian, Caesars, even Wynn.

March 15, 2009 2:51 AM Posted by Dramman

I think I mentioned it somewhere, but there has been a rumor for about four or five months out here that the MGM Macau may be sold. It started after they took a chainsaw to its opening management.

March 15, 2009 5:03 AM Posted by uconncraig

When Mike says "however much above that is gravy", I think he misses their entire problem. The issue is not whether Bellagio as a stand alone property would be a cash cow , I think that is a given. The issue is that the entire company is not kicking off enough cash flow to service the 9.5B worth of existing debt and to secure the 1.5B needed to complete City Center. Their cash flow has dropped 50% from 2B to1B .

My guess is that who owns what in Las Vegas one year from now will be dramatically different than today.

March 15, 2009 5:39 AM Posted by detroit1051

Hunter, your list is interesting. From a personal point of view, I hope MGM does not sell MGM Grand Detroit. It is one of the very few bright spots in downtown Detroit, and MGM operates it as a first class property. Detroit's revenues are higher than Luxor, TI, NYNY, Excalibur, Circus Circus and Monte Carlo. I'm afraid someone will make an offer MGM can't refuse.
I'm not sure Beau Rivage will remain with MGM.
I haven't thought much about this, but Florida's Seminole Tribe has done an excellent job with their two Hard Rocks in Tampa and Hollywood. Now that they own the Hard Rock brand, they're looking to expand into commercial gaming jurisdictions. Since they keep running into obstacles put in their way by Florida's myopic legislators, I wouldn't be surprised to see them at least evaluate Biloxi and perhaps a Strip property. The management team is certainly capable of expanding beyond Florida's tribal casinos.

March 15, 2009 7:46 AM Posted by Jeff in OKC

I found the explanation of leveraging ratios in the industry, and how it compares to other industries, quite informative. If we are worried about MGM at 7 times earnings, what do we think about LVS and Harrah's at 9?
I feel other parts of the article are less well researched, or reported. I think a listing of land values should have topped out at the approximately $34 million per acre paid for the Frontier, instead of $19 million reported. I think reporting increasing room inventory coming on line soon should have included the 4 thousand (?) room Fountainbleau more than a room addition at the off Strip Hard Rock. I took the end of the article to infer that Las Vegas doesn't realize that they're going to need another airport, and have made no attempts address that need, which makes me wonder if the author knows anything about the Ivanpah plan. I think I've read better articles about this subject on the RateVegas Blog, in the comment section.

March 15, 2009 8:45 AM Posted by cgriff

I was not a happy camper when Mandalay sold out to MGM, and would like to think that the current situation might allow for the Manadalay Resorts Group to go their own way again. Wondering what the collective wisdom here thinks about that? Probably not very likely?

March 15, 2009 2:03 PM Posted by mike_ch

cgriff, I think the southernmost trio would be the likeliest sell in a normal market.

And Hunter, I know 5-star prices are high, that was why I was thinking it might "drop down the totem pole." If you ran it as a 4(.5)-star place you'd make a killing and possible force the market downwards a ways just because if the place had the same level service as Mirage does right now, it'd still be popular because it's a great location and the building is dang nice. And then you wouldn't have Aria and Bellagio cannibalizing each other's profits so much.

We always keep hearing about how today's Bellagio is tomorrow's Mirage, and how today's Mirage is tomorrow's Flamingo, and today's Flamingo is tomorrow's Tropicana, etc etc etc. It takes a managerial decision and competition to make that happen, and the Strip has lacked a lot of both of that recently, as companies have been investing a lot into their old 5, 4, and even 3 star properties so they can all charge as much as the market will bear. And since then the demand for luxury properties has decreased significantly and the competition has improved.

I feel they have until fall to wait for economic recovery and then they have to make a decision to either sell the place, or lower room rates and minimums and try to dominate the current Paris/PHo/Rio/MGM Grand tier. If they do the latter, it will put pressure on the others aside from Wynn to do the same (Bellagio for $100 or Venetian for $180? Hmmm.)

Deliberately lowering the place will make it worth less in a sale, so it really only should be done if they can't get someone to take it. But if they do it, they have the killer for that price point. I just feel having the most popular 5 star place and the most popular 4(.5) star place is better than having the most popular 5 star place and a struggling 5 star place.

March 15, 2009 4:45 PM Posted by chuckmonster

I'm not exactly sure if it's for precautionary reasons or just a way for them to divide their operating segments, but Harrah's has a property org chart as well, which you can see in their latest filing. Some of the ways the properties are divided do reveal their priorities though. Essentially Harrah's has three segments: Harrah's Entertainment (HET), Harrah's Operating Company (HOC), London Clubs (the LCI acquisition). Caesars Palace and Caesars A.C. both throw revenue into HET and HOC, but aren't mentioned as belonging to either group in the release (see page 27 )

They are also doing some shuffling of properties between groups:

HET (current)
Harrahs Las Vegas
Flamingo Las Vegas,
Harrah's Atlantic City
Showboat Atlantic City
Harrah's Lake Tahoe
Harveys Lake Tahoe
Bills Lake Tahoe

HET (future)

Harrah's Las Vegas
Flamingo Las Vegas
Harrah's Atlantic City
Paris Las Vegas
Harrah's Laughlin
[adding to Harrah's Entertainment (HET)]
Paris Las Vegas
Harrah’s Laughlin

[removing to Harrah's Operating Company (HOC)]
Harrah’s Lake Tahoe
Harveys Lake Tahoe
Bill’s Lake Tahoe
Showboat Atlantic City


Harrah’s Lake Tahoe,
Harveys Lake Tahoe,
Bill’s Lake Tahoe
Showboat Atlantic City

...everything else not in HET : riverboats, ops agreements (Rincon etc.), slot parlors (Chester), smaller markets (Reno, Tahoe... but NOT Laughlin).

One could argue that HOC are non-core assets, which could be unloaded should the need arise. Caesars and Ballys (LV & AC) missing from all of these lists is curious as well and could imply the same.

March 15, 2009 8:02 PM Posted by NavinR

This is the first article I have read which includes the idea of the sale of Bellagio. Wynn has far less debt than MGM and has no new construction to finance. Does Wynn have the financing and the interest to buy Bellagio back? A possible equity offering to raise cash?

If Aria forces Bellagio down a notch, has Wynn already done that, thus making Bellagio a good complement to Wynn and Encore? This is just a thought. I know Wynn has said that he has no interest in buying--he likes to build. And, he's probably got his hands full with all the rooms to fill at Wynn and Encore.

March 15, 2009 10:30 PM Posted by Tom M.

I would keep Bellagio as a first class facility due to brand recognition and curb appeal. Why not open Aria as a four star hotel and not compete directly with Bellagio. Frankly, after the "new shiny object" attention wears off, I would rather stay in Bellagio than what I have seen of Aria. I am not that comfortable with modernist architecture.

March 15, 2009 11:07 PM Posted by mike_ch

Tom: Small rooms, also they've pretty much committed to shareholders that Aria is the most important operation.

NavinR: "He likes to build" is the official line, but honestly I think if Wynn refused to buy if he got the right deal it'd make him a bad businessman. Realistically, the golf course has enough land for Steve to build whatever he wants until he can no longer build for health reasons.

Buying Bellagio might not be a fun move for Steve Wynn, Dreamer/Architect, but it's probably a smart move for Wynn Resorts, which has to keep on running even after Steve has retired.

March 15, 2009 11:31 PM Posted by John H.

Mike: Remember that Aria's rooms are only ten square feet larger than Bellagio's. Yes, they have a private water closet and a double sink vanity, but other than that, they are really no differences--oh, and the lack of armoire in the case of the main tower--between the two. There could be something said for the novelty and "modernity" of Aria, but unless the casino and adjoining facilities are truly mind blowing, I see no reason why or how Aria could be considered any nicer or more luxurious than Bellagio.

March 16, 2009 3:48 AM Posted by detroit1051

"MGM Grand Detroit's profitability is likely to catch potential buyers' attention: The casino is MGM Mirage's fifth-most profitable. The company's signature Bellagio complex in Las Vegas is the most profitable, sources said."

I don't know whether the Detroit News has any new information or is just reacting to the weekend's Wall Street Journal report. Regardless, it is amazing that MGM has made its casino/hotel in the country's most depressed city the corporation's fifth most profitable property.

March 16, 2009 4:00 AM Posted by detroit1051

Mike_ch has nailed it. If Steve Wynn got Bellagio for the right price, he would buy it. No one knows the property better than Steve, and I believe Wynn Resorts could bring Bellagio back to its glory days while profitably positioning it third behind Encore and Wynn Las Vegas. Mike pointed out the golf course property as being all the land Wynn needs for new development. Las Vegas' need (and ability to absorb) additional rooms and convention space may be years away, perhaps after Steve no longer is active in Wynn Resorts. Again, based on the deal, Bellagio could be a smart and profitable move for Wynn and shareholders.
In looking at photos of the Spring flowers in Bellagio's Conservatory, it would be a shame for someone shortsighted to buy the property and turn that area into a mini-mall to save money.
If Steve were to buy Bellagio, he would need to spend many millions to bring it back to his standards.

March 16, 2009 10:40 AM Posted by Dave

Anybody want to put a hypothetical price tag on some of these possible sales? If there was a buyer, how much do people think, for example,. the Mandalay Mile trio would go for? Or Bellagio?

My own dark horse scenario has Cannery Resorts buying Circus Circus. It's purely speculation, but if you think about it, it makes some sense: Paulos and Wortman started with Circus Circus Enterprises, and they've already been successful marketing at value properties. While Penn National might not be excited about getting the pink and white big top, Cannery might be.

March 16, 2009 10:40 AM Posted by Las Vegas USA

It will be interesting to see how the strip reinvents itself for everything to stay alive and keep moving. City Center was just bad timing.

March 16, 2009 12:03 PM Posted by Brian Fey

Never say never, and sure Wynn would buy Bellagio back for say 1 Billion, or some stupid price, but realistically, I think he has no interest really. Steve looks forward not backwards. 10 years from now, the golf course is still a better location, than Bellagio, as the Strip moves north, and he sits between the 2 large convention centers, and possibly his own. I just don't think Steve would be interested in paying a fair price, that MGM would be willing to sell Bellagio for. If it was a fire sale, sure, I'd be a buyer for the right price, but I just don't see this happening. I'd rather see Steve buy into MGM to help them out, they he could get back his deal with Cirque, and WET Design, and various other people. Its pretty bad, that here we are almost 10 years later, and Steve's biggest competition is still Steve's old properties. Just shows you how far behind everyone else is when it comes to the game.

March 16, 2009 12:19 PM Posted by Lance

Wasn't there something a few months ago about MGM Mirage wanting to capitalize on the 'Bellagio brand'? I can't recall where I read it, but from that artice I got the impression that seeing Bellagio Macau in the future was a possibility. This of course, was before the current worldwide economic climate - as well as MGM Mirage's. I do agree that the Bellagio brand is something that is well known outside of Las Vegas to many - and is synonomous with luxury.

I don't really see the Bellagio becoming anything less than a top tier property (intentionally anyhow) in the near future. It has held onto its stature well. The "today's Bellagio is tomorrows Mirage" thought seems somewhat misguided. Eleven years after Mirage's opening it was a property that was showing age and had been surpassed. Eleven years after Bellagio opened - Bellagio is still The Bellagio.

I personally am not keen on the idea of furthering the Bellagio brand outside of Las Vegas, but it could be profitable. And (as a 5 star property) it is certainly a selling point to interested buyers.

I also believe that winthin the high end market, Bellagio will always have its loyals. It lost some audience to Wynn/Encore and that is understandable. The Wynn property furthered the design aesthetic of Bellagio. But Aria is something completely new and foreign - and could possibly alienate the Bellagio guest. (A view which seems cemented by the responses on this panel that seem to have disdain for the modernnity of Aria/City Center).

March 16, 2009 12:55 PM Posted by Lance

Brian Fey - I had not heard that WET Design was licensed exclusively to MGM Mirage. I suppose it kinda makes sense, though I see a big difference really between an exclusive contract with Cirque du Soleil - a name above the title type of producer. And, WET Design, a company that is outsourced to design a componet of the resort. I would think of WET like Todd Avery-Lanahan/ABA. They have been hired to do design at multiple properties on the strip.

Wynn did use WET Design for Wynn Macau, right?

Who designed the water features for Lake of Dreams?

March 16, 2009 2:32 PM Posted by Ken

So what about Circus Circus? I read somewhere (maybe even this blog) that CC is the most profitable property in the whole chain based on net revenue vs. expenses. That has got to be worth something...

March 16, 2009 4:23 PM Posted by socalduck

No question MGM Mirage needs to sell SOMETHING so they can raise capital. To me, the bigger question is who has the money to complete one of these deals? One name I think is overlooked is Goldman Sachs/Whitehall Street. A property like Circus Circus, Excalibur, MC, or Luxor would be complementary to their value-focused properties like the Stratosphere and Arizona Charlies. For political reasons, Goldman may be loath to strike a deal so long as they have the TARP cloud hanging over them, but my understanding is that they are moving to unshackle themselves from the Fed within the next year.

March 16, 2009 4:48 PM Posted by Jeff in OKC

I think, short of bankruptcy, MGM will never allow Bellagio to go to Wynn. They'll have enough trouble opening a high end property in this economy, much less competing with the most famous name in high end properties reacquiring the most famous name in high end Casinos right next door! Even the CityCenter sales office is in Bellagio. Talk about awkward.
CityCenter may help cannibalize the market, but at least MGM would still own more of the high end market than anyone else.

March 16, 2009 5:37 PM Posted by NavinR

Wynn just sent out a press release about a new stock offering... last night it was a guess! I can't imagine he would want/need the cash so badly with the stock at $20 unless he really wants to buy something and was getting a good price. Unless he is trying to refinance debt, but I don't see equity issuance as the best way to do that.

We'll see what he does with the $$.


March 16, 2009 6:08 PM Posted by John H.

Lance: When Steve designed and opened Bellagio, he signed a definitive exclusivity agreement--in the Las Vegas area--with WET. However, when MGM purchased Mirage Resorts, they inherited that exclusivity contract, thus preventing Wynn or any other operator from using their services in the Las Vegas market. That didn't prevent Steve, though, from utilizing their services, as you mentioned, for Wynn Macau. In terms of the Lake of Dreams, I remember hearing that it's completion was the product of multiple "designers." That is to say, the screen/waterfall was probably Marnell's responsibility as the the mountain was completed. The "lake" and it's water features could easily have also been his work. The only other component were the lighting and projection features, which I had been under the impression had been completed by the lighting designer who was responsible for many of the Rolling Stones' concert lighting choreography. I believe, and take my information at arm's length, that the above-mentioned designer was also responsible for the filming and production of the individual freak-out segments that in effect create the Lake of Dreams--however imperfect they may seem to be at times.

March 16, 2009 8:54 PM Posted by joe

if things gets tough and MGM Mirage breaks, I think that Kerkorian will try to take City Center and Bellagio private again.

March 16, 2009 10:33 PM Posted by Lance


Thanks for clarifying that.

You are correct about the lighting for the Lake of Dreams. I do know that Patrick Woodroffe, the LD for the Stones among others, did do work on this. As for him creating the video segments, I'm not sure. I know in its inception it was announced that Franco Dragone was to be involved with some of this (early reports listed him as creating two shows for the WynnLV/Le Reve property), though in the end I believe his effort went all to Le Reve - the show.

Kenny Ortega did work on conception/staging of the Lake of Dreams show, though I'm not sure of his full involvement either. And here is a question: I know that Ortega did stage the Sirens at TI show but did he also do the original Pirate Battle? Also, wasn't his name attached to the Fountains of Bellagio show when that property first opened?

March 16, 2009 11:29 PM Posted by mike_ch

Not sure how. Kerkorian's fortunes have been devastated over the past year, if I've read correctly. I don't think if MGM breaks that he can afford to take the best pieces and walk away.

March 17, 2009 4:41 AM Posted by Hunter

Ortega and Wynn are old friends. He did work on some of the original Bellagio shows. Not sure about the first pirate battle though.

March 17, 2009 8:00 AM Posted by detroit1051

From the Saturday WSJ story:
"Mr. Kerkorian's 149 million shares were worth $14.9 billion in October 2007, when the stock was trading at a high of $100.50 per share. Shares finished at $3.45 Friday on the New York Stock Exchange. Mr. Kerkorian's shares are now worth around $500 million dollars."
I agree with Mike_ch. Kerkorian is no longer in a position to save part or all of MGM Mirage. Kerkorian was allegedly quoted last year as saying he has lived a year too long.

March 17, 2009 8:08 AM Posted by detroit1051

I believe this analyst is wrong. Steve is in a good position to successfully complete an acquisition.
"Wynn Resorts Ltd. is unlikely to use proceeds from a new common stock offering to make acquisitions, an analyst said Tuesday.... Steven Kent of Goldman Sachs doubted acquisitions would factor into the equation. "Although there may be some opportunities to purchase assets over the next several months, we would be surprised to see Wynn pursue this, given its lack of a track record on acquisitions," he wrote in a client note."

March 17, 2009 1:01 PM Posted by Andy S

I think that MGM selling strip properties is good from a customer perspective with MGM and Harrahs currently having a virtual monopoly on most of the strip.

I was never convinced by the City Center project and the condos, it was very risky project and they also had terrible timing. I still dont know if they are going to be able to sell rooms at Aria for much (if any) premium over Bellagio rooms, Bellagio is an iconic property.

I could see Wynn buying back Bellagio, but only if he got a great price (dont see MGM selling it though, unless they got a great price).

March 17, 2009 1:02 PM Posted by Hunter

I sometimes forget that MGM Mirage is betting the company on a property they only own half of (City Center).

March 17, 2009 2:03 PM Posted by LeoNYC

This recession will not last forever. It will definitely reshape the big gambling industries and I think some of us may even be surprised about what is going to happen in a near future. But one thing we can not deny: City Center is a huge property that will generate more money than any other property when the economy bounces back. I believe it can be the most profitable complex on the strip until Steve Wynn (re)develops his Golf Course. Mega Center (is that really the name for the Venetian-Veneza-Palazzo complex?) has +4,000 rooms and the largest convention area, but is not as modern as City Center. I think that's why MGM is betting the company on that property.
As far Bellagio, man it would be so nice to see Steve Wynn buying it back. It is the Master-piece of the Strip. Even if he doesn't buy it, I'd prefer to see one person buying it instead of any other big corporation.

March 17, 2009 3:06 PM Posted by mike_ch

Yeah, the recession won't last forever but I think 2006-2007 was overvalued and we're no longer going to be seeing five or ten cranes hovering over the strip all the time.

At least, I hope not.