Two Way Hard Three | Las Vegas Casino & Design Blog

We're doing a Vegas Gang episode on Thursday so I guess I should just say thank you and leave it at that. This is great material.

Instead, I'm going to once again report on difficulty for MGM Resorts International - profits are still a Mirage - they just can't Wynn (get it?!? I'm so clever).

When a company does an early release of their financials and it includes several bullet points and a few paragraphs of figures, always read it in reverse. The most interesting stuff is always hidden behind a smokescreen of PR-speak.

The part of the company not infected with the virus that is CityCenter continues to deflate - down 13% for wholly owned operations (it was -16% last quarter). CityCenter may be a debacle but MGM needs the other places to keep the lights on.

As for Borgata, they did get an offer but it's below the amount they've been carrying on their books for the asset so they'll be taking a write-down this quarter to align their books with... well, reality. Will BOYD also have to do a write-down? I'd say probably.

When the Borgata thing is eventually settled, they'll not only get the cash from the sale but also their share of operations put into trust since the Pansy Ho debacle. That'll be one fat quarter when it hits but that's like when the drug dealer comes to your house and opens up his briefcase. He's not moving in, don't get too excited.

Say what you want about Borgata - and Atlantic City is certainly in trouble - but it is the top property there and has been helping to fill Jimbo's bank account every month. MGM may not have had much choice when it came to selling but that cash-flow is going to leave a hole of at least some size once the post-sale hangover wears off.

Interestingly enough, the day after we get news of improved Strip numbers (up 21%) for August, MGM reports taking an almost 10% hit in casino revenue for the quarter. How is that supposed to jive? This story cites baccarat as a bright spot but MGM's bac volume was down 6%. Does that mean that September cratered? Or were all these gains elsewhere? MGM still controls a huge percentage of the high-end bac play so this seems a bit odd.

As I previously wrote in my series on CityCenter, MGM is now going back to the markets for capital - they have loans of over a billion dollars due next year that they need to pay off. It will be interesting to see how much this influx of supply will impact prices on the open market. Much to the Swami's chagrin, stock was down 6% in after hours trading.

There is some good news, something else that I hinted at in my previous series - Aria is starting to swing over to the profitable side of the fence. It's had good volumes but this time around it got the hold percentages it needed to post a number in the black. ADR and REVPAR for Aria are both improving.

So I guess everything's fine...


Read archived comments (7 so far)
October 15, 2010 7:04 PM Posted by Brian Fey

The Swami's pretty happy, they are diluting the stock by 10%, and the stock is down less than that amount. They are walking away with about $500M from this new offering, which will lower their debt by that equal amount. They still have the Borgata sale, the MGM Macau IPO, also which should also help improve their balance sheet. Its not to late to join the party, in 3 years, you'll look back, and wished you would have boughten MGM at today's price. I almost guarantee it. Don't me wrong, Steve Wynn is by still the best and brightest in the business, but MGM stock doubles, from here long before Wynn will. I own both, so either way, I Wynn! :)

October 15, 2010 7:05 PM Posted by parchedearth

Not sure how much Borgata has been generating over the last year (MGM only gets 50% and maybe less if Boyd gets a manager's cut)

Aria was only profitable because the number was before interest payments (EBITDA). That said, long term Aria by itself should do fine. It is the rest of CityCenter that is the problem.

While Mirage's ADR is going up (some floors are still closed?), I continue to get offers for cheaper rooms at Excal, Lux, and NY. Just got a text offer for $22 for Excalibur (w/ $10 dining credit). It seems like the lower end properties continue to drop, while the top properties are starting to recover.

October 15, 2010 7:05 PM Posted by chuckmonster

How long till they give Jimbo the boot?

October 15, 2010 7:06 PM Posted by jay

At the End of the day, MGM is worthless. This is a stock trading in Bubble territory and one day dont be surprised to wake and see that they file Chapter 11,and wipe out shareholder equity Period. Look at their Balance sheet, it says all that you need to know! Its no Wynn or boyd...its bleeding cash and City center is gonna be the death of them. Case closed!

October 15, 2010 7:13 PM Posted by Hunter

Honestly, the Murren thing is my main question. How the fuck can that guy still have a job?

October 18, 2010 9:32 AM Posted by Brian Fey

Wow, Jay you must be short MGM. You saying all their assets are worthless? Perhaps we should put a friendly wager on the fate of MGM, since you sound so sure?

Hunter - Do you think Bobby Baldwin would want the job, do you think he is capable of running the whole operation? I really don't think Murren is going anywhere, but I would think he'd be the next in line for the position?

October 18, 2010 2:11 PM Posted by Hunter

I think the Baldwin thing is interesting because it depends on perspective.

On one hand, he's in charge of CityCenter so if there's going to be major fallout from the problems there, it would be hard to ignore that - what actually might be more likely is that he gets canned and Murren stays.

Let's say Murren does go though - they would be crazy to get rid of both Murren and Baldwin. Baldwin has a lot of operational experience and he clearly has the ambition - after playing second fiddle to Wynn for years, he stayed on at MGM so that he could have more responsibility instead of going with his former boss.

Baldwin would be a top candidate but I also think people like Gamal Aziz have proven themselves to be very capable and could be contenders for that spot as well.