When you think of the Las Vegas Strip, most often than not you think of iconic properties like MGM Grand, Bellagio, Wynn, Caesars Palace, Luxor, Venetian, Encore and Mandalay Bay. All of these properties (and many more) are effectively run by the 4 major players – MGM Resorts International (MGM), Las Vegas Sands (LVS), Wynn (WYNN) and Caesars Entertainment (CZR). In this post, we will focus on MGM Resorts International and analyse its geographical spread, footprint and operations.
MGM Resorts International as it stands today was incorporated in Delaware in 1986 and acts a holding company for multiple hotels, casinos and resorts across the United States and Macau. It divides its financial reporting across three major segments – Las Vegas Strip Resorts, Regional Operations and MGM China. The final segment reported by MGM, CityCenter, is a joint venture between MGM Resorts and Infinity World Development Corp. and includes Aria and Vdara hotels located on the Las Vegas Strip.
The Las Vegas Strip casinos under MGM include household names like Bellagio, MGM Grand, Mandalay Bay, The Mirage, Luxor and New York-New York. The table below is taken directly from MGM’s 2019 Annual Report and gives a breakdown of its locations across US and China. Macau, the world’s largest gaming market in terms of revenue, remains an important growth pillar for the company and MGM Cotai and MGM Macau are positioned to do exactly that.
Revenues
In terms of revenue split across the three segments, the Las Vegas Strip Resorts along make up 47% ($5.8bn) of MGM net revenue with regional operations contributing 29% ($3.6bn) and MGM China making up the rest with 24% ($2.9bn) of net revenue in FY19. When it comes to revenue growth however, the saturated market of the Strip showed the least growth with a 2% y-o-y increase. The regional US domestic operations and MGM China were the real growth drivers with about 20% revenue growth compared to FY18. Visitor numbers of course had a key impact on revenue growth. While Macau visitor arrivals increased 10% compared to 2018, the Strip only saw an increase of about 1%. In both markets, MGM did well to deliver revenue growth ahead of arrivals. Keeping the strong revenue growth of regional operations and China in mind however, it is easy to see the focus MGM places on these two segments in its 5 year plan.
What is interesting to note is that although gaming is what MGM is known for, over half of its domestic net revenues are generated via non-casino operations like food and beverage, hotel and entertainment. Unlike MGM’s domestic operations however, MGM China’s net revenues are primarily driven from its gaming operations and that is a big differentiating factor in how these segments are operated for profit.
The table below shows an extract from MGM’s 2019 annual report and illustrates the disparity in casino and non-casino revenues across the three main segments. The Strip Resorts generate less than 25% of their revenues from casino operations, Regional Operations generate about 70% from casino operations and MGM China relies on Casino operations for approximately 90% of its revenues.
Profitability
MGM announced profits on an Adjusted EBITDAR basis of $3bn for the year ending December 2019, an increase of 6% compared to 2018. Over half of those profits came from the Strip with Bellagio alone accounting for $465m. MGM’s regional operations generated just under $1bn in EBITDAR ($970mn to be exact) and MGM China accounted for $735mn. The extract from MGM’s 2019 annual report below shows EBITDAR breakdown by property.
Future Growth
Aside from its focus on growing its regional footprint in the US as well as its operations in Macau, MGM is looking to be one of the major companies to establish a footprint in Osaka, Japan. The Japanese market has strong fundamentals, high disposable income and an affinity to entertainment that provides a strong foundation for gaming growth and attractive shareholder returns. The Japanese government is focused on a few large scale operators capable of developing Integrated Resorts close to major population centres and to date only Osaka has signalled a desire to host one. MGM has therefore adopted an “Osaka-First” strategy and is looking to differentiate itself from competition by collaborating with regional builders, seeking to understand the values and tradition of Japan and entwining these within any future Integrated Resort.
It is still early days for the “Japanese Opportunity” to materialise for MGM but what it does show is its clear desire to expand its international footprint and reach. With increasing competition on the Strip, the domestic market as well as in Macau, a chance to establish itself in one of the relatively untouched markets of the East could very well pay dividends in the long run. In the short to medium term however, the Las Vegas Strip will continue to be the Group’s cash cow and how these iconic properties are managed and operated will be a key determinant of future cash flows and in turn its growth.