By signing a lease-back deal to sell the Bellagio Las Vegas, MGM made it clear that they want to be known as an asset-light company in the future. Jim Murren, Chairman, and CEO, recently informed investors that he would be looking to liquifying even more assets to finance projects and restore balance to MGM’s finances.
Amongst other venues, the MGM Grand Las Vegas was mentioned as a possible candidate for sale. This is the operator’s flagship casino, but no one should be surprised, given the fact that the company is changing its direction. With both confirmed sales and rumors considered, it’s safe to say that this approach to finances will set a precedent in the gaming industry.
Moving in the Right Direction
MGM Resorts Int. recently got rid of a major asset, the Bellagio Las Vegas Property. Their deal with Blackstone Group LP consists of a 30-year lease-back arrangement, worth around $4.2 billion. This, however, has not been the first time MGM tried to liquifying its assets. They already sold the Circus Circus Las Vegas for $825 million. Industry experts were initially worried that we might see the dissolution of MGM, but it all turned out to be a part of Jim Murren’s master plan.
He reiterated that both customers and stakeholders should relax, stating that the transactions are “blueprints” for future arrangements of the sort. The company’s goal is to maintain the same level of service provision, but with more liquid assets at their disposal. It’s a smart approach to an increasingly competitive market. Murren confirmed that MGM Resorts Int. are indeed looking to complete the monetization of the MGM Grand Las Vegas before the end of this calendar year.
What does MGM actually get by doing this? First and foremost, they get a significant financial injection that they can use to finance some of their projects abroad, such as the bid for an exclusive location in Osaka, Japan. Secondly, they also intend to complete country-wide sports betting rollout as soon as the legislative conditions are appropriate.
A Proper Series of Moves
Having a fire sale of all of their iconic venues allows MGM to return a big chunk of capital to various shareholders. Not only this, but an “asset-light” approach is the best way to ensure they don’t experience any significant losses, while still remaining competitive when it comes to expansion plans, both domestically and internationally. However, not everything is ideal, as the sale of Circus Circus Las Vegas resulted in a $37.1 million instant deficit during their quarterly audits. However, the next three-month period resulted in a 9% rise in profits, reaching $3.3 billion.
Despite the initial numbers, Murren confirmed that MGM predicted these short-term losses, but that he’s hoping for a significant financial boost during Q4. This period is known for its various conventions, which become a perfect introduction to the wonders of Vegas during wintertime.
What About Osaka?
With casino gambling being legalized in Japan only recently, both cities and operators are frantically trying to think of a deal that would win the government over. Since the country is relatively inexperienced when it comes to this niche, insiders believe that the authorities will pick the most reputable operators, one which has an abundance of liquid assets to provide the finances up-front, if needed.
MGM certainly fits the bill, as they’ve managed to expand internationally for some time now. Market surveys have revealed that, at least structurally, Japan’s market is very similar to Singapore’s and that MGM will receive a 20% return on investment if we’re looking at the total cost of $10 billion for the construction and development to take place.