MGM Mirage Deals while Vegas Loses
US$8-Billion Project CityCenter on Las Vegas Strip Proceeds
When MGM Mirage (nyse:mgm) announced that its overall casino revenues dropped 3% in the first quarter of 2008, company management pointed to lower sales from table games including poker at its Las Vegas Strip resorts.
A close study of statistics in the Consolidated Statement of Operations for the quarter ending March 31, 2008 reveals that the lower table game revenues are only a symptom of a more fundamental problem with MGM Mirage. That is, the world’s second-largest casino operator is far too concentrated in high-end Las Vegas destination properties.
Hit with the double whammy of sharply higher gas prices and unemployment, MGM Mirage is now faced with fewer visitors at its casinos and even fewer players staying overnight at its luxury hotels.
MGM Mirage Revenue Statistics by Property
In first quarter 2008, Las Vegas Strip properties generated almost 85% of MGM Mirage’s US$1.9 billion in revenues. According to Standard and Poor’s, MGM Mirage owns over 30% of all Las Vegas casinos.
- Las Vegas Strip … US$1.55 billion – down 4.8% from 2006 (84.3% of overall revenue)
- Other Nevada properties … $36.9 million – down 17.1% (2%)
- MGM Grand Detroit … $144.8 million – up 24.7% (7.7%)
- Mississippi properties … $134.2 million – down 5.8% (7.1%)
- Other … $19.7 million – new (1%).
Las Vegas Strip properties had an even higher impact on company gross earnings, providing about 84% of that amount.
In China, Macau casino resort opened on December 18, 2007. Representing well under 1% of overall company totals, Macau’s US$10 million in income was reported separately on MGM Mirage’s balance sheet.
MGM Gaming Properties by Location
MGM Mirage owns and manages the following Las Vegas casino resorts: Bellagio, Circus Circus Las Vegas, Excalibur, Luxor, Mandalay Bay, MGM Grand Las Vegas, Monte Carlo, New York-New York, Slots-A-Fun, The Mirage and Treasure Island.
Other Nevada operations include Circus Circus Reno, Gold Strike and Railroad Pass.
Together with local partners, MGM Mirage owns and operates MGM Grand Detroit with its 400 hotel rooms. The Vegas-centric company also owns and operates the Beau Rivage and Gold Strike Tunica in Mississippi.
Also outside of Nevada, MGM Mirage owns 50% of an Illinois riverboat named Grand Victoria, the Atlantic City casino resort Borgata and MGM Grand Macau on the southern coast of mainland China near Hong Kong.
MGM Mirage Revenue Statistics by Business Segment
The following operations contributed to total company revenues during the first quarter, minus an adjustment for promotional allowances.
- Casino … US$790.5 million – down 2.6% (38.4% of overall revenue)
- Rooms … $518.7 million – down 5.5% (25.2%)
- Food and beverage … $402.4 million – down 3.6% (19.5%)
- Entertainment … $134.8 million – up 0.4% (6.6%)
- Retail … $64 million – down 6.2% (3.1%)
- Other … $148 million – up 21.2% (7.2%).
Down by 5.5%, MGM Mirage income from hotel and resort rooms was the company’s loss leader. This again points to the company’s overdependence on the Las Vegas Strip economy and tourist industry. Revenue per available room (REVPAR) for MGM Mirage’s Las Vegas properties fell from $162 to $155 daily while 60,000 fewer rooms were available to visitors due to a rooftop fire at the Monte Carlo.
A 3% decline in occupancy at Las Vegas Strip accommodations also had a ripple effect on the company’s nightclubs and restaurants. Food and beverage revenues dropped about 4%. Retail sales declined even more at 6.2%, however Entertainment revenues were steady due to popularity of MGM’s Cirque du Soleil shows.
For its existing operations, MGM Mirage has few options other than to downsize its 68,000 employees most of whom work in Las Vegas or offer discounts that entice more gamblers to visit its destination casino resorts on the Vegas strip.
MGM Grand Abu Dhabi
Last Fall, the company announced plans to build the MGM Grand Abu Dhabi, which will include:
- an MGM Grand hotel
- two additional luxury brand MGM hotels
- luxury residential with entertainment facilities
- high-end retail, dining and convention facilities.
Sinosteel International Plaza
In June 2008, MGM Mirage signed a joint venture in the People’s Republic of China to develop a non-gaming project in Tianjin called Sinosteel International Plaza which will hold:
- a 350-room luxury hotel the MGM Grand Tianjin
- 50-suite Skylofts at that MGM Grand
- 60 luxury condominiums with related facilities including a spa restaurant.
Project CityCenter Keeps Focus on Las Vegas Strip
MGM Mirage’s most ambitious expansion project will cost at least $8 billion. Known as Project CityCenter, this project will be built on 67 acres of company land adjacent to its Bellagio casino resort.
Scheduled to open in late 2009, Project CityCentre will include a large casino with hotel, two boutique hotels plus residential units.
Regardless of higher gas prices or the worsening U.S. economy, MGM Mirage’s management seems determined on maintaining more than 80% of its assets on the Las Vegas Strip.
