After the state of Massachusetts allowed three casinos in its territory in February, MGM Resorts (NYSE:MGM) recently proposed an $800 million project in Springfield.  The project includes the creation of world class dining, retail and entertainment center in about 10 acres, which was heavily damaged during the tornado in 2011.  MGM is competing with three other players for the casino license and the decision will depend on the state government and the local voters. MGM is looking to take advantage of favorable geographic and demographic factors in Springfield to geographically diversify and reduce its dependence on Las Vegas.
The proposed entertainment district will be spread over an area 130,000 sq. ft. including a 250 room hotel, 89,000 sq. ft. of gaming space and 70,000 sq. ft. for other facilities such as retail outlets and restaurants. 
- What Factors Can Drive Growth For MGM’s Macau Operations?
- The Springfield Casino Can Revive Gaming Growth For MGM Resorts
- MGM Resorts’ Posts Better Than Expected Q3 Results Amid Costs Efficiencies While The Key Takeaway Is Its REIT Proposal
- MGM Resorts’ Q3 Earnings Preview: Expect Macau To Be A Drag On Earnings While Domestic Hotels RevPAR Growth Will Boost The Overall EBITDA
- MGM’s Cotai Resort Has A Potential To Generate More Than $1 Billion In Annual EBITDA
- Domestic Hotel And Macau Casino Operations Will Drive MGM’s Future Growth
MGM Will Have Geographic And Demographic Advantage
Massachusetts is the third richest state in the U.S. Its per capita income is $ 7,000 higher than the average U.S per capita income.  As spending on casinos depends on the disposable income of the individuals, the entertainment district will attract gamers and tourists from all parts of Massachusetts.
Furthermore, Springfield is the third largest city in Massachusetts and is located in close proximity with Connecticut. The city is well connected with other major cities of Massachusetts and Connecticut by interstate 91 and 90. A space of more than three blocks is available for casinos and hotels in the middle of the city due to the destruction by a tornado last year. The proposed casino will be just 200 feet away from the interstate 91 thus eliminating transportation issues. 
Targeting Local Population
MGM is targeting the emotional aspects of the local population in order to increase its chances of getting the casino license. The design proposed for the entertainment district will be based on the local architecture. The company recently stated that it will completely restore the city’s legacy, The Union Station, to its full potential and integrate it with its entertainment district.  MGM plans to employ a trolley system between its entertainment district and other key locations in the city such as The Union Station. This will be a modern addition to an otherwise historic infrastructure. MGM expects that the city will welcome such modifications.
MGM, in its plans, has also proposed one and two-bedroom apartments at reasonable rates and new homes for the recently employed younger professionals.  The company has also created a website for MGM Springfield in order to reach every individual for providing them with the entire information on the development.  This will greatly help in building the company’s brand image among the local population, which will not only enhance its chances of getting the license but also help increase its customer base.
The management of MGM stated that the partnership will provide the city with essential resources and it will create more than 2,000 job opportunities for construction purpose, as well as thousands of permanent jobs after the completion of the project.  The Massachusetts state government will generate a significant tax income from the new industry. The company, which was the first to apply, is leveraging these aspects in order to grab the license and establish its brand value.
Impact On MGM
The slow economic growth, the legalization of gaming in the other states of the U.S. and increasing popularity of Macau gaming industry have adversely affected the Las Vegas gaming industry. While the major competitors such as Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) have set their roots in Macau and other places, MGM remains mostly confined to the Las Vegas strip. If MGM gets the license, it could prove to be a major step in its revival strategy. The company is trying hard in its quest be the first casino in one of the richest states of the U.S. The gaming regulators will begin the public voting once they have reviewed the financial statements and ethics of the applicants.
Although the company will not produce fruitful results in the short term, in the long term, it could have a positive impact on the company’s stock. MGM currently has 37,100 rooms across its hotels, and we forecast this figure to remain the same over the next seven years. However, with the completion of the project, the rooms will increase even though it won’t add any significant value to the company (about 1%). The main source of value-add for MGM will be gaming, retail outlets and food and beverages.
Our price estimate for MGM Resorts International stands at $11, roughly inline with the market price.Notes:
- MGM Resorts Announces Plans To Develop Downtown Springfield Dining, Retail Entertainment Business and Submits $400,000 Fee to Gaming Commission, Yahoo Finance, Aug 22 2012 [↩] [↩] [↩] [↩]
- MGM Proposes $800 million Springfield Casino On Tornado-Damaged Site, CBS Boston, Aug 22 2012 [↩]
- Massachusetts Household Income, Department of Numbers, 2011 [↩]
- MGM says it will link to Union Station, Springfield with offices, Casino training institute, mass live, Sept 22 2012 [↩]
- MGM Springfield website [↩]
- ref:1 [↩]