MGM Closer To Setting Up Springfield Casino Resort

MGM Resorts (NYSE:MGM) received a unanimous vote from the Massachusetts Gaming Commission (MGC), approving an agreement to award the company the license to operate a casino resort in the city of Springfield. ^[1] But gaming commission will award the license to MGM only after July 9, when the Supreme Judicial Court is expected to decide whether to allow a ballot question that could repeal the 2011 legislation that allowed for the establishment of casinos in the state. MGM had shown interest to develop a casino resort in Springfield in August 2012, and has proposed to build an $800 million resort in the city. MGC took close to two years to investigate and decide upon the casino license. This is good news for MGM, which has been waiting for over two years to get the license.

Massachusetts is an important location as it is the third richest state in the U.S. with a per capita income that is $7,588 higher than the average U.S. per capita income. ^[2] Since spending on casinos depends on the disposable income of individuals, the entertainment district will attract gamers and tourists from all parts of Massachusetts. Springfield is the third largest city in Massachusetts and is located in close proximity to Connecticut. The city is well connected with other major cities of Massachusetts.  MGM Springfield will generate more than $400 million in revenue and close to $100 million in annual EBITDA, according to our estimates.

Slow economic growth, the legalization of gaming in other U.S. states, and the strong growth of Macau’s gaming industry have adversely affected Las Vegas’ gaming industry. While the major casino companies such as Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) have set their roots predominantly in Macau,  MGM remains confined mostly to the Las Vegas Strip. MGM expanding its operations outside the Las Vegas Strip will help revive its growth in the U.S.  However, we continue to believe that from a long term perspective, it is important that the company invests more in the Macau region, which has become the biggest casino market in the world (Also See – Macau Remains The Key For MGM’s Casino Operations, The Strip Is All About Hotels).

See our complete analysis for MGM Resorts International

MGM’s Bet On Springfield

MGM plans to develop an integrated casino resort spread over 14.5 acres in Springfield.  The resort will comprise of a 25-storey 250-room hotel, 125,000 square feet of gaming space with 3,000 slot machines, 75 gaming tables, a poker room and high limit VIP gambling area. The resort will also host 15 shops and restaurants spread over 55,000 square feet area. The company expects the resort to be operational by early 2017. ^[1]

MGM already owns more than 40,000 hotel rooms, 1,000 tables and 23,000 slot machines in the U.S., but more than 90% of them operate in the  Las Vegas Strip. ^[3]  It appears to be a good move for the company to expand elsewhere in the U.S. As more states open up to casino gaming, there will be an impact on the number of visitors to Las Vegas, which contributes the majority of gaming revenues in the U.S. for all major casino operators.

It must be noted that MGM derives more than half of its U.S. revenue from non-gaming operations, including hotel, food and beverage, entertainment and other non-gaming amenities.  In 2013, the company’s casino revenues were $2.6 billion while non-casino revenues stood at $4.1 billion. ^[3] MGM’s significant convention and meeting facilities allow it to maximize hotel occupancy and customer volumes during off-peak times such as mid-week or during traditionally slower leisure travel periods, which also leads to better labor utilization.

We believe that Springfield casino will help the company diversify its assets in the U.S. and will benefit from the rise in domestic operations driven by higher consumer spending in the U.S.   Consumer spending is on a rise and has moved from approximately $10,300 billion in July 2011 to over $10,900 billion in January 2014. ^[4] MGM’s room sales through convention is already nearing its all time high. The company expects 16% of its room revenues in 2014 coming from convention. ^[5] While MGM Springfield will benefit from the casino operations in the region, the new resort will also be a large source of non-gaming revenues driven by the hotels, retail, food & beverage, entertainment and other activities, a trend seen in MGM’s other casino properties in the U.S.

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1. MGM SPRINGFIELD WINS FIRST CASINO LICENSE IN MASSACHUSETTS, MGM Resorts Press Release, Jun 13, 2014 [↩] [↩]
2. Massachusetts Per Capita Income, Department of Numbers [↩]
3. MGM Resorts’ SEC Filings [↩] [↩]
4. United States Consumer Spending, Trading Economics [↩]
5. MGM Resorts International Management Discusses Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, Apr 29, 2014 [↩]