Last year, MGM Resorts (NYSE:MGM) proposed an $800 million project in Springfield, Massachusetts.  The company seems to be a strong contender for building a casino in the area, and has recently been endorsed by NAACP of Springfield for its track record in providing employment opportunities to people of color.  Also, the company has begun an environmental review of the project, which is a mandatory requirement for such a significant undertaking. As MGM and other competitors battle for the license, we review why MGM is particularly interested in this location.
Slow economic growth, the legalization of gaming in other U.S. states and the strong growth of the Macau gaming industry have adversely affected the 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 in Macau and other places, MGM remains mostly confined to the Las Vegas strip. MGM needs to win this license and revive its growth in the U.S. However, from 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 and is still growing.
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- Weakness In Macau Business Weighs Over MGM Resorts’ Q1 Earnings
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MGM Will Have Geographic And Demographic Advantage
Massachusetts is the third richest state in the U.S. with a per capita income that is $7,000 higher than the average U.S. per capita income.  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, 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 after the destruction by a tornado last year. The proposed casino will be near 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 local architecture. The company has 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, and MGM expects that the city will welcome such modifications.
The company’s management has stated that the the casino resort project will create more than 2,000 job opportunities for construction purpose, as well as thousands of permanent jobs after its completion.  The Massachusetts state government will also generate significant tax income from the new industry.
Our price estimate for MGM Resorts International stands at around $11, implying a discount of about 15% to 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 [↩]
- Springfield NAACP endorses MGM Resorts International’s casino plan, masslive.com, March 29 2013 [↩] [↩]
- 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 [↩]