Will MGM’s F&B Revenues in Vegas Surpass Its Casino Revenues This Year?

MGM Resorts (NYSE: MGM) recently announced the sale of two of its Las Vegas properties, Bellagio and Circus Circus, as a part of its asset-light strategy. Vegas Strip properties contribute nearly 50% of MGM’s total revenues, but have been reporting a lukewarm performance the past three years. Despite tepid growth in Vegas, MGM’s food & beverage revenues are likely to surpass its casino revenues this year. Trefis highlights how MGM’s Casino, F&B and Room revenues in Vegas have trended over recent years along with our forecast for the current year in an interactive dashboard.

A Quick Look at MGM Resorts Revenues

MGM reported $11.7 billion in Total Revenues for full-year 2018. This included four revenue streams:

• Casino: $5.7 billion in FY2018 (49% of Total Revenues). This segment includes income from regulated gambling activities at the company’s properties. MGM China, Regional Operations and Las Vegas properties contribute 39%, 36% and 25% of the casino revenues, respectively.
• Rooms: $2.2 billion in FY2018 (19% of Total Revenues). This segment includes income from visitors/tourists who lodge in the company’s properties. Las Vegas and Regional properties contribute 80% and 14% of the room revenues, respectively.
• Food and Beverage: $1.9 billion in FY2018 (17% of Total Revenues). This segment includes income from restaurants at the company’s properties.
• Entertainment and Retail: $1.4 billion in FY2018 (12% of Total Revenues). This segment includes income from retail stores and live performances at the company’s properties.

Declining Share Of Las Vegas Properties

• In 2018, Las Vegas Strip, Regional Properties, Macau contributed 49%, 25%, and 21% of total revenues for MGM, respectively.
• In Q3’19, the share of Las Vegas Strip declined to 45%, primarily due to the acquisition of new Regional Properties and strong growth in Macau.
• As a part of the MGM 2020 initiative, the company plans to achieve consistent single-digit growth in EBITDA by focusing on new properties.
• After entering into a long-term operational lease with MGP for most of its properties, MGM kept Bellagio and Circus Circus separately under its ownership.
• Though the decision to sell these properties is no surprise considering the slow growth in Vegas’ casino business, we believe that the management’s plan to lower debt burden (which stood at $15.1 billion according to the latest 10-Q filing) will be achieved primarily by the monetization of Las Vegas properties.

Surge In Las Vegas F&B Revenues Driven By New Outlet Openings

• At MGM’s Vegas Strip properties, the share of casino, room, food & beverage, and entertainment & retail revenues have remained stable at 25%, 31%, 25%, and 20%, respectively over the years.
• Details about trends in MGM’s revenue categories from Las Vegas is available in our interactive dashboard.
• Over the last three quarters, food & beverage revenues have observed a consistent 8% growth, driven by new outlet openings at Park MGM. Food & beverage revenues comprise of F&B sales and lease payments from F&B contracts.
• Though the opening of Park MGM led to a surge in F&B revenues, MGM’s casino business in Vegas observed sharp declines due to a slump in table games drop.
• Park MGM includes 66,000 sq. ft. of gaming space with 842 slot machines and 56 gaming tables, but increased competition from other casino destinations and recessionary fears have led to a slowdown in Vegas’ casino business.
• However, MGM’s F&B sales overtaking its casino revenues in the last couple of quarters is an interesting shift that we observe.
• MGM’s recent investment into Sydell Group, its sale of Bellagio and Circus Circus, and its growing non-casino business will likely position it as a hotel company rather than a casino operator in Las Vegas.

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