MGM Mirage: To Macau and Beyond
By Gary Tufel -- Tradeshow Week, 2/5/2007
The latest news from Macau must have made the various Las Vegas players entering the market feel very good indeed. Recent reports suggested that the former Portuguese colony, now part of China, may have supplanted Las Vegas as the world's biggest casino center. Figures show that Macau's gambling revenue jumped 22 percent to $6.95 billion last year.
Macau is booming, and MGM Mirage and its Las Vegas competitors, such as Las Vegas Sands and Wynn Resorts, are already in the fray, but MGM is a bit later than the others: The MGM Grand Macau will open in the fourth quarter of this year.
MGM isn't just focused on Macau — far from it. It operates more than 20 properties in Nevada, Mississippi and Michigan, has investments in three other properties in Nevada, New Jersey and Illinois, and plans for future projects span the globe.
MGM's numerous projects include the blockbuster CityCenter in Las Vegas, a $7 billion mixed-use urban development in the heart of the Las Vegas Strip, which Gordon Absher, MGM Mirage vice president of public affairs, called the largest privately funded construction project in U.S. history. He said it would include a casino hotel (as yet unnamed) with "significant meeting and convention facilities, similar to what MGM has built at its other resorts like (MGM Mirage's) Bellagio." (Bellagio contains the 45,000 square foot Grand Ballroom, the 22,000 sq. ft. Bellagio Ballroom and 14 meeting rooms ranging in size from 1,000 to 10,000 sq. ft.)
Still, overall, there's not a lot of exhibition and meeting space in the company's plans, and analysts say there are good business reasons why.
MGM Mirage builds worldwideThe CityCenter project is ambitious, to say the least. It's set to open in late 2009 between the Bellagio and Monte Carlo hotels and feature private residences, boutique hotels, a resort casino and a retail and entertainment district, which Absher likened to such urban districts as New York's SoHo or Chicago's Michigan Avenue. Residence owners will have privileged access to MGM properties in Las Vegas and its various restaurants, entertainment, special events, nightlife, shopping, golf courses and spas.
In 2005, MGM acquired the Mandalay Resort Group, including Mandalay Bay Resort & Casino and several other properties, for $7.9 billion. Aside from its 11 Las Vegas Strip properties — including MGM Grand, Luxor, Bellagio, the Mirage, and New York New York — the company also owns casinos in five other Nevada cities, Michigan and Mississippi, as well as the Borgata in Atlantic City (a joint venture with Boyd Gaming). A new MGM Grand hotel casino complex celebrated a temporary opening in downtown Detroit, and will open permanently late this year.
The company's 50-percent interest in MGM Grand Macau is the result of a deal with Pansy Ho Chiu-king, daughter of Stanley Ho, who controlled Macau gambling until 1999 when the former colony reverted to Chinese control and Ho lost his monopoly.
MGM's Macau resort will include a 600-room hotel, nightclub, casino, spa and restaurants, as well as 13,500 sq. ft. of meeting and convertible convention space, including an 11,000 sq. ft. ballroom.
MGM Mirage has even more irons in the fire. In April 2006 it entered into a strategic alliance with the Mashantucket Pequot Tribal Nation, encompassing a new hotel casino adjacent to Foxwoods Resort Casino in Connecticut, and the development of additional gaming and non-gaming projects, both at Mashantucket and outside Connecticut.
What's more, MGM Mirage and Mubadala Development of Abu Dhabi, United Arab Emirates, have said they'll jointly pursue non-gaming business opportunities, including luxury hotels and resorts around the world — starting with Abu Dhabi, Las Vegas and the United Kingdom. And MGM Mirage is in advanced discussions with the Diaoyutai State Guesthouse in Beijing to pursue non-gaming business opportunities there, such as luxury hotels and resorts in China and around the globe.
Downgraded stockDespite all that, analysts recently downgraded MGM Mirage's stock, saying founder and major stockholder Kirk Kerkorian and others were pressuring the company to get the highest rate of return on their investment. That's one reason why the company's latest projects don't necessarily focus on convention and meeting space, said Bob Birkfeld, managing partner of Compass Group Intl.
Where gaming is allowed, MGM is building casinos, hotels, and other multi-use projects. Where it's not, the company is building hotels and multi-use projects without casinos. Although Absher said there would be an unspecified amount of convention space at the Macau facility, meeting space seems to be almost an afterthought at MGM's other new projects.
Birkfeld noted that for most casino companies, even in Las Vegas, meetings still take a back seat to gaming. He believes that for MGM Mirage, gaming and other entertainment will continue to dominate new projects, because that remains its primary source of revenue. Building exhibit space may not be the best use of MGM Mirage's or any other entity's resources, Birkfeld said, and "if analysts are downgrading their stock, and the company is feeling pressure from Kerkorian and the stockholders, building large convention space is hard to justify."
It's simply not about tradeshows in Macau, which is a pure gaming destination, Birkfeld said. Besides, he speculated, the island's close proximity to convention and tradeshow behemoth Hong Kong makes it harder to compete for that business.
Shareholders demand the highest return, and gaming will win out over tradeshows every time in that equation, he added. Gaming is a $50 billion industry, according to some reports, and it rules. Even in Las Vegas, he said, most large conventions and tradeshows, like the Kitchen/Bath Industry Show & Conference, have had to move to mid-week dates to leave weekends free for the gaming crowd.
On the other hand, in some cities where MGM is active a casino might help convention business. Birkfeld pointed to Detroit as an example.
Tracinda makes its moveKerkorian owns about 56 percent of MGM Mirage, according to Amy Schein of Hoover's, which translates to about 80 million shares of stock.
Last November, Tracinda, Kerkorian's investment firm, made a bid to buy up to 15 million more shares, even though it has managed to obtain only 445,000 so far. At the time, Tracinda's offer failed as optimistic investors encouraged by Kerkorian's move and MGM's brightening prospects in Las Vegas and Macau pushed MGM's shares above the $55 per share tender offer price. At press time, MGM's stock traded at $68.54. If Tracinda had been able to buy all 15 million shares, its stake in MGM would have increased to 61 percent.
The stock was also boosted by merger-and-acquisition activity in the gaming industry in general, including a $17.1 billion privatization deal for Harrah's Entertainment, which had an influence on the price of just about every stock in the gaming space, said Susquehanna Financial Group analyst Robert LaFleur. That still didn't stop most analysts from downgrading it from "hold" to "sell" status, Birkfeld said. He believes it was partly because MGM was late getting into Macau.
Absher claimed that's actually been an advantage. MGM was able to learn from businesses that were in Macau earlier, and tailor its facility to the visitors it attracts.
"We're benefiting by not being first into this market, because the Macanese customer has been learning more about the Vegas style, and wants it," Absher said. For instance, MGM learned from the Sands and Wynn that more hotels and restaurants would be necessary than originally thought.
MSN Money's StockScouter gave MGM stock a rating of 7 (out of a possible 10). It said the firm, a large-cap growth company in the consumer services sector, is expected to outperform the market over the next six months with less than average risk. MSN listed the stock's positives as very high when it comes to relative price change and consistency. But one negative, Birkfeld also noted, is its higher-than-average price-to-earnings ratio.
| Properties | Exhibit space (sq. ft.) | Meeting space (sq. ft.) |
| Mandalay Bay Resort & Casino | 934,731 | 360,924 |
| MGM Grand Hotel & Casino | 210,000 | 315,000 |
| Mirage Casino-Hotel | 171,359 | 41,959 |
| Sources: TSW research; TSW MEHD; UNLV Gaming Studies Research Center | ||
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