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US – MGM Chairman says ‘the era of expanding casino floors is over’

By - 15 June 2015

MGM Chairman Jim Murren has said that the Strip’s biggest casino operator has no plans for any new gaming floors in North America’s leading gaming market.

Whilst MGM expands elsewhere with an $800m project in Springfield, Massachusetts, a $1.25bn resort in National Harbor, Maryland and a $2.9bn property on Macau’s Cotai Strip, construction work in Las Vegas will focus solely on no-gaming amenities.

These will include the US$350m, 20,000-seat sports and entertainment arena behind New York-New York in partnership with arena developer AEG and The Park, an open-air retail and dining venue between New York-New York and Monte Carlo.

Speaking to the Las Vegas Review, Mr. Murren said: “It’s not my expectation during my career here that we will build another casino resort in Las Vegas. I don’t see the value proposition, the need and the business case that could be made. We’re developing the type of environments that will make our buildings more popular and profitable. Everything we’re doing is geared not toward the expansion of the room count or the casino floor, but the expansion of entertainment and visitation to Las Vegas. We believe that we will get the lion’s share of that benefit.”

According to the MGM Chairman, gambling is no longer the reason a record 41.1 million visitors visited The Strip last year.

“The era of expanding casino floors is over,” he added. “The evolution of the casino floor will be to shrink them. We’re going to create more modular, dynamic spaces that will include multiple utilities for social interaction. You don’t come here to play slots. You come here for the one-of-a-kind experiences.”

MGM also recently built two outdoor festival grounds at the Strip’s north end and opposite the Luxor, which will be used for music events and speciality shows. It is also overseeing a $66m, 350,000 sq. ft. expansion to the Mandalay Bay Convention Center.

Last year, the 45 casinos on The Strip generated $16.31bn in revenue with 36.7 per cent coming from gaming, $4.25bn in hotel rooms, $3.7bn in food and beverage and $2.35bn derived from other revenue streams such as nightclub, entertainment and retail.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said: “The Strip’s overall health continues to steadily improve, aided by a return to peak group and convention mix and healthy nongaming revenue growth. MGM’s Strip returns have also benefited from judicious cost management, which has allowed modest top-line gains to generate outsized growth.”

Speaking to KNPR’s State of Nevada, Mr. Murren explained: “You’re not going to have an opportunity to trap people in the resort for hours on end like the old business model. The good news is there is no market in the world that can compete against Las Vegas because of the invested capital that has already been deployed here. All we have to do is continue to stay ahead of that curve. We need to find the product and the service that the customer of the future want. That’s the way to attract people to Las Vegas today and in the future is to create these spontaneous experimental ideas.”

He also dismissed any notion of a merger with rival Las Vegas and Macau operator Wynn Resorts as ‘pure speculation.’

Rumour has been building in Las Vegas and beyond that an acquisition could be on the cards.

Travis Hoium, of investment website The Motley Fool, said: “It may be fun to speculate about a deal between Wynn and MGM, but at this point it’s unlikely that one is imminent. MGM is the larger company, but it also has nearly twice as much debt as Wynn. And it’s not like the stock is cheap; in fact, it’s worth more than Wynn Resorts right now. Steve Wynn isn’t one to run a highly leveraged company, and leverage is what MGM Resorts does best. The company’s $12.5bn in net debt is what’s resulting in net losses, and Wynn would have to assume that debt in a merger. I don’t see any way MGM buys Wynn Resorts, so Wynn would have to be the acquirer but financially, from Wynn’s perspective, I don’t see how a deal makes a lot of sense.”

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