At some point, you really need to know when to say enough is enough. For casino operator MGM Resorts, eighteen is the magic number. That's how many casinos it owns and operates around the world, and it says it's had its fill of building them.
Well, so long as you don't count Japan. If that country finally passes the necessary integrated resort legislation to regulate casino gambling and MGM manages to win one of the two licenses expected to be issued, then it will build one more. Otherwise, MGM Resorts is removing itself from the construction business.
Image source: Getty Images.
Building an empire
The casino operator has been on a tear. It spent $900 million buying out its joint venture partner Boyd Gaming (NYSE: BYD) in 2016 for the 50% share of Atlantic City's Borgata that it didn't already own; it opened National Harbor just outside of Washington, D.C., last December at a cost of around $1.3 billion; it's spending $3.3 billion to open a second resort in Macau in January; and next fall its MGM Springfield will open in Massachusetts at a cost of $960 million.
It also tried to buy Las Vegas Sands' Bethlehem, Pennsylvania, resort this spring, but negotiations fell apart, and next year it will be transforming the Monte Carlo resort in Las Vegas into the Park MGM. MGM will end up with nine casinos open in Las Vegas, six more sprinkled elsewhere around the country, and two in China. After all that spending, CEO Jim Murren says MGM is done building resorts.
The casino and resort operator will have spent over $7 billion developing and acquiring these properties. but after the frenzy comes to an end, what will MGM spend its money on in the future? Fixing up its portfolio of properties on the Vegas Strip.
An eye on the Vegas Strip
Of all the casino operators, MGM Resorts is the one most heavily invested in Las Vegas, which is where it derives the lion's share of its revenue. Of MGM's $8.2 billion in revenue over the first three quarters of 2017, more than half of it came from its Las Vegas casinos. China only accounts for 17% of the total, though when MGM Cotai opens on Jan. 29, that will obviously change.
In comparison, Las Vegas Sands, despite its name, generates less than 13% of its $9.4 billion total from Vegas and Wynn Resorts gets 28%.
Las Vegas Revenue (9 mo.)
Las Vegas Revenue as a Percentage of Total
MGM Resorts (NYSE: MGM)
Las Vegas Sands (NYSE: LVS)
Wynn Resorts (NASDAQ: WYNN)
Data sources: Company SEC filings.
Murren says it makes sense to focus the company's efforts there, since MGM "dominates" the market.
A roll of the dice
The caveat to all this is whether Japan comes through with a casino bill and MGM is successful in securing a license. The country's legislature approved the first enabling legislation last December, but further bills addressing the number of casinos to operate, siting, and regulation of operations all need to still be approved.
There had been some concern the process would be set back when Prime Minister Shinzo Abe called for early elections, but he scored a stunning victory that seemed to pave the way for gambling's approval.
Assuming that happens, then it's a matter of vying for a license. MGM and Sands have repeatedly said they would be willing to spend as much as $10 billion to build an integrated resort in Japan if they secured a license, while Melco Resorts & Entertainment (NASDAQ: MLCO) has said it was willing to spend "whatever it takes" if it wins. Just the other day it said it would move its headquarters to Japan if it wins.
Other casino operators are also angling for a license, including Galaxy Entertainment, Caesars Entertainment, Boyd, and the Hard Rock Cafe, which earlier this year established a local subsidiary in Japan for the express purpose of supporting "the company's growth plans in the region."
There are also local players as well, with an interest, such as slot machine maker Sega Sammy, which some analysts think might have a good chance of winning because of its strong brand in the region.
The shareholders win regardless
Of course, the reason so many players want a piece of the action is because Japan could become one of the most lucrative gambling markets, estimated to be worth at least $40 billion, substantially higher than what Macau reached at its height.
All that still seems a long way off, and we will likely see MGM Resorts tending to its Vegas properties well before it begins building in Japan. That should free up more money to return to shareholders. So far this year, MGM has returned some $500 million to shareholders, and recently announced a $1 billion buyback program.
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