The death of Kirk Kerkorian was appropriately marked by tributes to a true legend who was a force in the transformation of Las Vegas from a desert gambling town into a global destination.
However, in the world of finance and investing, there isn’t much of a mourning period and speculation already has begun as to how his holding company, Tracinda, will dispose of Kerkorian’s 16.2 percent stake—91.265 million shares—in MGM Resorts.
Tracinda has filed with the SEC that it might adopt a 10b5-1 planned sales program, and noted that Tracinda CEO Anthony Mandekic is an MGM director, and any disposition will comply with the company’s securities trading policy.
One scenario is simply a steady sale of the shares, but there has been speculation that another party, maybe MGM’s CityCenter partner Dubai World, might want to take the position.
We don’t know what’s planned, but what is true is that MGM is a much more popular investment than several years ago when it sank so much money into CityCenter and the financial crisis of 2008 hit.
Today, MGM’s vast Las Vegas holdings are an asset as little new capacity is coming to a market that is experiencing growing customer demand, especially from international travelers, for conferences, trade shows and conventions, and in the rapidly developing world of restaurants, nightclubs and retail.
Further, a management that once talked about urbanizing Las Vegas and building architectural gems seems to have gotten religion and talks about strengthening the balance sheet and increasing shareholder value.
MGM also appears to have learned another lesson from the $9 billion CityCenter and is building smart and cost efficiently.
In Las Vegas, that means relatively inexpensive add-ons that can generate returns on investment: a new arena, stores and restaurants along the Strip, expanded convention center, outdoor concert area, property upgrades.
Elsewhere, MGM has a casino rising in western Massachusetts that should be a contributor and another outside Washington, D.C., that has the potential to be among the most profitable regional casinos in the country.
All of that would bode well enough for MGM to sound a loud all-clear signal, but there is that 800-pound gorilla to consider—Macau.
Not long ago, when many observers expected Macau to grow gaming revenues by double digits into the foreseeable future, the new MGM Cotai looked like a slam-dunk. It will, after all, increase MGM’s capacity in the market by several times.
Now, as is well known, the future of Macau is unclear.
The supply siders—to borrow economist Arthur Laffer’s term for a use in a different context—have argued that the six new mega resorts rising in Cotai will drive new business to Macau.
Unfortunately, in the several weeks since the opening of the first of those mega resorts—Galaxy Phase II—that hasn’t happened. Citywide gaming revenues are still down nearly 40 percent despite the new project. Phase II is drawing more visitors to the property, but at expense of its competitors.
However, Macau might have more potential reward than risk for MGM given that the company gets most of its cash flow elsewhere.
In its March quarter, for example, MGM got just $148 million of its $672 million of EBITDA from Macau.
If Macau continues to struggle, MGM should pretty much cap its difficulties there. It could be one Macau casino operator with growing profits made in the USA.
And if Macau rebounds, MGM stands to grow Macau profits by several times current levels.
