So, how much different will Las Vegas Strip casino ownership be a year from now?
On the surface, perhaps quite different.
MGM Resorts reportedly might sell Bellagio and MGM Grand to Blackstone Group for up to $7 billion, and TI owner Phil Ruffin might buy Circus Circus.
Caesars Entertainment (CZR) is selling the Rio to a real estate group for $516 million, and Caesars overall is being sold to Eldorado.
Eldorado, in turn, will try to sell one or more Caesars properties. Ruffin has openly expressed interest in buying one or two, but he could remove himself if he buys Circus Circus. That would leave just Golden Nugget owner Tilman Fertitta as a publicly speculated buyer of an excess Caesars property or two.
If all of these transactions come about, a lot of real estate will have changed hands, but the change in operations will not be as great. MGM would lease back Bellagio and MGM Grand and Caesars will still manage the Rio under a contract with the new owners. Further, any other property sales could lead to more lease-backs or management contracts where the owners change but not the operators.
MGM and Caesars retaining their operational control of the properties they would no longer own would be a disappointment to those who believe Las Vegas is undercutting its future by being homogenized by corporate entities that are losing touch with their customers.
In that sense, there are now two camps on how the future can best unfold for Las Vegas.
Activist investors have been pushing MGM to increase profitability both by cutting expenses and by monetizing their real estate. Similar investors have led to the impending sale of Caesars to Eldorado, which intends to cut $500 million a year or more in expenses. Much of that savings will come from reducing CZR’s bloated overhead. And Eldorado has proven it can boost profitability by cutting marketing expenses, even on lower revenues.
On the other side are mostly observers without direct stakes in the companies who point to things like resort and parking fees undermining what has made Las Vegas successful.
One of the most frequent questions I’m asked by gaming executives of other companies is what impact I see from these fees. The questions come from CEOs, CFOs and other C-suiters from casino and supplier companies alike. And the questions are prefaced or couched in tones of disapproval. One CEO flat out said he doesn’t go to MGM Strip properties because he isn’t going to pay $25 to park.
To date, there’s no clear evidence that the fees are harming business, though Las Vegas visitation has been softer this year than many would like.
And this is capitalism. If the fees deter business, others will jump in. Wynn already has rolled back fees even though it can be argued that its affluent customers aren’t as price-sensitive as those of, say, MGM’s Luxor. Golden Entertainment’s Strat advertises its lack of parking fees. And Phil Ruffin is the kind of independent owner who can go his own way, as he’s done successfully at TI.
Finally, MGM and Caesars can scale back if they meet resistance.
The bigger question might be the long-term impact of companies going to the asset-light model, selling off their real estate for the quick highs of the cash they receive, but adding a recurring expense in the form of rent while losing the asset value of owning their real estate.
