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Back from the Brink

MGM Resorts is on a roll, as multiple projects are on tap

Back from the Brink

For a company that was on the verge of bankruptcy just a few short years ago, MGM Resorts International is on something of a roll. After buttoning up billions of dollars in debt, MGM Resorts began to plan.

First, it won the final (extra) license in Maryland, for a casino in suburban Washington, D.C. Then it won the license available for the western region of Massachusetts for a casino in Springfield. A casino on the Cotai Strip in Macau looked iffy for a while, but it will now debut in 2017 in what will hopefully be a more balanced gaming economy. And this month, the first major project opens, the T-Mobile Arena on the Las Vegas Strip behind New York-New York and the soon-to-be-rebranded Monte Carlo (see page 21).

Bill Hornbuckle is back in Las Vegas for a few days before heading out again. As MGM Resorts’ president and lead development executive, Hornbuckle spends at least half his time on the road. From Massachusetts to Maryland to Georgia (where MGM was interested in an Atlanta-area casino), Hornbuckle’s plate is full. But his immediate attention is going toward the T-Mobile Arena, coordinating the grand opening with a variety of entertainment events.

“The Grand Garden Arena (at MGM Grand) has been a great vehicle for us,” he says. “But clearly, there was a lot of dialogue in the community about yet another arena, and we just didn’t want to cede our position—period, end of story. What was interesting about this was the dialogue we were having with AEG, which wanted to manage the content. But AEG isn’t just a content company. Even though they have AEG Live, they are an asset-based company. That’s their core business; it’s about owning these huge, great assets.”

With the talk of a National Hockey League team calling T-Mobile home, Hornbuckle says that would be nice, but not necessary for the success of the arena.

“To make T-Mobile succeed, we need about 100 events,” he says. “To completely succeed as a company, we need about 200 to 240 events, give or take. The NHL would get us there more quickly, but we’re confident it will come one way or the other.”

The company’s other two arenas—the Grand Garden Arena and one at Mandalay Bay—will continue to succeed, says Hornbuckle.

“There are a lot of right-sized events, a lot of made-for-television events, that want to stay at MGM, and we’re happy about that,” he says. “I think the one that will see fewer A-level events, candidly, is Mandalay. But the whole economic design of that place, and the reason it still stays in existence, isn’t to be an arena. It’s to be a housing activity and a place for special events. Bill Gates was in there last year, speaking to his Microsoft folks. The CEO of IBM is coming in in a couple weeks to speak to 11,000 of his people.”

Park Place

For a company where the recent 500,000-square-foot expansion of the Mandalay Bay convention center was taken in stride, the creation of the Park, an entertainment area connecting T-Mobile with the Strip, is hardly an afterthought. The Park was envisioned by MGM Chairman Jim Murren to be the spine that connected T-Mobile with New York-New York and the Monte Carlo, which is undergoing its own metamorphosis with an as-yet-undisclosed name change and a 5,000-seat theater that will spill onto the Park.

“We think it becomes the center of entertainment in the entertainment capital of the world,” says Hornbuckle.

Adding the theater at Monte Carlo fills in a void that MGM lacked, he says.

“As we looked at our entertainment portfolio, we know where we wanted to be—we want to control the arena business,” he says. “But we also recognize, we had 19 theaters, plus two arenas at the time. But what we didn’t have was a facility to compete with either the AXIS theater or Caesars’ Colosseum. We didn’t have something of scale that could accommodate premium entertainment that would run over two- to three-year contracts.”

And the redesign of Monte Carlo is all part of the plan.

“Luckily, it’s pretty vanilla,” he laughs. “It’s not like we’re tackling Excalibur or Luxor. You’ll see a lifestyle product emerge from there, something that hopefully competes a little bit more with Cosmopolitan or potentially even with Wynn. We’re going to step it up.”

Maryland My Maryland

The long-drawn-out process of adding a final license in Maryland for the Washington, D.C. area ended with MGM acquiring a license to build a casino resort at National Harbor, an existing mixed-use development on the Potomac River just across the bridge from Virginia and just downstream from the nation’s capital.

MGM was only mildly interested in the state when one of its development officials discovered National Harbor, and the interest went from mild to wild quickly.

“It was instant, as soon as you saw the property, given the infrastructure, the location, that it was the right thing to do,” says Hornbuckle. “So we went hot and heavy, and later, really hot. We spent a lot of money investing in winning that deal, but we did.”

And MGM’s interest has been justified. Last year, the Maryland market did $1.5 billion in gross gaming revenue, most of that coming from one property, Maryland Live! in suburban Baltimore, operated by the Cordish Companies.

“That’s not bad, for a parking lot location,” grins Hornbuckle, referring to Maryland Live’s site, adjacent to Arundel Mills Mall.

But Maryland Live! was built for around $400 million. MGM plans to at least double that in National Harbor.

Hornbuckle doesn’t see that as overspending.

“In Detroit, where we double-spent everyone else, we dominate that market,” he explains. “And I think in Maryland, well, we’ll have 35 percent to 40 percent market share, because of the amenity itself. It is not just a casino; it’s a regional environment that has a theater of 3,500 seats. So the acts that we put here in the Park theater will go there, and vice versa. There’s a lot of synergy there. And there’s nothing quite like that in that area. The return may take an extra year or two, but for the next 30 years, there’s going to be nothing like it.”

As part of the National Harbor complex, Hornbuckle says the attraction is the entire project.

“We’re part of a trolley system that will link us with the Gaylord entertainment center, a large retail mall and the main part of National Harbor. We’ve got only 300 rooms, but there are 3,000 rooms within a half mile, so it’s going to be a major destination.”

Making It In Massachusetts

A second license won by MGM was the western Massachusetts gaming license in Springfield, defeating companies like Mohegan Sun and Hard Rock along the way. But like all things in Massachusetts, it hasn’t been an easy path. Just recently, a design change that eliminated a large hotel tower in favor of low-rise buildings had some questioning the dedication of MGM to the Springfield project. But Hornbuckle points out that the financial commitment never changed, just the approach.

“All politics are local, and particularly in Springfield,” he laughs. “The original design had residential on-site. The more we got into it, the more we thought about it—frankly, the more we priced it—we didn’t think it made a lot of sense. We had a commitment to the community to bring professionals back to this corridor, so, we’ve taken that residential off-site. We’ve got three locations. One for sure; two others are pending. We’re going to spread it out a little bit. We moved our hotel into the then-front structure on Main Street, which we think helps that Main Street corridor, it helps build the engagement, and the city still gets residential. And our budget’s still at $950 million more or less.

“Springfield hasn’t seen anything like that ever, actually, in real dollar terms. And so, we’re pretty excited by it. It will take us until September 2018.”

In Connecticut, the two tribes that operate the state’s casinos, the Mohegans and the Mashantucket Pequots, are planning to build a casino in the Hartford area, which would cut off MGM from those residents of northern Connecticut. The idea is to protect revenues and jobs from leaving the state for Massachusetts. Hornbuckle dismisses that concern, saying a casino located in southwestern Connecticut would make more sense if those are the issues.

“Are we concerned?” he asks. “Yes. Have we remained active in understanding it? Yes. And here are two realities. They talk about losing 4,000 jobs. Hogwash. A third of our jobs are probably going to be Connecticut residents anyway, because remember, we are literally on the border.

“Will we take some of their business? Maybe. But if you want to put a third casino in Connecticut, it shouldn’t go to Hartford or the airport or some small-town location to block us. It’s got to go to the southwest quarter of the state, where you’ve got the whole New York metropolitan area, and a massive amount of people to pull from, and put it there. Of course, that’s not the intent, but we’d be willing to participate in a bidding process there.

“The other concern is that this is reservation-shopping at its finest, under the guise of the protection of the state. We believe it’s unconstitutional, because of the way state constitution works, and we think we’ll prove ourselves correct in that opinion.”

In March, MGM teamed up with the Schaghticoke Tribal Nation of western Connecticut to fight the Mohegan-Pequot third casino. The tribe has struggled for years to achieve federal recognition and accuses the state of discriminating against it by not giving it an opportunity to build and operate the third casino.

Building a Database

In both Massachusetts and Maryland, MGM will have to build a database of customers, something that doesn’t trouble Hornbuckle. He says this will also have to be done without benefit of the database of Atlantic City’s Borgata, owned jointly by MGM Resorts and Boyd Gaming.

“Borgata owns the database. Boyd doesn’t own it, and MGM doesn’t own it; it’s Borgata, which is somewhat frustrating,” he admits.

Nonetheless, the vast size of the MGM Resorts database across the country gives Hornbuckle faith that it will not be a problem.

“We’ve got 60 million-plus people in mLife (MGM’s loyalty program),” he says. “There’s probably 8 million that really play. We put concentric circles around Springfield, around National Harbor, around any place up and down the East Coast corridor. We come up with 250,000 to 300,000 customers of substance. And so that’s a good place to start.”

In addition to a third casino in southwest Connecticut, Hornbuckle says the company has been examining expansion opportunities in Georgia, where a bill to legalize casinos came close to passing this year, and in North Jersey, where a referendum is likely to go on the ballot in November. Hornbuckle admits the North Jersey interest is a bit reluctant, worrying about the impact of New Jersey gaming expansion on the Borgata, Atlantic City’s most successful property.

“We’re looking at North Jersey because we have to,” he says. “If something’s going to happen there, we have to be involved.” A preliminary bill gives Atlantic City casino companies favored status when bidding for what will likely be two casinos in North Jersey.

Asian Equation

What was once the savior of MGM Resorts during the lean times, when debt was mounting, has slowly become its headache. An expansion in Macau to the Cotai area has been ongoing for the past five years, and construction on MGM Cotai has been progressing, but the company recently announced it won’t open until the first quarter of 2017.

“It’s not about a budget issue; it’s about timing, it’s about trying to understand where the market’s going to be then,” he says. “So we’ve pushed it until the end of March, of the first quarter. No one was surprised by it—most notably the marketplace. And you know, the good news, over the last couple of months, is mass market has begun to stabilize. Matter of fact, we’ve seen some modest growth, particularly through Chinese New Year.”

Hornbuckle says the VIP-mass market split has reversed over the past several years.

“(Mass market) is now 80 percent of our bottom line, where VIP is only 20 percent, and I think that trend will continue for the whole community.”

Even with the precipitous GGR decline over the period, Hornbuckle says it’s still a good place to invest.

“At one point, people were getting 50 percent return on their investment each year,” he says. “But if we were even to look at what we’re proposing today, which is a $3 billion-plus spend, what we think it will return in today’s market, or next year’s market, which is a better example, will still be a return on investment of 22 percent or 23 percent. We’ll do that all day, every day, all day long. And the penetration into Macau is still less than 1 percent.

“It’s a $45 billion market that has turned into a $25 billion market. And there are no other $25 billion markets anywhere in the world.”

Marketing Mission

Prior to being named president, Hornbuckle was the chief marketing officer for the company. He says he’s more comfortable as president, and has appointed marketing executives who truly understand social media and internet marketing. In 2014, he brought in Lilian Tomovich, a former MasterCard executive, to become the first chief experience officer to improve the guest experience company-wide. And last year, Beverly Jackson was added from the Grammy Awards to handle the social media aspect of marketing.

“We’re looking at addressing a whole younger demo,” says Hornbuckle. “We’re all over it; we’re fully dedicated to it. What it will yield, we don’t know yet. And it will be a long-term yield. But we do know this. If you’re not in that space, you have no voice, and over time, that matters. And so we’re all in.”

Hornbuckle says it’s not too soon to think about millennials, because the trends are moving in their direction.

“From a marketing perspective, we’ve all seen what’s happened in Las Vegas, where the average age has come down six years, driven by the nightlife business. That’s all been a good thing. It’s an $800 million-$900 million business in this community, and we’re doing fine. It will shift, too, someday, by the way. The big DJ thing will become something else, and we’ll need figure that out. And millennials are very interesting. They’ll go into a club and spend $5,000 on a booth, but then they’ll go back to their room, with six girls in one room.”

To further experiment with this demographic, Hornbuckle says MGM Grand is planning to build a “millennial casino” under the dome at the entrance to the Strip. He says they want “their own space.”

“We’re preparing to make a significant commitment to a millennial casino,” he says. “We’ll define that as a space that’s interactive that you go into because of the draw of the space and the enticement through music, food, the communal environment. By the way, it has gaming in it—a kind of gaming we think they’ll interface with, like new tables and other things that we all have in the pipeline.

“It’s time to mature to the next level.”

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

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