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 (CZR) is selling Rio to a real estate group for $516 million and Caesars overall is being sold to Eldorado Resorts.
Eldorado, in turn, will try to sell one or more of 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.
All the while, Blackstone is reportedly trying to sell Cosmopolitan.
If 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 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 continuing to manage properties they no longer own would be a disappointment to those who believe Las Vegas needs a greater variety of ownership.
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 by cutting expenses and monetizing its real estate. Similar investors have led to the impending sale of Caesars to Eldorado, which intends to cut at least $500 million a year in expenses. Much of that savings would 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 observers mostly without direct stakes in the companies who claim things like resort and parking fees are undermining the unique Las Vegas appeal.
One of the most frequent questions I am 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 no longer goes 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 to take advantage. Wynn has already rolled back fees, even though its affluent customers aren’t as likely to be price-sensitive as those of, say, MGM’s Luxor. Golden Entertainment’s Strat advertises its free parking.
The bigger question might be the long-term impact of companies going to the asset-light model, selling 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.
Consolidation, Online Style
In the who’da-thunk-it department, two companies that once seemed not especially formidable are about to form the world’s largest online and sports betting company.
The Stars Group out of Canada and Flutter Entertainment out of Ireland and the U.K. already combine for a market cap of more than $12 billion, a number many investors figure will rise appreciably after their merger closes next year.
It’s an outcome that seemed highly unlikely not long ago.
Go back to 1988. Three Irish bookmakers merged to form Paddy Power, a modest company of 40 shops. The first half of the name illustrated its Irish roots. The second half was the name of one of the three partners considered to have the strongest brand recognition.
Paddy Power had a strategy of ambitiously growing its network of betting shops and attracting publicity by offering outrageous bets, some controversial—like the odds of Barack Obama being assassinated—and some just silly.
The strategy worked. Paddy Power grew into a major competitor to the largest U.K. bookmakers, William Hill and Ladbrokes. It then bought exchange wagering pioneer Betfair, giving it a new line of business and a presence in the U.S. That presence has been strengthened by the purchase of fantasy sports operator FanDuel.
The company, having changed its name to Flutter Entertainment, had become a powerhouse.
The Stars Group had an equally improbable journey. It began in 2014 when a guy named David Baazov bought some small Canadian online gaming operations and named them Amaya.
The small public company was of little consequence—until Baazov convinced bankers to lend him $3 billion to buy the two biggest names in online poker, PokerStars and Full Tilt.
It was a risky move, not just because of the giant loan, but because the two poker brands were tainted by having operated illegally in the U.S. and in operating in non-legal markets elsewhere.
But the gamble worked. Baazov separated the brands from their past owners’ misdeeds in the minds of regulators and Amaya became the world’s largest online poker operator.
The real trick, however, was adding online casino games, recognizing that those who like to play poker also like other forms of gambling, and that online casino was rapidly growing while poker had matured.
Baazov left Amaya under allegations of insider trading, but the renamed Stars Group prospered under current CEO Rafi Ashkenazi. He continued to diversify the Stars Group, made significant acquisitions and now, in selling to Flutter, is helping form a behemoth well prepared to capitalize on U.S. market.
So, the next time you’re ready to dismiss the stock of a quirky and speculative upstart, remember Paddy Power and Amaya, because you never know.
