Checking the headlines in the AC Press as of 2PM Pacific time, I couldn’t find a word about the seemingly-momentous decision of MGM Mirage to sell its stake in Borgata. This is curious, since you would think that having one of the biggest casino companies in the world, which at one point had billions of dollars in the development pipeline in AC, officially announce it’s selling out would be at least DEFCON 2-level news.
But there is this separate yet equally compelling story about an imminent state monitoring of the city:
State intervention in Atlantic City government could become a reality if the city doesn’t “get its act together” within two to three months, a state senator said Monday.State Sen. Kevin O’Toole, R-Bergen, Passaic, Essex, said he would be willing to push for a state monitor with veto power over City Council minutes if the local government doesnt return to the Senate State Government, Wagering, Tourism & Historic Preservation Committee with a good-faith response to a recent state audit report.State Comptroller Matthew Boxer answered questions and described some of the findings in his offices report on Atlantic City’s fiscal management, which outlined more than $23 million in waste and inefficiency .
This isn’t directly linked to the Division of Gaming Enforcement’s decision re: Pansy Ho, but it shows the heavy hand that state government has in the city itself, not just its biggest industry. And with $23 million in tax money apparently being flushed down the toilet, it’s hard to say that there’s no justification there.
The irony is that, if Pansy Ho had been suitable, MGM Mirage might have found itself doing business in two “Special Administrative Regions.”
I’d guess that, on the strength of the $60 million a year MGM Mirage gets from the Borgata and the value of the real estate the company controls (which I assume would be part of the sale), the company might fetch something $200-$500 million. I haven’t run any numbers to confirm this; that’s just my first impression based on about 6X EBITDA, which is right in the middle of those numbers, with some degree of flexibility for the value of the real estate (on the high side) and the depressed state of the general market (on the low side).
The problem, of course, is finding someone willing to pay big bucks for an asset (albeit the top-performing one) in a regressing market, particularly when the seller is very publicly identified as “motivated.”
Most people are assuming that Boyd will be the suitor, which makes sense, though this wouldn’t necessarily be a bad buy for an equity firm if they went into it with realistic expectations.
It likely wouldn’t be anyone else already in the market, since Harrah’s is already far too exposed in AC, Trump has its hands full with its existing casinos (though 1/2 of Borgata would actually be better than 100% of the Marina right now), Colony Capital has lost one casino to its lenders already, and Carl Icahn’s plate is presumably full with turning around Tropicana Entertainment and the Fontainebleau.
Anyone not in the market would have to do some serious soul-searching about their licensing, since the state has made it clear that they consider no company too big to show the door to. Even if Borgata can retain its market share (which might be difficult when Revel opens), it’s still piece, though a big one, of a nonetheless shrinking pie.
I think MGM is going to have a hard time finding a buyer that will pay what MGM believes it is worth. Any prospective buyer will wait until the state threatens to strip their license if they don’t sell.
And why is MGM suddenly folding its cards? They swore that they’d fight to the bitter end. Is there something in the report that surprised and shocked them? And if there is and they settle, will the report be released? And what will Nevada’s reaction be if it is indeed a serious allegation? Re-open the previous approval? New Jersey is going to have to release the reason for the DGE opinion to fight accusations that they’ve forced MGM out of AC when it needs all the investors it can get.
My view is that there is nobody in China that has the stature of a Panys Ho that isn’t corrupt on some level. That is the nature communist government. As far as NJ state government taking over AC, that is truly the blind leading the blind. Maybe the new governor will be different, but I ain’t gettin too excited by it. I just spent a midweek day at the Borgata and it was EMPTY. I was really shocked at how bad it was. I also walked thru Showboat and Trump Taj. Showboat was reasonably busy and Trump was pretty empty too. I know it was a winter midweek visit, but I was still a little surprised by how empty the Borgata was. I also recently visited the new Sands Bethlehem casino during a midweek day and I would guess about 35% of the slots were occupied. Not too bad and much busier than the AC casino’s.
EVERYone in Atlantic City should rush out to read the book:
Roll the Bones:The History of Gambling.
I checked it out to re-read it again…this time deeper and more thoroughly. It’s a really important book for anyone involved with the gaming industry in any capacity.
The first time I read it I didn’t realize that the cool ‘foreward’ was written by James Mc Manus.
I’m re-reading this book for personal reasons relating to my study of man’s use of astro-science thru the years. I’m trying to find a correlation between the latin root word of ‘astragalus’ (skeletal vertebra & man’s 6 surface ankle bone) and ‘astrology’ (earth’s celestrial vertebra)…in search of further evidence of the ‘System of Twelve’ and its place in man’s study of the world he lives in.
So…if this book is important to a solar-science-scholar…think how even more important its reading would be to people in the field of gaming.
Atlantic City’s state and city governor’s need a deep-read in the history of gaming. AC needs to go back farther than its own 30 year gaming history to figure out how AC gaming fits into the big picture and history of gambling and gamboling.
IHO
The waste and corruption in AC is atrocious and as I have noted on this blog before are a direct result of the failures of the AC experiment. I think at this point (we are at the point of last resort) is to have a former aggressive US Attorney stick his nose into the AC political shenanigans. I think it can only help since it is apparent that local government has not.
In terms of MGM, I too am shocked (well said dave202) that they have not fought this! Are they trying to avoid a potentially damaging public hearing that may permanently tarnish their reputation? Do they have something to hide? As Dr. Dave has mentioned, MGM collects appx. $60 million per year from Borgata and Boyd Gaming does all the work! Imagine walking away from that!!! They must have good reasons and the reasons would be wonderful to know.
On a final note, I would think that they are receiving overtones form the CCC that their license would be denied and they are taking actions to insulate them from such an occurrence. I believe it was right for the DGE to flag Pansy Ho as a questionable (who’s kidding who…MGM Macau has its license and part financing solely because Stanly Ho provided it) partner to MGM. But how does this affect the reputation of NJ or that of MGM in AC? Can the DGE really make the argument that Pansy Ho is going to have an un-due influence over one of the world’s largest, regulated and publically traded gaming companies?