- MGM departure raises worries about returns on Resorts World New York
- Operator Genting already dealing with tepid performance at other North American gaming venues
- Genting New York proposal includes some of industry’s highest tax rates
MGM Resorts International (NYSE: MGM) rocked the gaming world Tuesday, announcing it’s bowing out of the New York City casino race and that’s raising concerns about the financial outlook for Resorts World New York in Queens.
Like MGM’s Empire City Casino in Yonkers was, the Genting-operated slots-only establishment is widely viewed as one of the frontrunners to land one of the three downstate permits. Still, analysts wonder if MGM’s departure from the competition signals that New York City-area casino licenses aren’t all they’re cracked up to be. They argue it’s a consideration Genting can’t overlook because the Malaysian company already owns a collection of scuffling North American properties.
Given that some of Genting Malaysia’s Resorts World assets like Resorts World Catskills, Resorts World Bahamas and Resorts World Las Vegas also have sub-par returns, one might also question the economics of a multi-billion dollar potential Resorts World NYC expansion,” observes Nomura analyst Tushar Mohata.
Genting has said that if it’s granted one of the three downstate permits, it will invest $5.5 billion in converting its Queens property to a Las Vegas-style casino, not including $2 billion in community perks. That’s significantly more than the company spent to build Resorts World Las Vegas.
Genting Agreeing to ‘Aggressive’ Terms
Among the reasons cited by MGM in its decision to withdraw from the New York competition were potentially unfavorable economics and a licensing term that was slashed to 15 years from 30.
That was licensing term was based on expectations of winning bidders shelling out $500 million for the permits. On that basis, Nomura calls Genting’s bid aggressive because it adds 20% to figure while proposing some of the highest tax rates in the US casino industry.
Genting’s supplemental bid “revealed aggressive terms, including a US$600 million license fee (versus the minimum requirement of US$500 million) and industry-leading tax rates of 56% on slots and 30% on tables. These rates significantly exceed those proposed by the other candidates,” adds Nomura’s Mohata.
In essence, Genting is volunteering to pay a higher licensing fee and elevated taxes despite not being prodded by New York regulators and as MGM questions the economic viability of such expenditures given the intensity of competition in New York.
Genting Has Geographic Considerations, Too
MGM also noted the geographic element in the New York casino competition and that’s relevant to Genting because the proposed $8 billion Metropolitan Park bid led by New York Mets owner Steve Cohen and Hard Rock International would be located just 10 miles away from Resorts World New York.
Metropolitan Park is one of three remaining bids and is considered a near lock to win one of the licenses. Mohata said that venue, if it comes to life, could cannibalize Resorts World New York.
“The full project return on invested capital impact will not be clear for several years given the staged nature of the capital deployment,” concludes the analyst. “Genting Malaysia’s phased development approach should better its capital management and help to mitigate risks.”
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