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MGM Resorts International Gets Buyer for Borgata

Posted on October 15th, 2010

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One of the biggest entertainment and casino companies in the world, MGM Resorts International, has decided to let go of some underperforming assets. One of this is the Borgata Hotel Casino and Spa, which for some time MGM has already been looking for a buyer, and has finally found one to the tune of $250 million. MGM Resorts International has a 50 percent stake on the Borgata. MGM did not identify which company bought their stake, but this development will be included in MGM’s preliminary earnings report for the third quarter of the year. As of press time, MGM spokesmen have refused to provide further details on the sale, saying that the company is not giving out information about the bidder or the timeline of the sale. Sources privy to the negotiations and casino industry insiders were quick to speculate that the likely candidate was a firm engaged in private equities.

The revenue that MGM collected from the sale of its stake in Borgata, should the reported figures be accurate, would only compensate for less than half of the original amount MGM had hoped to come up with by selling company stock, supposedly totaling to $550 million. The company expects Kirk Kerkorian, its biggest shareholder and founder, to decrease his stake in the firm by selling shares. The company is also depending on repayments on loans amounting to $125 million from its joint venture inn MGM Grand Macau. MGM is currently the biggest casino operator on the Las Vegas Strip. The company did divulge, though that the money it accumulated from the Borgata sale will be used for general corporate purposes, which includes repaying debts. Borgata opened in the Las Vegas Marina District in 2003, and MGM was in a joint venture where it played the silent partner of the casino and Boyd Gaming Corp. acted as the casino operator.

David Strow spokesman for Boyd Gaming said, “We have been formally presented the offer from MGM and have just begun considering it.” It was in February, when MGM made an announcement that there was a settlement between the company and the New Jersey Division of Gaming Enforcement. The settlement made MGM put its stake in the casino, as well as related leased land in Atlantic City in a divestiture trust. The sole beneficiary of the trust would be MGM. MGM has been embroiled in a controversial but profitable partnership in its Macau venture, as it is a collaboration with Pansy Ho, the daughter of gambling mogul Stanley Ho. The division has been investigating on this partnership. In May 2009, the DGE made a recommendation to the New Jersey Casino Control Commission that the joint venture between Pansy Ho and MGM was to be considered “unsuitable,” as Ho’s father, Stanley, is allegedly connected with underground organized crime. In March of this year, MGM and the commission had that settlement which started the divestiture process.

The letting go of MGM of the Borgata, valued at $1.4 billion, may be considered a conincidence in disguise as the casino, which is known for adapting a golden motif, is deep in difficulty, just like the rest of Atlantic City. Figures that have only been made known last Tuesday revealed that that even if the Borgata was the biggest revenue earner of the 11 casinos of Atlantic City in September, raking in $53 million, it also posted the a 16.1 percent drop in earnings, the second steepest among the 11. Last August, the earnings drop of Borgata was close to 12 percent.

The Borgata, which is marketed to attract the high-end market of table players, reported its decrease in September table games’ revenue to be at 36.3 percent and only 1.4 percent decline in slots’ revenue. The launch of a number of table games in Pennsylvania slot casinos may have contributed to this decline. John Kempf, a gambling analysts of RBC Capital Markets, suggested, “They’ve had some tough months recently. They had a table-hold issue last month. They did OK on the slots’ side but got killed on the table hold. The concern everyone has is that we haven’t seen a lot of the SugarHouse effect on these numbers yet. The new Philadelphia casino was opened only a week in September, and we should probably see more this month and the winter months.”