Earnings calls are boring AF. Earnings calls for casino operators aren’t entirely boring, they’re just boring. No AF. I just need to vent before diving into the MGM Resorts 3rd Quarter Earnings call this week.
These calls are intended provide information for financial investors in corporations and not for the public. I’m closer to the latter. I’m not an investor and I write for normal people that may not understand or care about the financial jargon. For the most part, I listen to these calls to see if there’s any news that mainstream news outlets don’t report or care about.
The gaming industry recently released their quarterly earnings reports. I skim through most companies reports but I attentively listen and take detailed notes during the earnings calls for MGM Resorts International. If you follow me on twitter you saw some of these notes last week. MGM Resorts offers more interesting information for Las Vegas visitors than any other casino operator today.
Las Vegas Sands (Venetian & Palazzo) and Wynn Resorts sometimes have interesting information, but they’re so focused on Macau that Las Vegas news often gets pushed to the side. Caesars Entertainment is a boring company looking to find their way so they have little information beyond room renovations generating more revenue. The smaller casino operators might interest me because I’m a nerd, but there’s not much information for the masses.
By all reports MGM Resorts had a great quarter financially. MGM Resorts International CEO, Jim Murren, stated that the company had “really epic results” in the beginning of the call. He was giddy throughout the call about the past results and the potential for the future of MGM Resorts. MGM Resorts has been on a roll for the past couple of years. You can read about the EBITA increases in their press release here.
Profit Growth Plan Is Profitable And Growing
I’d rather look at some of the non-financial information that is more important to most of us who visit their various properties throughout the year. However, finances are really where everything begins for MGM Resorts.
Let’s start with their very successful Profit Growth Plan (PGP). Many of us know PGP as their way of streamlining expenses (drinks) and generating revenue from new places (parking). Well, PGP generated approximately $73 million of earnings year over year. This was much better than MGM Resorts was expecting.
About 1/3rd of the PGP earnings in the third quarter came from revenue generation (parking, etc.) and 2/3rds was derived from savings on expenses (drinks, room materials, etc.). PGP takes a lot of time to implement since they implement everything one property at a time. Beyond the finances, Murren is very happy with how the employees are taking to the changes.
Bad news to report MGM Resorts customers on the east coast. PGP is coming to Borgata next year. The good news is that Borgata should remain a luxury property so you shouldn’t see many major downgrades beyond short pours of booze and drink monitoring systems.
Before I close this section, step back and think about PGP – MGM Resorts generated almost $100 million of revenue in 3 months from PGP.
Many Major Events Coming To MGM Resorts Around The Country
MGM Resorts revenue across the board was helped by major events. Hotel room rates, show tickets, food & beverage, gaming, etc. all increase when there’s a major event in Las Vegas. Murren was giddy again when he revealed that T-Mobile Arena was the highest grossing arena in the world during September.
Understanding that major events spur business, Murren later said that MGM Resorts will have 5x the number of events in 2017 than they had in 2016. While this is an impressive number, realize that MGM Resorts is adding venues at Borgata and MGM National Harbor to their roster of properties. They will open the Park Theater at Monte Carlo and have a full year of events from T-Mobile Arena. Sure it’s impressive, but it kind of makes sense that they would be hosting more events.
Events drive revenue across the board but the major events are what draw the international high rollers. In particular, VIP gaming for MGM Resorts is event driven. Expect 2017 to be a big year in baccarat revenue for MGM Resorts.
Speaking of major events, I just got unofficial word that there’s a Lady Gaga residency at the Park Theater all set for 2017. The announcement should be coming soon. I’m told that the negotiations are just about complete. I’ll make sure to follow up on Sunday News when this is official.
MGM Resorts didn’t have a bad quarter from a gaming standpoint but it wasn’t especially great. Here’s the breakdown:
- Win from high-end play was up in the 3rd quarter. Most came from customers from the far east.
- Non-Baccarat revenue was flat vs. 2015
- Slot play up a little vs. 2015
MGM Resorts continues to say that unrated table games are up. These are typically new customers that aren’t players club members. This segment seems to be growing with all casino operators. Many of these players never knew that 3:2 blackjack existed. They may not know good video poker paytables from bad. Soon they may not realize that there was double zero roulette or 100x craps.
MGM Resorts, in particular, are looking these new and high-margin gaming customers. These are the people who don’t look at video poker paytables or blackjack payouts. They just want to have fun when in the casino. Believe it or not, gambling can be fun for some people regardless of the house edge.
If these earnings calls and learning about PGP has taught me anything it’s to expect more cutbacks on services. Look for cutbacks to focus on things an older demo might care about but a younger customer might not be concerned with.
The things that interest or concern the 40 and 50-year-old customer might not be relevant to someone who never knew about that specific item. For me, this (like everything) starts in the casino, but it can really be seen all around the properties.
Hotel Rooms Rates Will Continue To Rise In 2017
Hotel room rates in Las Vegas increase in 2017 for a few reasons. In addition to major events previously mentioned, conventions bring a lot of people to Las Vegas. Con Expo and Con/Agg takes place March 7-11 of 2017. This will be one of the biggest conventions of the year and will rival the amount of people in Las Vegas for the Consumer Electronics Show January 5-8. It’s not surprising that these are two of the most expensive weeks of the first quarter for hotel rooms.
Just under 20% of MGM Resorts hotel room revenue comes from convention business. They’re on schedule to match or, more likely, beat the revenue from conventions in 2016. Convention occupancy is important for all hotels. In the case of MGM Resorts, convention occupancy helps drive prices higher for people traveling for leisure.
The more conventions in Las Vegas the more expensive hotel rooms are for everyone. MGM Resorts expects to have even more in-house conventions as the new Aria space should be completed next year. The expansion of the Mandalay Bay Convention Center and the addition of T-Mobile Arena give MGM Resorts even more venues to hold conventions and events.
Further, Murren continued to state that hotel room prices in Las Vegas are still below pre-recession peaks and they have room to grow. Of course, there were no resort fees back then so prices might be a little distorted.
Room rates for MGM Resorts increased 14% from the prior quarter which increased from the previous quarter and so on. Just about every company that reports earnings had a significant increase in room rates. We should expect to see prices increase at most Las Vegas hotels in 2017.
Random Notes From The Earnings Call
Here are a few more random notes I have from the MGM Resorts International earnings call:
Cross Marketing: As I mentioned earlier, MGM Resorts hasn’t completely implemented PGP at Borgata yet. Well, they haven’t linked M Life Rewards and any there hasn’t been any cross-property marketing yet. Expect this to pick up for all non-Las Vegas MGM Resorts markets next year.
Monte Carlo: There are still two years of renovations ahead for Monte Carlo. Besides Park MGM, they expect New York-New York to see a major bump in business. I found it interesting that there was no mention of Aria generating more business since they’re the neighbor on the other side of Monte Carlo.
Perhaps this is a sign that MGM Resorts will continue moving Aria to become their premier premium property. I happened to be in Monte Carlo last week and learned that the sports book will remain open through March Madness. They’re expecting a move somewhere else in the casino but not sure where yet.
Whew, that’s a lot of information for one company!