MGM Gambles on a Northeast Gaming Corridor

By Brian Egger of BreakingCall.com

NEW YORK ( TheStreet) -- In recent years, the compass of global gaming resort development has been pointing in the direction of China's Special Administrative Region of Macau.

While MGM Resorts International ( MGM) is less exposed to that Far Eastern gaming enclave than its key Las Vegas rivals Las Vegas Sands ( LVS) and Wynn Resorts ( WYNN), MGM recently generated about one-third of its earnings before interest, taxes, depreciation and amortization from Macau. That exposure is expected to grow as the 2016 opening for MGM Cotai draws closer.

Investors have focused on MGM's gaming opportunities in Asia, but the prominence of Macau as a destination has drawn attention away from some exciting development prospects on U.S. soil. Those domestic opportunities received little mention on MGM's quarterly earnings conference call Tuesday.

In June 2012, MGM and privately held Peterson Companies agreed to develop an $800 million casino-resort at National Harbor, across the Potomac from Alexandria, Via.

Later that year, in August, MGM unveiled plans for a project of similar budget dimensions in Springfield, Mass. With both proposals held in abeyance ahead of licensing and other hurdles, company observers eagerly await the outcome of MGM's efforts to establish a U.S, gaming "northeast corridor."

While the promise of these projects is considerable, investors should be prepared to extend their wait into 2014, as local political processes play out.

Although the two proposed casino sites are located some 370 miles apart, the situations in Massachusetts and Maryland bear similarities. Massachusetts's 2011 gaming statute authorized up to one casino-resort to be built in each of three regions of the Bay State (i.e., eastern, western and southeastern), as well as one slots-only facility.

MGM is one of three entities vying for the state's western region casino-resort license, for which detailed proposals are due by December of this year. Last month, MGM's plans were approved by voters in Springfield. That referendum paved the way for MGM to face off against Hard Rock in West Springfield and the Mohegan Tribal Gaming Authority in Palmer.

Just south of the Mason-Dixon Line, a similar political drama is unfolding. MGM's National Harbor plan is one of three in contention for a casino license in Maryland's Prince George's County.

The two other area applicants are Greenwood Gaming and Entertainment, the owner of Parx Casino near Philadelphia, and Penn National Gaming ( PENN), which plans to convert its Rosecroft Raceway into a racetrack casino.

Maryland regulators expect to select a licensee by the end of 2013. Under Maryland law, a casino in Prince George's County would not be permitted to open until the earlier of July 2016, or the 30-month anniversary of the mid-2014 opening of Caesars Entertainment's ( CZR) Horseshoe Baltimore. So even it were awarded the coveted Prince George's County license, MGM would not likely open its doors at National Harbor for another three years.

While casinos in Massachusetts and Maryland would help fill those states' tax coffers with new revenue, the competitive implications of expanded gaming in the eastern U.S. have already been sobering. The ripple effects have been notable in the Washington area.

In June 2012, privately owned Maryland Live! Casino debuted at Arundel Mills Mall, some 30 miles from Capitol Hill. The new casino added table games in April 2013.

In nearby West Virginia, PENN's successful Hollywood Casino at Charles Town Races, 65 miles from the nation's capital, has lost business to its new Maryland rival. According to state lottery data, Hollywood Charles Town saw a 12% year-on-year decline in gaming revenues during the 12 months ended June 2013.

An MGM casino-resort at National Harbor, or a new racino at Rosecroft Raceway, would further disrupt the Mid-Atlantic gaming market, which has grown increasingly competitive in recent years.

For its part, PENN would certainly prefer to prevail in its bid for a casino license at Rosecroft, and cannibalize its own West Virginia gaming operation, rather than lose more D.C.-area customers to either an MGM or Parx casino in Maryland's fortuitously situated Prince George's County.

By Brian Egger of BreakingCall.com

At the time of publication, the author did not own any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Brian Egger is the founder, publisher and gaming and travel analyst of BreakingCall.com. During the last twenty years, he has held positions of increasing responsibility as a gaming, lodging and travel analyst at Goldman Sachs, Donaldson Lufkin Jenrette, Credit Suisse, BMO Capital Markets and Topeka Capital Markets. He also served as Associate Director of Research at BMO and Director of Research at the Institutional Research Group. Brian has held four team positions, including two second-place rankings, in Institutional Investor's Gaming, Lodging and Leisure categories. He has also been recognized as a six-time Wall Street Journal "Best on the Street" analyst. Brian taught securities analysis to MBA students as an Adjunct Professor in the Finance department of Columbia Business School. He received a BSE from the Wharton School of the University of Pennsylvania and an MBA from the University of Chicago Booth School of Business.

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