Clever movement, MGM.
Last week, the Strip’s largest employer made the surprise announcement that it had acquired the operations of The Cosmopolitan of Las Vegas for $ 1.625 billion.
This is part of a larger $ 5.65 billion real estate deal for Blackstone with a method trending in the gaming industry these days: a group of investors are buying real estate under The Cosmopolitan, and MGM gets the operational part.
In turn, under the 30-year contract with three 10-year options, MGM would pay an annual rent of $ 200 million to the investment group, which includes a Blackstone real estate investment trust and the Panda founders’ family trust. Express.
The Blackstone group bought The Cosmopolitan seven years ago for $ 1.73 billion, so it is making a nice profit. Former MGM CEO Jim Murren pitched the idea of buying The Cosmopolitan years ago, but nothing came of it until last week.
The deal has yet to pass regulatory scrutiny, likely in early 2022, but Brendan Bussmann, director of government affairs for Las Vegas-based Global Market Advisors, believes it will happen.
“The average visitor has seen Cosmo as part of the CityCenter complex,” Bussmann said. “Now you will be able to create real synergies between this side of the Strip from the south of Bellagio. “
A smart business
The deal is smart on so many levels.
MGM manages to maintain its “assets-light” strategy that the company launched five years ago. The business must pay annual rent and generate income from the casino, hotel, and all other building assets.
Once The Cosmopolitan deal was done, MGM would only have one property – MGM Springfield in Massachusetts – that the company would own. But in regulatory hearings, company officials said a real estate company would buy Springfield by the end of the year, which would make MGM the tenant of 100% of its resorts.
MGM gets its fair share of customer traffic from the mature and established baby boomer. Now the company can tap into a younger generation, as The Cosmopolitan, since opening in 2010, has become a haven for hipsters.
While The Cosmopolitan of Las Vegas is considered a luxury hotel, there’s no doubt that MGM could persuade some of its new, younger customers to switch to Bellagio through loyalty programs.
Check the geography of the agreement.
From north to south, MGM’s holdings on Las Vegas Boulevard would include Bellagio, Cosmopolitan, CityCenter – Aria and non-gaming Vdara – Park MGM, New York-New York, Excalibur, Luxor and Mandalay Bay.
Everything is pretty much side-by-side on the west side of the Strip, except for one secluded property, The Mirage.
The only property of the company on the east side of the boulevard: MGM Grand.
The Caesars range
Now look at its biggest competitor, Caesars Entertainment Inc. It’s similarly established on the east side of the Strip with Harrah’s Las Vegas, The Linq, Flamingo, The Cromwell, Bally’s, Paris Las Vegas, and Planet Hollywood.
The only property on the west side of the Strip: Caesars Palace, the company’s flagship and best-known asset.
Caesars also has the benefit of easy access to a transit system it didn’t have to build, the Las Vegas Convention and Visitors Authority monorail in Las Vegas. While much of the future of the gaming industry lies in group sales for conventions and trade shows, Caesars is ready: there’s a Monorail stop at the massive Las Vegas Convention Center and Caesars Forum. , which was not even interrupted.
MGM’s acquisition of The Cosmopolitan gives it 3,000 newly renovated rooms, right next to where MGM had envisioned another hotel tower.
Remember the Harmon Hotel, the 400-room building with 267 additional condominiums and a spa?
It was the last planned property at CityCenter, but it was doomed to construction flaws and unceremoniously dismantled instead of imploding like so many classic Vegas resorts. A court case in a civil lawsuit relieved both MGM and its contractor from paying what would likely have been a nine-figure settlement.
Another result of the MGM purchase is that it blocked a potential new competitor to Strip. It has been well reported that a potential buyer for a spot on the Strip is Hard Rock International, a game company owned by the Seminole Indian tribe of Florida.
The Seminoles are looking to bid on being the third tribal entity to settle in Las Vegas, but they want to be on Las Vegas Boulevard, unlike Virgin Hotels Las Vegas – a casino operated by Mohegan Gaming and Entertainment – and the Palms, purchased by the San Manuel Indian Band of the California Mission. Incidentally, the San Manuel Group took a big step this month, hiring a former MGM executive, Cynthia Kiser Murphey, as managing director after this deal closes later this year.
Luckily, Hard Rock International CEO Jim Allen and MGM CEO Bill Hornbuckle will join Wynn Resorts Ltd. CEO. Matt Maddox on the same stage Wednesday for a panel discussion on gambling issues at the Global Gaming Expo.
Hope they talk about some of these deals that are transforming the Strip.