In a development that has to be called nothing less than shocking, Boyd Gaming has sold its cash cow, its 50% stake in Borgata. For $900 million, it cashes out to MGM Resorts 
International and MGM Growth Properties. It’s a huge vote of confidence in Atlantic City from MGM but a head-scratcher from the Boyd perspective. Consider that Borgata generated $812 million last year in net revenues. The short-term gain for Boyd is deleveraging: MGM will assume and refinance $300 million in Borgata-related debt. Among the gains for MGM, aside from greater cash flow, is the ability to assimilate Borgata players into the M life database. “While the market continues to experience challenges, Borgata has outperformed and differentiated itself as the undisputed leader in the city,” said MGM Resorts CEO Jim Murren.
MGM Resorts will lease Borgata back from its REIT, to which it will sell all Borgata real property for nearly $1.2 billion. “With this transaction, we are executing on our core growth strategy in prudently building a portfolio of high-quality assets with market leading competitive positions,” explained MGP CEO James Stewart. MGM Resorts will finance at least some of the acquisition from cash on hand, with CFO Dan D’Arrigo promising that the deal will be “net leverage-neutral” (MGM is second only to Caesars Entertainment in long-term debt). For 13 years, Boyd has charted a market-dominating (to put it mildly) strategy for Borgata. Now we will see if MGM can pick up where Boyd left off. As for Boyd, its evacuation of Atlantic City — along with its pricey acquisition of Aliante Casino — puts a lot more eggs in its Las Vegas basket. Perhaps this move will be vindicated in time but it looks like a misallocation of resources from here.
* In the end, New Jersey Gov. Chris Christie (R) got most of what he wanted, at the price of a concession — grudgingly granted — to Assembly Speaker Vincent Prieto (D). The state’s takeover of Atlantic City will be held in abeyance for five months. If Mayor Don Guardian (R) gets the Boardwalk’s fiscal house in order by then, he is allowed to 
keep calling the shots. If not, the state takes charge. However, the state can conduct a coup d’etat at any point in the late-2016-2021 period if it disapproves of how Atlantic City is managing its budget. “The takeover would authorize the state to renegotiate union contracts, restructure debt, sell off city assets, and more,” reports the Newark Star-Ledger.
“These new laws will ultimately accomplish my mission to reform Atlantic City’s overblown municipal government, and in turn protect local and state taxpayers from being perpetually abused by the special political interests who admit to owning this city’s elected officials,” said Christie in a poorly veiled blast at Atlantic City’s labor unions. However, he signed off on the delayed takeover, on the PILOT program that allows the casinos fixed payments to the city in lieu of property taxes (a subject of much dispute) and on a $60 million loan to the city. Guardian now has to settle down to the grisly task of carving $80 million from Atlantic City’s budget. Had Christie and Prieto not compromised, Atlantic City would have gone bankrupt — the first New Jersey city to do so since the Great Depression. How ironic that, now that the casinos are thriving again, City Hall should be the house in freefall.
