MGM’s China gambit; Mixed quarter for Station

MGM Resorts International and Pansy Ho are performing a fancy juggling act with MGM stock. The former is going to buy an additional 188 million shares in MGM China, increasing its hold on the property to 56%. In return, Ms. Ho will buy 4 million MGM shares from the late Kirk Kekorian‘s Trancinda Corp., giving her an almost 5% stake in MGM. Deutsche Bank analyst Carlo Santarelli spoke for many when he wrote, “we expect investors to be a bit confused by the rationale for this transaction. The transaction, while positive for MGM China … is a bit perplexing from MGM’s perspective. In our view, MGM Resorts is inexpensive and MGM China is trading at top of the range multiples, on our forecasts, with meaningful ambiguity in future results given the wave of new supply in a questionable top line recovery environment. While MGM Resorts benefits from Ms. Ho lightening the Tracinda overhang, it does so just modestly. Lastly, in a period in which we view domestic gaming fundamentals favorably, MGM is using its equity to grow its Macau position, a market where we struggle with fundamentals.” As three megaresorts are about to hit the market in fairly short order, so do we.

* Santarelli also reported on Red Rock Resorts‘ 2Q16 results, which — he deemed — “could have been better out of the gates.” He blamed “tough May comparisons, weaker sports book hold, and incremental expenses for the Red Rock property anniversary,” and noted that summertime cash flow was said to be on the upswing. “We continue to believe a healthy LV locals story exists here,” concluded Santarelli, noting multiple opportunities for Station Casinos to expand its operations. (If Bali Hai Golf Club is chosen as the site of the seemingly inevitable NFL stadium, that frees up the Fertitta Brothers to pursue their previously mooted redevelopment of the Days Inn at Wild Wild West site — 113 acres and close to the Strip).

Santarelli’s opposite number at JP Morgan, Joseph Greff, was slightly more bullish on Station, ascribing the quarterly numbers mainly to one-time items, and making note of the oncoming Palms revenue stream and growing Native American casino-management fees. “Management notes key economic indicators in Las Vegas continue to trend positively (population growth, job growth, wages) and expects to continue to benefit from these trends going forward, and that the strong trends seen in April and June continued into July,” he wrote. Barring some tough prior-year comparisons, Station should have seen revenues increase 3%, Greff added. The company is also somewhat on tenterhooks at the North Fork Rancheria, in California, whose land-into-trust status has yet to be resolved. The company “currently has not made any decision on either the scope or timing” of its Reno venture or other new projects, but we haven’t seen this much activity out of Station in a long time.

* Las Vegas isn’t thought of as a hotbed of womens’ rights, but maybe that conventional wisdom is due for a change. The vast majority of the Culinary Union is female. True, many of those jobs are in the ranks of cocktail servers, but those are positions in which seniority is often accrued. Better still, PayScale recently rated Nevada right up there with Connecticut for the most equitable balance of pay between men and women (another testament, in part, to the Culinary’s clout). According to New York Times research, “a girl in a poor family who grows up in Las Vegas will make 7 percent more than she would elsewhere by age 26.” The next step, of course, is to get more women into the upper ranks of the casino industry. Jan Jones Blackhurst can’t do it alone, folks.

* Getting our presidential candidates to hear a positive message on casino gambling hardly seems necessary, as both favor it and one of them used to own a few casinos. But that was Geoff Freeman‘s mission this week in St. Louis, where he held another road show to talk up the benefits of the industry. In the case of Missouri, it has pumped $5.5 billion tax dollars into education, generated $3 billion in capital investment and ponied up $225 million to support veterans. Freeman had a wide array of speakers to bolster his talking points, including former Isle of Capri Casinos CEO Virginia McDowell and current Penn National Gaming Vice President Todd George. It’s too bad that the casino industry should still have to resort to special pleading, especially when the numbers speak so powerfully for themselves.

* Happy birthday to S&G reader Michael Chilson. A longtime friend of this column, Michael was most recently heard from pointing out the potential impracticality of Steve Wynn‘s new King Kong koncept. From your mouth to Steve’s ear, friend.