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MGM Resorts (NYSE: MGM) may have a better chance of being a winning bet than either Las Vegas Sands (NYSE: LVS) or Wynn Resorts (NASDAQ: WYNN), because it is a more geographically diverse operation.
With a meaningful presence in multiple markets, MGM would not be hurt as much by a downturn in any one region. It may miss out on some of the highest highs as a result, but should also avoid the lowest lows. Instead, it promises investors a steadier performance, something borne out by its second quarter earnings results.
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A diverse portfolio
Like Las Vegas Sands and Wynn Resorts, MGM Resorts has casinos in Macau, China. However, unlike those rivals, most of MGM's revenue is derived from the U.S., where it owns half of the casinos on the Las Vegas Strip. While that suggests it could be hurt by any downdraft that sweeps through the city, the impact would be blunted, because MGM also has significant operations elsewhere.
Properties outside of Las Vegas currently contribute around half of MGM's revenue and 40% of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
As my colleague Travis Hoium recently explained, property EBITDA is a better yardstick than revenue to use when sizing up casinos, because it measures an individual casino's cash flow. And when we look at how the markets responded after MGM, Sands, Wynn, and Caesars Entertainment reported their latest earnings -- which did indeed show the Vegas Strip weakening (and Macau's growth slowing) -- MGM has suffered the least.
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Individually, MGM's U.S. casinos might not amount to much, but collectively they're a profitable group. Also, with the growing legalization of sports gambling, the company has an opportunity to sweep up additional revenue. The Northeast is expected to become the capital of sports wagering. MGM's Borgata in Atlantic City -- New Jersey's largest and most profitable casino -- also became the first casino in the state to begin accepting bets on sports. It took in nearly $1 million in sports-betting revenue over the first 17 days such betting was legal.
MGM is going to have more competition soon, as other casinos and racetracks enter the sports betting market, and as other states pass a regulatory framework for sports gambling. However, MGM also has casinos in places like Maryland and Michigan, plus one that is about to open in Massachusetts, so it should be ready to capitalize on the opportunity.
Making money here and abroad
MGM's best-performing domestic casino in 2017 was the Bellagio, with adjusted EBITDA of almost $505 million, while the next closest was the MGM Grand, with $344 million in adjusted EBITDA. Yet the casino with the largest amount of adjusted EBITDA was the MGM Macau, with nearly $525 million.