On Ameristar and MGM's New Strategic Marketing Alliance

On Wednesday, Las Vegas Strip giant MGM Resorts International (NYSE: MGM  ) and regional casino operator Ameristar Casinos (Nasdaq: ASCA  ) announced a strategic cross-marketing relationship that will allow MGM to tap into Ameristar's premier regional network while enhancing the value of Ameristar's Star Awards and Plateau Players Club.

The deal enables Ameristar to let loyal patrons use points earned at their local Ameristar casinos at MGM's Las Vegas Strip properties, and vice versa for MGM patrons. In addition, MGM will be able to market directly to Ameristar's customers, while Ameristar will be able to market to "targeted" MGM "M life" cardholders.

This arrangement is long overdue.

I've been saying for the better part of a decade now that Ameristar fits MGM like a glove, and it doesn't require much imagination to see why. For starters, few regional casino operators have been able to consistently dominate the low end and middle of their respective markets while still effectively catering to the high end as Ameristar has. And no other company on the Strip has the full range of low- to high-end properties -- from Circus Circus to Mirage to MGM Grand to Bellagio -- that MGM has to match.

Meanwhile, there is essentially no overlap in regional assets between the two companies, so there is really no apparent competitive conflict:

MGM Regional Markets

Ameristar Regional Markets

Biloxi, Miss. (Beau Rivage) St. Louis, Mo.
Tunica, Miss. (Gold Strike) Kansas City, Mo.
Detroit, Mich. (MGM Grand) East Chicago, Ind.
Chicagoland, Ill. (Grand Victoria) Council Bluffs, Iowa
  Vicksburg, Miss.
  Black Hawk, Colo.
  Jackpot, Nev.

Technically, both companies operate in the Chicagoland market. That said, Chicagoland is a very large market in terms of both geography and revenue, and the two companies' properties are well on opposite sides of the Illinois-Indiana state line. And MGM's 50%-owned Grand Victoria property is not part of the company's M life program, anyway.

Targeting Caesars Total Rewards
While such a marketing arrangement has value on its own merit, what this deal does more than anything else is allow both MGM and Ameristar to compete more effectively with Caesars Entertainment's (NYSE: CZR  ) vaunted Total Rewards program.

The one issue that has dogged Ameristar has been Caesars' ability to leverage its Las Vegas assets in its regional markets, a condition that worsened considerably when the entity then known as Harrah's Entertainment announced the acquisition of Caesars Entertainment in July 2004. Caesars' Total Rewards program offers real value when Caesars can say that points earned in Harrah's Maryland Heights (St. Louis) or Harrah's North (Kansas City) can be used at Caesars Palace, Harrah's, or Paris in Las Vegas, or when a Diamond member (Total Rewards' highest marketed tier, though there is yet another tier called Seven Stars) in St. Louis is by default a Diamond member in Las Vegas.

Now Ameristar can say the same thing -- only MGM's Strip assets are far more attractive than Caesars'.

Meanwhile, where MGM's own players club programs have lagged behind Caesars' Total Rewards considerably since the beginning of time, adding Ameristar's regional player base to the mix brings considerable punch to MGM's revamped M life program.

Cash-free deal
Notably, the alliance, which begins to take effect in March, allows the companies to accomplish this without requiring MGM to lay down capital to acquire Ameristar outright. Ameristar, for its part, need not go through the trouble of acquiring and developing a Strip property and then being forced to compete with MGM, Caesars, Wynn Resorts (Nasdaq: WYNN  ) , and Las Vegas Sands.

Last year, Wynn Resorts and regional casino operator Pinnacle Entertainment announced a similar marketing agreement.

For related reading, check out: What's Ameristar Worth?

Another way to play
Rewards are just one of the many means by which operators are leveraging their operations. Another is by going abroad. But after incredible performance in recent years, many investors feel like that cat is out of the bag.

The good news is there are other iconic American companies that are going abroad and profiting wildly on the way. To learn about three, I encourage you to take a look at our special free report: "3 American Companies Set to Dominate the World." The report is free, but it won't be forever. So click here to access it now.

Fool contributor Jeff Hwang is a gaming industry consultant and the best-selling author of Pot-Limit Omaha Poker: The Big Play Strategy and the three-volume Advanced Pot-Limit Omaha series. Jeff owns shares of Ameristar Casinos.

Motley Fool newsletter services have recommended buying shares of Ameristar Casinos. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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