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MGM Shows Improvement, but Isn't Out of the Woods

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MGM Resorts (NYSE: MGM  ) still hasn't dug out of the hole it made when it built CityCenter. If it wasn't for an income tax benefit in the fourth quarter, the company would have reported an expanding loss as MGM China can't make up for the company's struggles in Las Vegas.

During the fourth quarter, revenue increased to $2.30 billion from $1.48 billion, mostly because MGM is now consolidating $719 million in quarterly revenue. Net loss fell to $113.7 million from $139.2 million a year ago, helped by a $190.9 million benefit from income taxes.

Macau is going very well for MGM. In 2011, net revenue grew 66% to $2.6 billion and adjusted EBITDA rose 76% to $630 million. MGM's casino now trails just Las Vegas Sands' (NYSE: LVS  ) Venetian Macao, Wynn Resorts' (Nasdaq: WYNN  ) resort, and Melco Crown's (Nasdaq: MPEL  ) City of Dreams in profitability among U.S.-traded companies. MGM also announced that MGM China would pay a $400 million dividend, $204 million of which will go to MGM Resorts.

It's all about the debt
My concerns about MGM haven't been about Macau, but about the massive amount of debt the company racked up in expanding its footprint in Las Vegas. CityCenter, which generated just $58 million in property EBITDA last quarter, was the last of the company's big moves.

At least MGM's debt situation has stabilized, a positive trend for the company. The company has $13.67 billion in long-term debt and $1.87 billion in cash for a net debt of $11.81 billion. This was up just slightly from 2010, helped slightly by the MGM China consolidation.

Debt was the main reason I said MGM's biggest competitor in Las Vegas, Caesars Entertainment (Nasdaq: CZR  ) , is in real trouble, and at least MGM isn't adding debt while it loses money, like Caesars is.

An eye on the future
CEO Jim Murren is confident that online poker legislation will be passed this year, another potential revenue stream for the company. Pressure is mounting on the feds to get something done, but an election year is a tough time to pass something like this. If something is passed, expect MGM to move quickly to build market share.

MGM reiterated its plans to build a resort on Cotai in Macau. According to management, the resort will cost $2 billion to $2.5 billion, contain 500 table and 2,500 slots, have 1,600 hotel rooms, and take 36 months to build. When that construction begins is anyone's guess.

Foolish bottom line
If MGM can continue steady progress in Las Vegas, while paying down some debt, there could be reason for optimism. I've been off the MGM bandwagon for quite some time because of the debt load, but if online poker is approved and a Macau expansion is approved, the company's debt might not be an anchor on the stock.

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Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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  • Report this Comment On February 24, 2012, at 4:38 PM, cp757 wrote:

    Kazuo Okada is Chairman of arcade-game manufacturer Universal Entertainment Corp and they are building an Integrated Resort in Manila.. Goldman Sachs ownes 11% percent of Universal Entertainment Corp .They will not sit back and allow Wynn to steal 20% from Okada by giving him payments over a 10 year period . You can expect a reply from Universal and their Attorneys that will make the case more transparent. This is a battle between two billionaires with different visions and this battle will not end well. Okada decided not to go to a board meeting that was called to remove him from the board of Wynn Resorts' Macau unit. Kazuo Okada wrote to Steve Wynn :"I do not want to embarrass you, as my colleagues, by forcing you to make false and defamatory statements about me in my presence," Okada wrote in the letter."I disagree with the decision to remove me as a director, because it is based on false and misleading assertions in a report that was created only to serve as a means to discredit me." Its always been about spending money for Steve Wynn and the influence it took to borrow it. What he needed to give for what he would get. That seem's simple but when you combine high priced art and special gifts, bribery becomes a gray area .When you follow the amounts of money he has committed to you have a clear picture of his modus operandi . Steve Wynn needs money any way he can get it. Macau will cost him billions and he has a 1.9 billion dollar 2% loan now . It points out what he will do to run his business but he has been in this spot before .When he opens his Macau project in 2017 he will start to have revenue but were will he get revenue until then ? He can't build in Japan if that market opens up, for two reasons. One, he will not have the money and would have a hard time getting a partner given his treatment of Okada. The second problem he has is Okada is well liked in Japan and is advising them on the new casino projects.Wynn has turned down every project he has proposed since he and Okada built Wynn Macau other than the Encore .Before Wynn's failure with the Foxborough project he had many proposals that went bad ,Anthony Salerno's name came up in 1986 when he was trying to get a gaming license in London , Wynn also ran into licensing trouble's with the New Jersey Casino licence because Anthony Salerno was part of the Mob.The casino licensing agency also said that Anthony Castelbuono, another Mob boss ,was permitted to launder money through Wynn's Atlantic City casino. In 1999, on a casino he was building in Mississippi, shareholder's criticism of his spending, and worries on Wall Street over cost overruns on his $700 million Mississippi casino , caused the once-high value of shares in Wynn's Mirage Resorts, to fall significantly. MGM Grand owner Kirk Kerkorian launched a bid to take over Mirage Resorts and Wynn agreed , to his buyout offer, a better deal than Wynn gave Okada. In 2000, Wynn's corporation became the subject of what was then the biggest buyout of a hotel-casino corporation in history when Kerkorian paid $6.7 billion for the Mirage. Wynn grossed about $500 million from the deal, and said he would never again go through the hassles of owning a public company. He used his part of the windfall to buy the forty-year-old Desert Inn on the Strip.This is the time that Steve Wynn needed a friend and along came Kazuo Okada and all his connections in Asia . Steve Wynn has done what he needed to do but we will see how karma will play out ,or if Kazuo Okada has lost the fight . The problems that plague the donations, loans, art work and voting share's with Wynn are well documented . Steve Wynn has been in power plays and legal problems like this before but I think that's the point.

  • Report this Comment On March 10, 2012, at 8:13 AM, cp757 wrote:

    This is the three year anniversary of the bottom of the stock market crash . Thirty six months for Las Vegas Sands share's to go from 1.38 cents a share to 54.83 dollars. That means if you had $13,800 dollars at the bottom of the crash on 03/09/2009 and you bought 10,000 shares you would now have $548,300 dollars on 03/09/2012. With 10,000 shares you would be paid $10,000 dollars on your dividend every year. That's a 72% return of the money you invested 36 months earlier, and that's just on the dividend, and over a 3,500% increase in your stock price. No other stock did that

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