Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



MGM Macau IPO Still Spells Trouble

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

As MGM Resorts (NYSE: MGM  ) continues gradually selling off the most valuable parts of its business, the company is starting to look like a shell of its former self. Treasure Island in Las Vegas is now in the hands of billionaire Phil Ruffin. The once-highflying Borgata in Atlantic City was sold in favor of the company's casino in Macau. And now the company is selling a piece of its best asset.

An IPO for the MGM Macau business is being planned that could bring $800 million to MGM's joint venture with Pansy Ho, although no plans for the funds have been released. A likely use is a planned development on the Cotai Strip, which will finally bring MGM to the fast-growing area of Macau. I would like to see MGM find a way to reduce its $12.6 billion debt load, but I was also hoping for cash flow from Macau instead of the company selling off a piece of the business.

The sale will put additional pressure on results on MGM's CityCenter property in Las Vegas, which has struggled since its opening. If the massive resort can start pulling its own weight, MGM may have a chance to begin reducing its debt load but we need to start seeing results soon.

MGM releases earnings on Monday so stay tuned for more information next week.

Do you know what a casino's risks are?
In the U.S. the gambling business is pretty simple. A casino/host develops a relationship with a player/whale, a marker is signed to give the player credit and if the player loses at the tables, the losses are collected. If you're Charles Barkley, collecting payment may require a little legal action, but the concept is pretty simple.

Macau, however, operates with another layer, the junket, which funnels VIP clients to casinos and extends credit -- sometimes millions of dollars -- to players. So the junket owes the casino on behalf of its clients. For their work, the junkets get a little piece of the action.

The big change lately is that junkets have started acting like banks, collecting deposits from wealthy Chinese and posing similar liquidity risks that caused our financial meltdown in 2008. One junket can owe a casino many millions of dollars, a big liability to VIP gaming results should the junket be unable to pay. Wynn Resorts (Nasdaq: WYNN  ) is heavily focused on VIP gaming, and Las Vegas Sands (NYSE: LVS  ) and Melco Crown (Nasdaq: MPEL  ) are big in the VIP game as well.

Casinos don't like to talk about how much they rely on junkets, but in Macau it's big business and the risks are probably bigger than most of us realize. VIP gaming account for some 75% of Macau gaming. I don't think it's a reason to avoid Macau casinos, but it is just a risk investors should be aware of.

Interested in reading more about MGM Resorts? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Bet, Call, or Fold:

Fool contributor Travis Hoium has sold put options on Melco Crown, making him long the stock. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

Melco Crown Entertainment is a Motley Fool Global Gains choice. 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.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1440356, ~/Articles/ArticleHandler.aspx, 10/21/2016 10:34:06 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
LVS $57.16 Down -0.74 -1.28%
Las Vegas Sands CAPS Rating: ****
MGM $26.10 Down -0.02 -0.08%
MGM Resorts Intern… CAPS Rating: ***
MPEL $16.37 Down -0.20 -1.21%
Melco Crown Entert… CAPS Rating: ****
WYNN $95.27 Down -0.73 -0.76%
Wynn Resorts CAPS Rating: ****