The Las Vegas Strip is getting another face-lift now that MGM Resorts (MGM 0.15%) is spending $450 million to turn the Monte Carlo into Park MGM. It's a needed upgrade for an aging property and one of MGM's weakest performers, and key to attracting more high-end customers to the south side of the Strip. 

MGM Resorts should be able to generate millions in additional revenue, as well as more spending at restaurants, bars, and shops around the resort. 

Rendering of Park MGM from the Las Vegas Strip.

Image source: MGM Resorts.

Why Monte Carlo needed a face lift

In the first nine months of 2017, Monte Carlo's revenue per available room was $120 for the resort's 2,600 rooms. That's better than neighboring Luxor and Excalibur at $114 and $98, respectively, but much lower than New York-New York and MGM Grand at a respective $144 and $180 per night. To Monte Carlo's north, Aria and Bellagio led the field, with revenue of $242 and $268 per room, respectively. 

These comparisons are important because Monte Carlo is right in the middle of MGM's resorts and across the street from T-Mobile Arena. If Park MGM can increase revenue per available room to $180 or more, it would add at least $57 million in revenue annually to MGM. 

The benefit goes beyond the hotel 

It's tough to measure exactly what the financial impact will be from the Park MGM upgrades. But food and beverage and entertainment revenue should increase as a result. 

MGM doesn't breakdown Monte Carlo's revenue by segment, but overall the combination of food and beverage and entertainment are 108% of the revenue from rooms alone. If we estimate that room revenue will rise $57 million from an increased average room rate of $180, then we can approximate that food, beverage, and entertainment revenue will rise about $62 million. 

Casino revenue will increase as well, but Macau's high percentage of revenue from the casino will skew any comparison. However, it's safe to estimate that the impact will likely be at least equivalent to the increase in room revenue

MGM's $450 million upgrade should pay off

MGM said that the upgrade of Monte Carlo will result in a low-to-mid single-digit percentage decline in Las Vegas Strip revenue in the fourth quarter, and property EBITDA margins are expected to be down 100 basis points. But the short-term negatives should easily pay off. 

Conservatively, upgrading Monte Carlo to Park MGM could be an increase of $176 million for MGM's top line. And it could allow the south end of the Las Vegas Strip to compete with the high-end resorts on the north end that have taken market share over the past decade. 

For MGM, the hope is that Park MGM will drive financial improvement from Mandalay Bay to Bellagio. If it does, the $450 million price tag will be well worth it.