They say patience is a virtue, but MGM Resorts (NYSE:MGM) can't wait much longer: It wants the State of New York to grant its Empire City casino in Yonkers a full casino license within the next year or so.
MGM closed on its $850 million acquisition of Empire earlier this year on the basis of eventually being able to expand its operations beyond the existing slot machines and electronic table games. It believes the 97-acre property that contains the casino and the Yonkers Raceway horse track is a potential gold mine, and it's not wrong.
In New York City's backyard
Yonkers sits a few miles north of Manhattan, the most populous city in the country, making it a prime location for a casino and sports betting operation. Gamblers currently need to drive about three hours north to Connecticut for the Mohegan Sun and Foxwoods casinos, or an equal distance to the south to gamble in Atlantic City, New Jersey.
New York does have four upstate casinos of its own, but three of them are even farther away, approaching a four-hour ride. The closest one is Resorts World Catskills in Monticello, which is a two-hour drive. So having one that's just minutes away -- OK, an hour if you know anything about Manhattan traffic -- would be a mecca for gamblers.
Moreover, New York is home to some of the richest major league sports franchises, including baseball's Yankees, basketball's Knicks, football's Giants and Jets, and hockey's Rangers. The state legislature, though, has legalized sports gambling only at the upstate casinos, and they're also why MGM can't get a full casino license. At least not yet.
Champing at the bit
When New York State legalized casino gambling in 2013 and established the four casinos, it created a 10-year moratorium on issuing any additional downstate licenses in an effort to give the fledgling operators a chance to establish themselves. The ban, which expires in 2023, also prevents downstate tracks like Yonkers Raceway from operating a sportsbook.
Genting Group (OTC:GIGNF) operates the Resorts World Casino in Queens, one of New York City's five boroughs, making it arguably even better positioned than MGM should casino gambling move downstate. Both MGM and Genting began lobbying state legislators this year to lift the ban, even offering to pay hundreds of millions of dollars in licensing fees if the moratorium was lifted early.
MGM has argued it will create jobs and revenue, and with Empire City having 180,000 square feet of gambling floor space -- the largest in MGM's portfolio and one of the biggest in all of North America -- the resort operator would be able to get up and running quickly.
CEO Jim Murren recently told area business executives that MGM wants to expand what's possible on the site to more closely tie sports and entertainment to the conference space and business opportunities it envisions: "Sports and live entertainment is a very big part of what we do. We are really differentiated in how we use sports and entertainment to have a conversation."
A piece of the action
But convincing the politicians will likely be a hard sell, in no small part because the upstate casinos have not prospered as expected. Moody's has downgraded the del Lago resort's credit rating for two straight years after it reported gaming revenue last year that was 57% below what it said it would earn, and all four upstate casinos fell short of projections by around $200 million in 2018.
Resorts World Catskills lost almost $140 million last year. Its owner, Empire Resorts (not to be confused with MGM's Empire City), which is 86% owned by Genting Group's chairman, asked the state to bail out the casinos, which Gov. Andrew Cuomo rejected.
Cuomo also opposes lifting the casino moratorium, saying it was imposed for the upstate casinos. And whether the ban is lifted or not, Las Vegas Sands (NYSE:LVS) says any new casino licenses should be auctioned off, not just handed out to existing operators. Sands also hired David Paterson, a former New York governor, to lobby on its behalf.
It's clear the New York City casino market is a potential mother lode for MGM Resorts, but its ambitions for casino gambling and sports wagering could turn into fool's gold if its big bet on Yonkers is delayed or -- worse yet -- if licenses are handed out to the competition instead.