MGM Resorts (NYSE:MGM) recently announced it has agreed to acquire the business operations of the Cosmopolitan resort on the Las Vegas Strip from Blackstone (NYSE:BK). In this Fool Live video clip, recorded on Sept. 28, Millionacres editor Deidre Woollard and senior analyst Matt Frankel, CFP, discuss why MGM might have decided to add the Cosmopolitan to its Vegas portfolio and what investors should know about the move.
Deidre Woollard: You mentioned CES, maybe we'll get that one back. But there has been some activity on the Vegas Strip lately, in terms of buying and selling.
Matt Frankel: The owner of the Cosmopolitan is Blackstone. They bought it as a distressed property a while ago when it was still being developed. They announced they're trying to sell it. It's one of the few independent casinos on the Strip. Pretty much everything on the Strip is operated by one of three companies: MGM Resorts, Caesars Entertainment (NASDAQ:CZR), or Las Vegas Sands (NYSE:LVS), which is Venetian, Palazzo, and then there is Wynn Resorts (NASDAQ:WYNN). A few are further down the Strip.
The Cosmopolitan is right in the middle of a bunch of MGM and Caesars' properties. It didn't make sense for Caesars or MGM to acquire the building. That's a very asset-heavy purchase, it's one of the most valuable properties, if not the most valuable on the Strip. Blackstone wanted over $5 billion for it. That wasn't going to happen, quite frankly. It's not worth it right now. They ended up selling the building, they announced afterwards. They're selling the building for $4 billion to an investment group, partially composed of Blackstone itself.
They're selling the business operations to MGM. Which makes sense, because MGM's two most valuable properties in Las Vegas right now are the Bellagio, where the big fountains are and things like that, and the Aria. Right in the middle of those is the Cosmopolitan. Now, they have the three in a row, and it kind of gives them dominance over that little area of the Strip. It definitely makes sense, the strategic acquisition.
Cosmopolitan is specifically designed for the younger crowd. I feel like the old guy when I go to the Cosmopolitan. That's not the case in a lot of other places in Vegas, where I still feel very young, at a lot of places. But in the Cosmopolitan, I feel like the old guy. Because it's a millennial-oriented hotel. Very much so. I'd say 25-30 crowd is really the sweet spot for that place right now. It brings that demographic into the MGM ecosystem, where that's an area they were severely lacking. Their nicer properties, I mentioned Bellagio and the Aria, are built for the 40 and older crowd.
They're very nice, but they're built for the older crowd. Which is probably why I feel so comfortable in those places. But this brings a whole new demographic, and if that happens, if it brings that new demographic into MGM's ecosystem, then it could be a price well paid.
Woollard: Of course, because you've got loyalty programs and everything else that's been along from that. Which brings us back to, as we wrap up, just talk about Vegas. Isn't that dissimilar from talking about ski resorts because it's the same economics of getting people to return, monetizing them through the other things that they spend money on, and building that brand loyalty, which is really what it's all about.