There are surprises and there are outright shockers. Put MGM Resorts International's (MGM -0.39%) decision to drop out of the race for a New York City casino license in the latter category.
First, a quick history lesson. The largest operator of casino hotels on the Las Vegas Strip in 2018 announced an $850 million deal to buy Empire City Casino in Yonkers, New York, closing that transaction in January 2019. That acquisition was validated because MGM rapidly turned the slots-only venue into one of the highest-grossing regional casinos in the country, and in 2022, New York lawmakers approved plans to issue three licenses for Las Vegas-style gaming venues in the Big Apple.
That process ramped up in earnest last year, and throughout, consensus wisdom among gaming industry experts and Empire State political observers was that Empire City was a lock to land one of the three permits. After all, MGM has an established track record with state regulators and under its stewardship, Empire City delivered billions of dollars in tax receipts to state coffers.
Image source: MGM Resorts International.
In other words, surprise may not even scratch the surface of MGM's decision -- a notion arguably amplified when considering that some analysts describe New York as the casino industry's biggest opportunity in years. Throw in speculation that the Big Apple's casino market could eventually exceed that of Las Vegas in revenue, and it's all the more stunning that MGM bowed out.
MGM could save and redirect a lot of money with the New York decision
MGM didn't take lightly the decision to drop out of the New York license competition, but let's be honest -- money played a part. The company pledged a $2.3 billion revamp of Empire City if it was awarded one of the licenses, and those permits are expected to cost $500 million apiece.
Speaking of the license terms, MGM says it went into the bidding process expecting a 30-year license, but new guidance from New York indicated that term would be halved to 15 years. Translation: Had the gaming company won a license this year, it would've been confronted with renewing that permit, likely at a higher price point, sooner than expected.
But at the end of the day, it looks like MGM is saving a minimum of $2.8 billion by not pursuing its Gotham ambitions. That's a decent chunk of change, and it could be deployed in any number of ways, including reducing debt or extending share buybacks.
The company could also use some of that conserved capital to bolster BetMGM (it owns half of the online gaming entity), which could be a smart move when accounting for the higher margins offered by iGaming and the pressure on online sports betting by way of prediction markets.
MGM may not need New York
There's no denying that domestic casino growth opportunities are hard to come by and that New York is undisputedly the most attractive untapped frontier, but that doesn't mean MGM doesn't have other growth levers it can pull.
Ground has been broken on the $10.24 billion MGM Osaka integrated resort. MGM is on the hook for about a third of the project's increased costs. This indicates that the cost savings realized in New York could be material in Japan because when the Osaka venue opens in 2030, it's expected to become one of the region's top casino hotels.
MGM also has its eyes on Dubai. It has a non-gaming hotel there, and executives note that the company has set aside substantial space for a casino, so if regulators in the United Arab Emirates (UAE) approve more gaming licenses, MGM could be in pole position to land one and quickly ramp up a gaming venue in a market with significant growth potential.
The operator has also expressed interest in Thailand, which could be a compelling casino market in its own right, provided politicians there approve related legislation.
MGM surprise could spell opportunity
It's understandable that investors who bought MGM shares banking on the New York license morphing into a catalyst may be frustrated today. There's nothing wrong with feeling that way, but now may be an opportune time to view MGM through a non-New York lens.
If Las Vegas Strip visitation bounces back next year and the company executes on other growth initiatives while effectively deploying capital previously held for New York, investors could like what they see.
