If there's one thing that I don't want to see a company like MGM Mirage (NYSE:MGM) doing, it's plowing perfectly good money into a new resort. Why? It's simple. The company already has far too much debt and its management team is frantically trying to pull off some very impressive moves to keep it from going bankrupt.
As I pointed out earlier in the month, the company -- along with competitors like Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN) -- needs to take the cash that it does make and plow it into debt repayment. In short, new capital commitments are a big no-no.
So why is it that I'm a fan of the proposed MGM Grand New Giza in Egypt? It's not because it's slated to be built near the base of the famed pyramids of Giza. (Frankly, I think that's a little perverse.) Rather, it's because this project isn't going to cost MGM a dime. You heard me right, not a single dime.
In 2007, the company formed MGM Mirage Hospitality, an arm of the company that will leverage the MGM brand and the company's management expertise to strike deals to operate gaming and nongaming properties that are externally financed. While New Giza is the most recent of these deals, MGM is also working in a similar capacity on resorts in Vietnam, Abu Dhabi, and mainland China.
The beauty of these deals is that it is a way for MGM to grow revenue, expand its brand presence, and leverage its strengths without having to jack up that debt load any further. And let's face it, there isn't a whole lot of competition within the gaming sector for this kind of service. Wynn and Las Vegas Sands might be able to pull something like this off, but the Ameristar (NASDAQ:ASCA) brand and the Boyd Gaming (NYSE:BYD) brand don't exactly have the same kind of international cachet.
So kudos to you, MGM. Your balance sheet still scares me, but you've still got some smooth moves.
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