Tag Archives: MGM Mirage

Two recent Macau gambling developments

March 8, 2011 By in Asian economic development, Casinos, China, Entertainment, Hong Kong, Industry Analysis, Securities regulation Tags: , , , , , , , , , , , , , Leave a comment

Pansy Ho has resigned from the board of MGM Macau

Macau Business reported on February 28th that Pansy Ho stepped down at the end of last year from the board of directors of the casino company, MGM Macau, that she and MGM Resorts International jointly control.  MB’s source is a Wall Street Journal article that says the Macau casino regulator confirmed the move.

Why do this?

As I posted on February 1st, Stanley Ho appears to have transferred his controlling interest in the largest casino operation by revenue in Macau, Sociedade de Jogos de Macau (SJM  HK:0880), to a number of relatives, including his daughter, Pansy Ho.  I say “appears” because Mr. Ho has since denied doing so more than once, and–depending on the day–is suing to have the interest returned to him.

The transfer forced Pansy Ho to make a choice, since Macau law bars anyone from having operating control over more than one casino concession.  Although Ms. Ho herself hasn’t said, as far as I’m aware, why she left the MGM Macau board, the move suggests she is going to try to recast herself as a passive investor in MGM Macau.  That way she may be able to keep her ownership interest in the venture (maybe as a safety net) while she actively engages in an intra-family struggle for operating control of the much larger SJM.

The association between MGM and Pansy Ho is a controversial one.  The joint venture was the price MGM had to pay to get a seat at the lucrative Macau table.  The Nevada casino regulators decided, after extensive hearings, that Ms. Ho was a suitable business partner for a casino operating in that state.  But the New Jersey Casino Control Commission, considered the gold standard for regulatory compliance, decided otherwise last year.  It ruled that Ms. Ho was more or less an extension of her father, Stanley, whose ties to Chinese organized crime made him (and, therefore, her) “unsuitable” to hold a casino license in New Jersey.

The NJCCC gave MGM two options:  sever ties with Ms. Ho, or sell its casino interests in the Garden State and leave.  MGM chose the latter course, even though declaring oneself a forced seller isn’t a move calculated to get a good price for your assets.

To my mind, and based on the New Jersey finding, the association with Ms. Ho tarnishes MGM’s otherwise good reputation.  Certainly, in my opinion, there will be some American investors who won’t hold the stock because of this.  It may well be harder to get seasoned international casino professionals to work for MGM Macau, as well.

In Hong Kong and Macau, on the other hand, the Ho name isn’t a minus.  It may, in fact, be a plus.  Last summer, both LVS and WYNN voiced their opinion during earnings conference calls that they thought an unnamed competitor was preparing for an IPO.  Since all the other competitors are listed, I presumed the company referred to was MGM Macau.  If so, the departure of Ms. Ho is probably a negative.  And if she had any influence in getting high roller business to come to MGM Macau, one has to ask where she will steer these customers now. My answer:  to SJM.

In the long run, MGM may have a chance to buy Pansy Ho out.  It may be that if she gains control of SJM, the Macau government will require that she divest the interest.  That would be a good thing for MGM, in my view.  But I don’t think that’s likely until the Ho succession is settled.  And that may take a long time.  In the meanwhile, it seems to me MGM Macau has the worst of all possible worlds.

February reached an all-time high in revenue for the Macau gaming market

The previous record, 18.883 billion patacas (one pataca is roughly equal in value to one HK$), came last December.  February got off to a slow start, but that was more than offset by an extremely successfully New Year holiday period.  Overall, the month showed a 40% year on year gain.  The market shows no signs of a slowdown in growth, despite ongoing efforts by Beijing to cool off the mainland economy and an almost 60% expansion of revenue last year.

The following table comes from the Macau Gaming Inspection and Coordination Bureau:

* 1 HKD = 1.03MOP (Unit:MOP million )
Monthly Gross Revenue from Games of Fortune in 2011 and 2010
Monthly Gross Revenue Accumulated Gross Revenue
2011 2010 Variance 2011 2010 Variance
Jan 18,571 13,937 33.2% 18,571 13,937 33.2%
Feb 19,863 13,445 47.7% 38,434 27,383 40.4%

walking around Las Vegas last week

January 17, 2011 By in Casinos, Current Market Thoughts, Entertainment, Industry Analysis Tags: , , , , , , , Leave a comment

I was in Las Vegas with my family last week for the first time in about a year.

The naked girders of a planned addition to LVS’s Palazzo are still rusting away as they were a year ago.  And the metal bones of a couple of other casino projects decorate lots across the street from the WYNN resort.

The Trump hotel has opened, with the C-A-S-I-N-O letters removed from the sign on the front that marks the (long) drive from the Strip to the hotel door.  The absence of lights in the rooms after dark indicate that either everyone is wearing night-vision goggles or there aren’t many tenants.

I went into the Cosmopolitan, which is very trendy and has a strange, narrow rectangular casino floor.  And I saw the CityCenter for the first time–hotels, condos, casino and mall.  Very impressive, pretty empty–and an odd-looking casino here, too.

For a while, it looked as if snow would prevent us from flying back to the east coast.  A quick check of travel websites showed plenty of $50 and under rooms around, including at the Mirage.

A number of retail stores have gone out of business but the survivors aren’t sporting the profusion of SALE! banners they were in early 2010. Lots more people in restaurants.  A bunch of new restaurants, as well.

my thoughts

There were many more people around the Strip and in the casinos than I saw a year ago, even though the time we were there was a non-convention week, just after the CES.

Of course, it’s dangerous to generalize from just walking around.  I remember once, when Caesar’s was a public company, going to Atlantic City and seeing the Caesar’s there packed to the gills.  I called the company the following day and commented that they must be happy with the business they were doing.  They weren’t!  A main door was broken in the shut position, so gamblers who had lost all the money they intended to couldn’t get out–and were blocking the way to the slot machines.

Having said that, I’m willing to believe that Las Vegas is on the mend.

My walk brought home, however, just how extensive the hotel overcapacity in Las Vegas is.  Occupancies and room rates will remain low for a long time, I think.  That’s important, since the casinos themselves only account for about half a company’s profits in the good times.  The rest is the hotel.

I also suspect that the two new casinos at Cosmopolitan and CityCenter will end up being more or less overflow capacity that will be filled only when others are packed.  If so, the casino overcapacity isn’t so bad.  The real issue for this part of the business is whether American entrepreneurs (the prime casino patrons) will feel like gambling again.  My impression is that they already are.

The upcoming round of quarterly earnings reports for Las Vegas companies will be interesting.  My guess is that the second-line hotel casinos will suffer the most.  WYNN (I own it) is, I think, the only front-line firm with the financial wherewithal to keep refurbishing its rooms to keep its hotels in tip-top shape.  I wonder if that will make any difference.

MGM Mirage’s choice: leave Atlantic City rather than sever ties with “unsuitable” Pansy Ho

March 19, 2010 By in Casinos, Entertainment, Industry Analysis, Stock ideas Tags: , , , , , , , Leave a comment

Why the New Jersey Casino Control Commission is important

The New Jersey Casino Control Commission came into prominence as the most vigilant of the state government agencies overseeing legalized gambling in the Seventies, when Atlantic City was establishing itself as a gaming destination.

At that time investors generally avoided what publicly traded casino companies there were, fearing that the industry had associations with organized crime that would express themselves in money laundering, underreporting of profits or other illegal activities.   But the rigorous application process established by the Commission and the careful screening by its Enforcement Division were, I think, the main vehicles in reversing investor opinion to its present, casino-friendly state.

What it decided about MGM

MGM entered the Macau gambling market through joint venture.  The original concept was to have Stanley Ho as a partner, but even typically less rigorous US regulators voiced strong opposition, given Mr. Ho’s links with organized crime in Asia.  So the company decided to do a deal with Pansy Ho, one of Stanley Ho’s daughters, instead.

This change was enough to allow MGM to get the approval from Nevada regulators for the expansion into Macau–but not from New Jersey.

The local Trenton newspaper, the Trentonian, has a good summary of the New Jersey Casino Control Commission’s findings.  The 70+ page report from the Commission’s Division of Gaming Enforcement–released with the most sensitive data edited out–also has interesting information, although the reading is a bit tedious.

The Gaming Enforcement findings:

1.  Stanley Ho is “unsuitable” to hold a casino license in New Jersey because ” numerous governmental and regulatory agencies have referenced Stanley Ho’s associations with criminal enterprises, including permitting organized crime to operate and thrive within his casinos.” , and

2. “upon concluding that it could not partner with Stanley Ho or entities under his control, and without conducting adequate due diligence on her suitability, MGM simply substituted Pansy Ho as its joint venture partner despite her financial dependence upon Stanley Ho and his companies.”  In other words, Ms. Ho was little more than a figurehead representing her father’s interests.  In addition, the top management of MGM also seemingly “forgot” to supply the regulators or its own internal compliance department with negative suitability information they learned about Ms. Ho.

The Casino Control Commission’s decision

The Commission, in a decision rendered last May but just made public this week, told MGM to either sever its ties with Ms. Ho or it could no longer operate a casino in the state.

MGM’s response?

It has decided to sell its 50% interest in the Borgata casino and leave New Jersey.  I assume that this is a purely commercial decision–based on the idea that MGM’s Macau interests are more profitable and have better growth prospects than its Atlantic City holdings.

about Stanley Ho

He’s never been indicted for, or convicted of, any offense relating to his asserted underworld connections.  There’s no proof that he ever was, or is now, a triad member.  Of course, given Mr. Ho’s advanced age, initiation rites might have been three-quarters of a century ago.

It seems to me that this is a taboo subject among securities analysts in Hong Kong.  In twenty-five years of watching that market, I’ve never read an analyst report or met privately with an analyst where the subject of triad links ever came up.

On the other hand, gaming authorities in Australia, Singapore and the United States are convinced enough about Mr. Ho’s associations that they have made it clear that no one associated with Mr. Ho will receive a casino license.

In response to the release of the New Jersey report, Mr. Ho has denied any triad involvement.

Why, then, would MGM partner with the Ho family in Macau?

In the initial round of concession-granting, the Macau government selected Mr. Ho, the incumbent, plus WYNN and LVS.  MGM submitted an application but reportedly finished fifth.  One might reasonably defend this decision by pointing out that WYNN, a specialist in high-end gambling, and LVS, a specialist in conventions, both have more focussed skills than MGM.

In the second round of concession-granting, which involved sub-concessions being issued by the original three, MGM elected to partner with Mr. Ho rather than one of its Las Vegas rivals.  I imagine that MGM regarded this as purely a commercial decision to select the lesser of two evils, since Mr. Ho has no (and can have no) competing Las Vegas interests.  I disagree with the choice.

Investment implications: Continue reading →