After New York casino license withdrawal, analyst says MGM shifts growth elsewhere

ByBDG Game

📰 Key Takeaways

✅ Withdrawal from New York Casino Bid

  • MGM pulled its $2.3 billion proposal to turn Empire City Casino in Yonkers into a full-scale casino.
  • The company cited altered return expectations since its June application.

📉 Why MGM Stepped Back

  • High tax rates
  • Crowded competition: Other major bidders (e.g., Hard Rock, Bally’s) are located nearby.
  • Shortened license term: From 30 years down to 15, which significantly reduces long-term return potential.

💬 Analyst Insight – David Katz, Jefferies

  • Called the move “surprising” but ultimately disciplined.
  • Says the decision reflects capital prudence, and is neutral for MGM’s stock.
  • Emphasized that growth projects will drive share performance more than returning capital to shareholders.
  • Noted MGM’s Empire City location is strong (good access and proximity to NYC), but that wasn’t enough to overcome the negatives.

🎯 Strategic Focus Going Forward

  • MGM remains committed to operating Empire City in its current, limited format (slots + horse racing).
  • The company is now expected to prioritize international and high-growth developments, like:
    • The $12.5B Osaka, Japan resort (opening in 2030)
    • A non-gaming luxury hotel in Dubai, with casino potential if laws change

🧠 Bottom Line

MGM is making a strategic retreat from a tough regulatory environment in New York in favor of higher-growth, potentially higher-margin projects abroad. Analysts view this as a disciplined use of capital that aligns with long-term shareholder value.

🔍 Why MGM Withdrew: Key Strategic and Financial Factors

📉 1. Changed Economics & Regulatory Shifts

  • MGM’s $2.3B Yonkers expansion hinged on a 30-year license.
  • The reduction to a 15-year license term significantly undermined the long-term return outlook, especially given the upfront costs.
  • Katz described the licensing shift as altering the “underwriting of what had already been a speculative process.”

💸 2. Excessive Costs & “Winner’s Curse” Risk

  • The project required a $500M upfront license fee, part of the $2.3B investment.
  • Barry Jonas of Truist said the economics started to look like a “winner’s curse”—a situation where winning the bid might ultimately harm the victor due to overpaying.
  • High and uncertain tax-rate bidding made ROI projections murky.

🕒 3. Deadlines and Limited Exit Flexibility

  • The October 15 supplemental application deadline would have locked MGM further into the process.
  • By exiting before submitting final terms, MGM avoided sunk cost escalation and preserved optionality.

📍 4. Geographic Saturation

  • All four proposals (MGM, Bally’s, Resorts World, Hard Rock) are clustered within a tight NYC-area radius.
  • Katz noted that Bally’s South Bronx bid could have cannibalized potential demand from MGM’s Empire City location in the northern Bronx.

🧭 Where MGM Is Headed Instead

🏯 1. Osaka, Japan — $12.5 Billion Casino Resort

  • Largest-ever integrated resort in Japan.
  • Target opening: 2030
  • Key growth opportunity in a previously untapped market, with government backing and lower competitive saturation.

🏨 2. Dubai — Non-Gaming Luxury Hotel

  • Located in an Emirate currently without legalized gambling.
  • MGM is preparing infrastructure for a casino in case UAE expands gaming laws.
  • A high-upside, low-risk bet on future regulatory liberalization.

💼 3. Other Capital-Return-Positive Projects

  • Analysts expect MGM to reinvest freed-up capital into global opportunities with better return profiles.
  • Projects may include:
    • Further Asia-Pacific developments
    • Technology or iGaming expansions
    • Hotel and hospitality ventures in growth markets

🎲 Who’s Still in the NY Casino Race?

Up to 3 licenses are available. Current major contenders:

BidderProjectLocationCost
Resorts WorldExpansion of current facilityQueens (Aqueduct)$5.5B
Hard Rock + Steve CohenNew casino near Citi FieldQueens$8B
Bally’sCasino at former Trump Golf LinksSouth Bronx$4B

These projects face their own hurdles (e.g., zoning approvals, community opposition), but MGM’s withdrawal removes a formidable competitor and may slightly increase odds for the remaining players.

🧠 Bottom Line: A Disciplined Retreat

MGM’s decision reflects:

Analysts broadly view this move as a positive, freeing up billions for more strategic deployments.

Capital discipline in a high-risk regulatory environment.

A shift toward global diversification, especially in markets with better growth potential and more favorable terms.

Similar Posts