MGM Springfield Possible Sale, Leaseback Called Unlikely Given Regulatory Hurdles

Posted on: November 7, 2019, 07:16h. 

Last updated on: November 7, 2019, 07:53h.

Ed Silverstein @casinoorgedsilv Read More

Expertise: Legal, Tribal Gaming.

If MGM Resorts tries to sell its MGM Springfield casino and then lease back the venue, the proposal would face certain scrutiny from the Massachusetts Gaming Commission (MGC) and apparently skeptical city officials. At best, it was described by one local expert as a “long shot.”

The possible sale/leaseback option is getting increased attention this week, particularly after a similarly structured transaction was announced recently for the MGM-owned Bellagio in Las Vegas.

Springfield Mayor Springfield Domenic J. Sarno said the city has a “very strong Host Community Agreement with MGM and we will certainly hold MGM to this legally binding agreement,” according to the Springfield Republican.

“Part of this mandates the city and the Massachusetts Gaming Commission must approve any and all adjustments to said agreement,” Sarno added.

When asked for comment, the Rev. Richard McGowan, a finance professor at Boston College who studies New England gambling trends, told Casino.org he “doubts” the MGC would approve such an arrangement for MGM Springfield.

MGM was given the license and that would be impossible to transfer without the Massachusetts Gaming Commission’s permission,” McGowan said. “I really doubt that the MGC will approve unless it can be shown that this will allow MGM to reinvest in its Springfield property. I doubt anyone believes that this is going to happen.”

On Wednesday, MGC spokeswoman Elaine Driscoll confirmed to Casino.org that “commission approval is required for a change in the real estate structure.” She said that without any detailed proposal, “it is difficult to comment” further.

But McGowan understands why MGM may investigate such a sale/leaseback scenario. Casino revenue is lower than projected since the venue opened in August 2018.

“Clearly, MGM has cash flow problems that they need to address,” McGowan said. “This could be a way, but it is a long shot.”

As of July 31, MGM Springfield hauled in $252.82 million in gross gaming revenue (GGR) since opening on Aug. 23, 2018. GGR expectations were for $410 million during its first year of operations.

In a statement released to Casino.org, MGM Resorts spokesman Brian Ahern said “MGM is proud of our work in our Springfield community and is committed to building on our shared accomplishments. This partnership has resulted in thousands of jobs and millions of dollars of revenue in the area, and we look forward to expanding our engagement in the Commonwealth.”

The statement also puts the Bellagio sale and lease in perspective. “Previous financial transactions made by MGM, like last month’s announcement regarding Bellagio in Las Vegas, focus exclusively on the transfer of real estate and have no bearing whatsoever on the property’s management or operations. These transactions have no impact on employees, partners, or the guest experience.”

The sale/leaseback option for Springfield MGM comes as multiple casinos and other gaming options exist for residents in Massachusetts, Rhode Island, and Connecticut — especially with the Encore Boston Harbor opening earlier this year.

Even more gaming options are possible, such as in East Windsor, Connecticut, 13 miles from the MGM Springfield, where two Connecticut tribes have proposed opening the Tribal Winds Casino off reservation land. MGM is suing to block the venue from ever opening.

All of the data points to a market that is oversaturated,” McGowan said. “MGM’s figures are very disappointing, and Encore’s numbers are also not up to expectations because of the amount of casino gambling that is available.”

Early forecasts projected that the Encore Boston Harbor could post GGR of $800 million in its first year in business, which works out to an average of $66.66 million per month, a figure the venue hasn’t come close to reaching or surpassing.

“In other words, the New England gambling pie was not as big as experts thought it was,” McGowan concluded.

Bellagio Deal

Last month, MGM Resorts announced the $4.25 billion sale and leaseback of the Bellagio. A similar arrangement is likely for the MGM Grand, and is possible, too, for the Aria and Vdara casinos, both in Las Vegas.

Under the Bellagio deal, MGM will sell the property to a real estate venture controlled by the Blackstone Group. MGM would then lease back the resort casino for 30 years, paying $245 million a year.

MGM also will receive a five percent equity interest in the venture. MGM is expected to use some of the money to reduce debt, as well as boost dividends and share repurchases.

MGM Growth Possible Purchaser

One entity that could try to acquire the MGM Springfield and other MGM venues is MGM Growth Properties, a real estate investment trust (REIT) which already owns some dozen MGM gaming venues. The REIT is majority owned by MGM Resorts.

During a Tuesday conference call with analysts, a question was posed about the REIT’s interest in the Springfield property and its right of first offer (ROFO). ROFO is put into some contracts so a business has the right to purchase a property — or other asset — before any third party.

MGM Growth Chief Financial Officer Andrew Chien confirmed to analysts, “The ROFOs are things that we will be discussing jointly with MGM to the extent it make[s] sense. And timing-wise, obviously with their own real estate committee overlay, there’s many things to evaluate there. So, we’ll throw it into the mix and see what transactions come out.”

This week, John DeCree, an analyst with Union Gaming, advised investors that MGM Grand, MGM Springfield, and CityCenter “remain as obvious possible growth opportunities” for MGM Growth, according to a report in the Las Vegas Review-Journal.