Low going: Casinos sold for bargains

Let’s recap recent headlines.

M Resort, which cost $1 billion, was essentially acquired by Penn National Gaming, which picked up the property’s $860 million debt load for $230.5 million.

MGM Resorts International’s 50 percent stake in Atlantic City’s Borgata was sold to a yet-to-be-named buyer for just above $250 million — almost half the figure analysts expected.

CityCenter, which had an $8.5 billion budget, has an equity value of $2.65 billion. That means MGM Resorts’
50 percent share is worth $1.325 billion.

With apologies to Harry Belafonte, the question asked is, “How low can we go?”

Clearly, the recession and falling revenues have devalued casinos.

Penn National picked up
M Resort’s debt for basically 23 cents on the dollar and will wait out a Las Vegas recovery.

“We view this deal as something Penn just could not pass up,” Morgan Joseph gaming analyst Justin Sebastiano said.

As companies like MGM Resorts ($13 billion in long- term debt) and Harrah’s Entertainment ($19 billion) deal with liquidity issues, it could be a buyer’s market. MGM Resort officials have said none of their company’s properties are for sale. But never say never.

The Borgata deal is key to MGM Resorts’ debt-payment plans. The casino operator is counting on the $250 million. Another $114 million sitting in trust will go to the company once the sale is final.

Boyd Gaming Corp. has right of first refusal on the deal. FBR Capital gaming analyst Jane Pedreira told the Press of Atlantic City that she didn’t believe the casino operator would match the offer because Boyd doesn’t want to increase its market exposure.

The way the Atlantic City is heading, MGM Resorts should be happy it found a buyer.

The same day the deal was announced, it was revealed that Atlantic City suffered its 25th straight month of declining gaming revenues with an 11.6 percent drop in September.

Borgata’s gaming revenues fell 16.1 percent in the month. Revenues at the casino are down 7.7 percent for the first nine months of 2010.

Deutsche Bank gaming analyst Andrew Zarnett said the numbers would continue to fall. The SugarHouse Casino in Philadelphia opened and slot machines start up in April at New York’s Aqueduct Race Track.

Last month, the troubled Resorts Atlantic City was sold to gaming veteran Dennis Gomes for $35 million, the lowest price ever paid for a New Jersey casino. Gomes plans to capitalize on HBO’s “Boardwalk Empire” and run the property with a Roaring ’20s theme.

I didn’t know the theme was going to include the purchase price.

Howard Stutz’s Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. He blogs at lvrj.com/blogs/stutz.

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