MGM Resorts International (MGM) Earnings Call Transcript & Summary

Let's keep right after it. Our next fireside chat here is with the management team from MGM Resorts, I think a group that needs very little introduction. But to my left, somebody who does need a modest introduction because he's new and he's moved from your side of the room to this side, it's Howard Wang. So Howard, welcome. Howard is in charge of Investor Relations now for MGM and been with the company for, how long?

7 months.

7 months, and a big transfer from L.A. to Vegas. To my right, obviously, no introduction needed Chief Executive Officer, Bill Hornbuckle. Bill, welcome. Thank you for joining us, traveling all the way from Vegas. And to Bill's right, Senior Vice President, Corporate Finance, Sarah Rogers. Sarah, always a pleasure. Thanks. And then on the far side.

James Kayler.

Making sure the balance sheet balances.

So Bill, a lot of places we could start, but where I'd love to lead off is, especially with having you and being our first gaming company as well as just MGM has gone through a lot of changes, a lot of transformation over the last kind of 5 to 10 years. But when we think about your hands in lots of different businesses now globally. So a very large and interesting development pipeline, New York, Japan, obviously, great success in Macau, possibilities around the Middle East and Dubai. Then we pivot here, huge flagships. I mean the definitive brand on the Las Vegas Strip. Sorry, Caesars. We'll say the same to you in a few hours. But obviously, defining the Las Vegas Strip on that side and then this huge regional presence, and what you're doing on online. What's the connecting tissue? Or help us through the strategic vision at the C-suite of MGM. What's connecting all these businesses as we think about all the different things you have going on at the moment?

Well, I think the vision and the -- if you think about how we think about business for the next 3, 4 or 5 years and how we thought about it over the last couple of years is diversification of the business. We have been told, and we hear the story, you're centric -- and by the way, we still are centric to Las Vegas. But as we continue to diversify, as we think about our digital business in the short and the midterm, as we think about Japan in the long term and our Asia platform, no matter what happens in Las Vegas, it will, to a certain degree, deleverage that meaningful point of the portfolio. And so for us, it's about continued growth, it's about diversification. Vegas is principal to who and what we are. And so even if you think about that portfolio, I think it served us well through a very difficult summer for most. I mean we started Bellagio and we end up at Excalibur, and the diversification we've seen there has been great in the context of luxury continues to pay off. Obviously, Las Vegas and the community and us when it comes to Excalibur, Luxor have a little different story to tell this summer, and we'll talk about that I'm sure going forward here. But for us, it's really about diversification of the business. We have seen, and I think you've all seen what's now happened, we've had the catalyst, and we've had that changing point. I know you'll hear more from the BetMGM folks later today with that business. There's been a $400 million turnaround basically in a year. And so that's hit its catalyst. Our regional business has continued to do well. We're leading market in 5 of the 8 markets that we're -- 7 markets that we're in. So we continue to perform well there. And they have, interestingly, I reflect back to '08, '09 and '10 and even this year, they perform well in more difficult times, and they're continuing to perform well, particularly in the place like Atlantic City, which through some enhancements, both in the MGM brand showing up for the old Water Club, we redid that tower, and what we did on the casino floor there in the context of VIP business and expansion of that, both in Asia play. We have a noodle shop, we have an expanded VIP area. That business has remained strong and then some. And so the bigger play there is diversification and making sure at our scale, we have the opportunity. We are now getting into this as we've hit $50 million in our rewards platform to be able to begin omnichannel in a meaningful way. And that is all part and parcel. We've seen that pay dividends already in Michigan, in places like Michigan. We see it playing dividends in New Jersey and ultimately, obviously, in Las Vegas.

So let's just hit on the elephant in the room. We're going to get it out of the way. Let's talk a little bit about Las Vegas. You kind of mentioned -- and this is a theme that, by the way, goes beyond Las Vegas, right? We talk about this bifurcated consumer environment. We've seen high and low end, what you're seeing at the luxury price points, what you're seeing at some of the more value-oriented properties. But let's just start at the very highest level. Summer, and this was all updated through kind of second quarter earnings calls, was weak, right? I mean we saw that kind of big step down in June. It sounds like it continued in July, but didn't get that much worse. But what are you seeing right now? How would you characterize the broad environment? And then let's break it down.

Sure. Look, I think that our third quarter is going to represent what the second quarter did when it's all said and done in many forms. Specific to Las Vegas, I just mentioned it, but our luxury, the Bellagios, the Arias, the Cosmopolitans continue to perform at a very high level. Now if you compare them to '23 and '24, which was just stratospheric, it's off. But the idea, the notion that we'll -- I read a headline the other day, Las Vegas is dead. No, Las Vegas isn't dead. We ran 98% this weekend full stop. I mean -- so I mean, we are not dead. We are far from dead. The idea of that, though, where it has hurt, and not only the community but us is at the lower end. And so value-oriented folks who go to Excalibur, Luxor, remembering a couple of things have happened to us, one specific to the company. We've had a massive remodel at MGM. We've had 800 rooms out of order. We've sped that up so that we'll be done with it by the middle of October. And so for the fourth quarter, we'll have all of our inventory back. We think that's a meaningful thing to do. We've seen in the market of Spirit go bankrupt. We've seen them pull back almost 400,000 seats, that's had an impact on the summer. And I think overall dynamic and policy, if you think about visitation, people who are traveling and people who aren't, and you think about Southern California drive traffic in from Southern California has been meaningfully off. And I think it's the low-value market, I don't think I know in terms of Excalibur and Luxor of note that's been impacted. But the idea that Las Vegas is dead, I would say this. We are putting a push on because we let the narrative get away from us in the context of value. And so we are out putting a push on Las Vegas is a huge and remains a huge value for consumers at all levels. We have a group in Canada today through the convention authority that's literally promoting that storyline. We launched, Las Vegas, a campaign starting next week. It's a national campaign around Las Vegas, Fabulous Las Vegas, that harkens back to all of the things that it once was in terms of value creation. We are all participating in the citywide program to promote Las Vegas in terms of value and production. We have taken a very hard look at pricing. And it's not about room rates, it's not even about resort fees or parking fees. And by the way, that's not historically going to change. We value that business. We think we are a good value there. But we have done things like you buy $12 Starbucks coffee. So if we go through a $26 bottle of water at Aria is the one that keeps resonating with me. So if we're going to go back through our pricing on those things that people touch every day and matters. So tonight, you can check into New York, New York or Excalibur for $85, including resort fee. You can get a $5 beer, you can bet on a $5 table. So we've looked at the marketplace and we're going to make a difference where we think the narrative is most important and where it helps. But I think the fundamentals of Las Vegas are strong. We're coming in the convention season. We're coming into event season, I think, which really drives visitation. We've got Crawford against Canelo in the middle of September in Allegiant Stadium, that's 65,000-odd people. We have Paul McCartney in the second weekend in October. I think he'll do fine. I think he'll sell out. And so we have 9 Raiders games this year versus 8, and it goes on and on and on. Continuing the fall program with the convention foundation back in play I think will change the whole story line.

Okay. You mentioned Southern California, which is obviously the biggest feeder market. The visitation number, right, in July, I think definitely caught people's eye, down 12% if I remember correctly. What are you seeing like international is getting a lot of like play in the press, right, just international visitation into the U.S. generally. Canada, high on that on that list. So like from international travel and then from an airlift perspective, what are you seeing maybe?

International airlift is actually on par interestingly. Canada is off 40% for Las Vegas. And obviously, commentary about the 51st state isn't helping. I just got to say that. Having said that, their peak season is February and October in terms of when they come, particularly around the notion of hockey. And so we've got time, I think, to rebound and hopefully repair. That ad campaign, I mentioned it will be in Canada. Again, we have a delegation up there today talking to Canada, making sure that they feel loved, that they feel welcome, that we want them and that we need them. There's only so much we can do and so much we can control. But put it in perspective, international Las Vegas business is about 11% of the mix. Canada is about 3%. Mexico is about -- 3% or 4%. Mexico is about 3%. Mexico was fine and then some, and I think the Canelo fight will actually raise the annual number. Some of the other business is off, but only in a minor percentage. So it's an impact, particularly the Canada discussion. But in the relative scheme, it's not significant. The drive traffic this summer, Southern California has been -- and not having Spirit in play at the scale that they once were is also a big play. It just -- the market hasn't rebounded that quick enough.

And just remind us of some of the high-end properties. International, when we think about gaming tended to be a bit more Asia-specific or Asia-oriented, obviously. Without going totally down the Macau rabbit hole just yet, just what's that -- at the higher end price points, do you see the same patterns or are they exacerbated or are they muted because the demand is to backfill Bellagio no matter what?

They are muted. In terms of high-end gaming, whether it's Asian or otherwise, most of the noise we hear specifically around international travel is just not an event. Everything from we go get to an airplane to -- so that's not a serious event, and we've continued to see that continue to grow as it has from '23, '24 and beyond. When you think about China in general all the way back to '19 and '18, we're not back to where we were. And frankly, we won't be. One of the broader challenges for international travel is this is not an immediate Canada thing. You can go back and it's just not this administration thing. You go back to 2016, we had a $50 billion international surplus. Today, we have a $50 billion deficit in international travel with U.S. And obviously, Vegas plays a big part in that. And so there is a broader concern, something broader going on that we, as a country, need to get our act together and focus on welcoming people for -- and if you think about the opportunity before us, you got the Olympics twice. You've got Ryder Cup right now. You've got World Cup coming up. There's a massive amount of things that are going to happen to showcase America that are coming up that we, the collective government and the destinations need to do a much better job with them.

Is the group calendar and the return of this, and we all make a science out of September and holiday shift relative to October. But is the group calendar enough to help put a line underneath this bill in terms of like can that drive enough compression, enough movement? And do you start to see that in what you're able to look out and see kind of as we turn the corner into Q4 and into '26, can convention, group event, can that start to heal some of the transient softness we're seeing?

Heal, the word, is absolutely yes. To the extent how far we go, it's -- look, we do know. We know our group business is strong in the fourth quarter. We know it's the strongest it's ever been in 2026 and 2027. We see what we're booking today versus what we booked historically, and it's better and bigger. I know corporate America will show up because the boss makes them show up. What I don't know necessarily is, take CES as an example. What's going to happen? It's too early to tell empirically what that data is going to provide and what ultimately shows up. I will say one thing. For us, the Marriott relationship. We switched gears on something with our original deal with them. We opened it up to conventions. And so I'll go back to the CES example. What happens there now is if I've got a Marriott Bonvoy, 200 million of them, and I want to be in Las Vegas on a convention like CES, we now accept and take their points and we trade for that. I think that will make a difference for us on citywide and things that are tied to Las Vegas, but not specifically tied to a property. I think for us, it's a distinct advantage.

And Tony was on stage earlier, actually mentioning that you've done some work and the group overlaps were smaller than maybe you had thought through what you're able to, and it sounds like that...

Well, I think his concern was, look, we know everybody in the group business. "We know everybody." No, we don't know everybody. We had 13 offices, they have 1,300 people in the field. And so there's a segment, particularly the benefits of the mid-market like MGM and whatnot that we did not have the access to that they do. And so it's a meaningful differential. And to put that many people to work on behalf of the company, they're doing over 20,000 room nights a week with us. And so -- and that's going to continue to grow as we open up this convention market as well. And so we're very excited by that.

Let's shift gears to Macau for a quick minute. I mean this has been actually underneath it all, a huge success story, very MGM-specific to start with in terms of what you've done on the share gains and improvement side. And now it seems broadening out to the entire market. So I actually want to start on that in reverse. We've seen this kind of improvement over the summer. We kind of sit here and look at a lot of macro variables and we're kind of saying, look, Macau seemed to have led the improvement that we're seeing in other places right now, meaning like, yes, I see some enthusiasm in the stock market in China, but not necessarily all a China macro. If you had some of our hotel companies, they're not blowing the doors off in China, and yet Macau is booming. So square the circle for us, what are your people on the ground telling you about why Macau is having a great -- it's such a phenomenal summer?

I'll talk to macro and the micro to our company. We're talking to Macau, maybe 25 million visitors. And if you really start to think about that, it's 7 million, 8 million people come 3 times a year. So the actual penetration into what you need to come into Macau and comparative to 1.4 billion is like slim and nothing. And so I just got to always keep that in mind, the perspective of what we need to feed that marketplace. It really hasn't changed. What's happened is the junket tiers have obviously now gone. VIP customers are still coming and in mass. We have seen from Southeast Asia and some of the other places that we have offices in that we market to, a big lift, and we have, I think, a distinct advantage there where others potentially haven't been has relied more on junkets historically and therefore, not been established. So we know the customers. We know where they live. The infamous, we know where you live. And so we're in a great position to do that. We also have 9 hotels in China. So it's not a huge thing, but we do understand the general sentiment and the economy and what's going on in the hospitality business there because we follow that closely. Macau is an exception. And I think part of it is they have allowed people to come. If you go back a year or 2 years ago, they were telling the individual people, I'm sorry, you've been four times, you can't go a fifth time. Any and all of that has stopped for now. I think they're letting the market run. I mean it's just over $30 billion. I think it's got some more room to grow. It won't be $45 billion anytime soon. So I think that's a reality that we all understand. And then I think our personal ability at MGM to go after share, we got very aggressive on the casino floor and what that product needed and wanted to be, and we changed a bunch of things. How we fed people literally on the floor. How the floor is designed. What's the padding in the carpet, believe it or not, is a real discussion there. The lighting, the coloration, how you position the games. And we went deeply into that in the context of asking customers what they wanted to see, what they wanted to do, what they want to participate in. And I think we've been rewarded for it. Now others are following suit, and that's not a surprise. Fortunately, I don't think we've seen -- although it's always aggressive there, we haven't seen marketing dollars continue to creep out of control. So I think the programming is in play. I think the government watches that all now closely anyway. So I think there's a check and balance there on that. And so we're going to hit a 28% margin, give or take, and I'm excited by where that has gone and where it's going. And then for us, we've been able to add more villas and more suite product, which, again, the market has gone, particularly in our case, to premium. And so we were under suited and generally speaking, we're under room given our scale. And we have outperformed. We're about 130, picking up 100 more tables didn't hurt. And if you look back at the old model, we really added 200 tables, 100 new ones, and we had 100 that were tied in junkets and not as productive as from a margin perspective as I thought they could be. So now we've unleashed all of that. And so it's paying dividends.

You alluded to this, but just to make sure we put a fine point on it. There is some concern in part because of MGM's success story on market share, that means there's a loser when those numbers have to come up to 100%, that promotions could tick up. It doesn't sound like anything you've seen to date that your property people are calling out there. But is that a concern as, again, the fight gets fought to try and win a little bit of that share back?

We had this very conversation a year ago, okay, and so a year later, we still haven't like gone crazy. We, in the market, we, MGM, our margin effect, I was suggesting we'd be in the mid-teens given all the program we had to bring in to satisfy the government requirements. We're beating that. And we haven't -- so I would challenge that. It doesn't mean tomorrow. And some of that does sound silly, but I would challenge that.

Let's switch to digital a little bit. We've talked -- again, this is another one where I think, a year, if that was -- Macau was consistent, this is like 180, right? So I'd love maybe your just high-level decomposition here first. Again, I think I sat here with you, I think, a week after this conference in September. And it was kind of like we've got a leash for what can happen here or we think we've got the right steps. We fast forward, almost every KPI in the business accelerated and it looks like we're looking at a multi-hundred million dollar change in trajectory in less than a year. So looking back on it now, like with kind of with hindsight, what's been the biggest kind of...

I see Adam back there, and I know you're going to hear from him later. A lot of credit to the team for doing really a couple of principal things. We were very aggressive in marketing at a top level. And Adam will get into some of this detail, I suspect. And so doing what mattered from a marketing perspective saved us a great deal of economics and accretive to the bottom line. Improving the product year after year after year, we're now really in our second full year, and we hit football again. And Adam, I suspect, will get into this in greater detail. Actually just simply improving the product and making it more competitive has made a massive difference. And then the fascinating thing to me, if you think about New Jersey as the example, New Jersey with iGaming started in 2012. We still see double-digit growth. And so the breadth of these markets, same in Michigan, same in New Jersey, the growth rate that we have seen year-over-year because we've only added 1 or 2 states for sports betting even. We're pushing 30% growth rates in most of these markets. And so it's a credit to the team and what the focus has been, a credit to our partner, Entain, and opening their ears and eyes and saying, okay, we need to help this business do more. And just overall, the marketplace has continued to do well, and we've benefited from that. We've stopped losing share. We're taking back some share. And so -- and over time, between a single wallet and single account, the idea of omnichannel, 15% of folks who now touch either our product or BetMGM's product share, meaning they come -- they touch both products. And so those numbers continue to go higher, and we're excited by that. And so it's been literally almost a $400 million turnaround from when we sat here a year ago to today, and probably more importantly, we've all talked about making $500 million at some point as the next threshold. There's a vision and a view into that, which we all believe is very real at this point.

So you mentioned, obviously, your partner, Entain. I think the JV structure has always been a topic of discussion.

You couldn't help yourself, could you?

Well, I mean I think with -- I mean with the inflection in the business, does that change the thinking around that? Does it create any sort of urgency? Or is it just operate the business, number one?

Operate the business, number one. We want to continue to see that clear path to that $0.5 billion. There's a lot that's in play right now that confuse the business or just sidetrack the business and some other deviation is not smart. And so we're going to continue on the track we've got and take a view once we get to the next year.

Was that a causative shot at prediction markets?

I didn't say that. I mean I'll explain about prediction markets. MGM Resorts' view is it invites the federal government into a space it's never been, and it's not a place we'd like to see this marketplace go, full stop. We're going to watch. We'd be foolish not to. I will reference and again, I think Adam can put more color on this down the road. The prediction markets are in U.K., they've been there for 20 years. They're a piece and apart, they're under 10% market share and they get beat up a lot. I mean if you go play on these prediction markets, you may even have to be that sharp to figure out what to do. So it's out, it's real. We have to contend with it and understand it. We've got to be ready for it if it becomes even realer. But officially, it is not something we endorse.

Let's talk on international digital though. This is another piece. And just you mentioned U.K. You're in that market with the BetMGM brand. Some of these markets -- so I think what are the priorities for the markets, U.K., Netherlands, Brazil, I think, are all on that list?

As a growth priority, it's Brazil. We've seen enough now to realize and still believe it's a $7 billion or $8 billion market. It's crowded, but we think we can share still between 5% and 10% share, which you put a normal margin to that. And remembering our partner is Globo. So we have a distinct advantage in terms of advertising and marketing dollars to the business to put a normal margin on that. And over time, we see that as a $200 million or $300 million piece of that alone. LeoVegas business, look, there's been a lot of regulatory between U.K., Sweden and some other things. Like in Sweden, you had to get relicensed and start over. But all that foundationally is on solid footing and going in the right direction. We put our own sports betting product in typical in play. So it's in Finland, it's in the Netherlands and it's headed into Brazil. We feel really good about that product and ultimately what it can do. We still have a piece called Push Gaming, which is in the content business, which we're pushing out content, not only to BetMGM but to ourselves and to other vendors. And we like being in that side of the business, having a purview and a view in terms of games and what they can be. And particularly there, we've leveraged into our scale with jackpots that the markets haven't seen before. We have a pretty big balance sheet as compared to most of the competition. And we're leveraging into -- go into a $2 million jackpot. And particularly in places like U.K., it's paying a dividend.

Let's switch over to capital allocation and CapEx. So I think you had a little something you wanted to share on Japan, which I know is a big personal ambition of yours, Bill?

Yes, it is. So we are literally in the ground. We have poured our 52nd pile as of this morning, so yay. 5 years from now, this will come to life. We are projecting opening in the third or fourth quarter of 2030. What you're looking at is about -- between the 2,800 rooms, that will become one of the world's, if not the world's largest casino, with 750 tables, over 6,000 slot machines. There's over 70 food and beverage outlets. There's a theater for 3,500. There's a convention facility, MICE facility for just under 1 million square feet of space. You can't see it, but there's a small theater outdoor. And there's an outdoor pavilion that has bars and restaurants and whatnot along the garden area there. Across the way here, there's a museum that leads to a ferry terminal. We have seen now the infrastructure in play because of the World's Fair, World Expo. They brought over 1 million people to the site, and so I've seen it work. And so I feel excited by the rail and the network that's put in play for this site. But it's a landfill site. So for us, we're playing in the mud better part of the year and then we're going to begin to build this thing. If you think about Singapore as a proxy in our future, Singapore, we're going to have half the facility, meaning one, they have 2. We have 5x the population, twice the visitation already in Japan before we open this thing. Singapore is going to do $2.5 billion in cash flow this year, the Sands alone, over $3 billion in the market. You put all that dynamic in play and you take a pachinko market that's almost $20 billion inside Kansai region and you put it to work here, I think this is a -- for us, this is a once-in-a-lifetime opportunity that I'm very excited by. And we've taken our projections up over $2 billion. And nothing is a layup in life and certainly getting this far has not been a layup. We've been after 16 years, to be clear. True. It is crazy. It will be 20 years before we opened from the first day I met my first Diet member. But we couldn't be more excited about what this will do for the company.

All right. Give us like some fun engineering facts, 52 pilings out of how many? Like what are we getting to there?