MGM Resorts International ($MGM)

Thanks, everybody, for joining. Next panel off, we have MGM. We're thrilled to have CEO and CFO today, Bill Hornbuckle, Jonathan Halkyard, we're in Vegas. It feels lively.

As you kind of look out at the business, do you want to give us kind of a high-level update on what you're seeing kind of day-to-day now that we're here kind of been living it?

Yes. And I think this theme has carried itself through some of the other comments I read from yesterday from both Tom and the folks here at Wynn. Our high-end business continues to perform and perform well. I think this quarter has been progressively better. January, February, March. Obviously, we just had CONEXPO go through here and very successfully. And so we're excited by the trends we see in both of those parts of our business. We had nice Super Bowl. We had a great Chinese New Year's here. And so we feel good about that. I think we have second half of the year with the exception of leisure, which I'll speak to in a second. We have a soft second half of the year. I think the general -- everybody did, us in particular. And so I think the opportunity to show growth ultimately in 2026 is very real and meaningful. And I think you'll see that from us is our expectation. We've got a lot of programming coming in, in April and May, throughout the summer, both short- and long-term programming that we think is going to be exciting for the destination. Leisure is a little different, although we've seen some green shoots slightly. It's too early to tell if it shifted back to where it was. Obviously, we own Excalibur and Luxor at the value and the chain. And we continue to see softness there. We are aggressively going out trying to do something about it through programming. You'll see us announce something in a couple of weeks, we think will be meaningful in that respect. And so we're excited for that to see where it goes. I think the market enough got caught flat-footed last summer because things were fine. And then in May suddenly they weren't. And so we're going to respond to that and respond to that aggressively. And I think you see a lot of programming only from us, but the community and the convention authority is going to launch something special in April. They will carry its way through the summer. I think you'll see a lot of fireworks around here over the summer. And so we're excited by that. And so I think generally, tone is affirmative as we particularly go further into the year. First quarter is as expected generally. And I don't know, Jonathan, anything to add to that, but I feel pretty good generally. .

Yes. I would just say the business is pretty much performing the way that we expected it to. And the same could be said for the regions. The other thing I'd add, maybe as there's been some speculation about what the impact of some stimulative tax policy might have on our customer base that certainly, we have seen that in the past when that's happened, we really haven't seen much yet. I would expect if we do, it will probably be in our regional markets first. And so we will see -- it's not really in our plans, but I wouldn't be surprised if that's a tailwind for us as we get into the second quarter. .

As you think about kind of the first quarter, and then we'll get to the kind of second quarter and kind of case for the year. You had this January where industry-wide RevPAR was up, I'm going to say, 4.5%, visitation still down, but I think it was only down a couple of percent. How are you seeing that -- or are you seeing that kind of sequential improvement flow through to your business? And if so, where is it showing up across your portfolio?

High end of note, luxury of note. And the further you go down the spectrum, the softer it gets. And I'll remind everybody, Luxor or Excalibur, by way of example, I think it's like 6% of our overall EBITDA. So while we're focused and we're concerned longer term, that we want to stay pushing that and promoting that business, it's not the end of the world. I think if you go to the other end of the spectrum, whether it's high-end activity cases around Gymkhana and Carbone Riviera, things that we've just created that are off the charts, by the way, literally that business continues to boom. We came off of a strong first quarter last year in gaming. I think Super Bowl performed well. I think Chinese New Year has performed better this year here locally, domestically. And so the expectations we've had for the year going into particularly the second half have not changed. Group business continues to do well. Our catering and banquet business continues to actually a little better than we anticipated. So we haven't seen spend pullback there to the contrary. And so the expectation we've had, we still hold.

And then the programming that it sounds like it's going to be picking up. Can you maybe expand on that. Is that focused towards a type of customer? Or is it kind of broad-based? Is it -- what is going to be like the messaging or objective there?

Well, I think there's a couple of things to say. And the visitor profile just came out for Las Vegas. And one of the -- we've all heard this messaging over the last course of the year through social media of note where value Las Vegas isn't the Las Vegas it used to be in all of that. No, it's not the Las Vegas it used to be. It is the new Las Vegas that I would say is providing better value for experiences than it's ever provided before in its history. And so to the extent you can do things here that are experiential whether it's through sports and all the sports activity, whether it's ultimately another Super Bowl in '29 or Formula 1, all of that has changed the marketplace forever, and I think that's a good thing. . Is there still value to be had here? Absolutely. I mean the idea that someone can come in here on a package and for a couple of hundred dollars get room, food, theater and attraction is very real and very much a live still in Las Vegas. And so that narrative, I think, has been way over plate. I don't aspire to it or believe in it or want to support it at all to the contrary. But Las Vegas has changed. We are a center of activity around special events and so they matter. So whether it's Worldwide Wrestling as funny as that may sound, bring 60,000 people to Allegion, whether it's -- what's the country guy's name, [ Wallar ]?

Morgan Wallar.

Morgan Wallar. Thank you, Ayesha. By the way, those of you who haven't met, that is Ayesha Molino, our new Chief Operating Officer. So, Ayesha? . It depends on the activity case. We have -- whether it's Final 4 coming up. We are after another Super Bowl. We have the Grand Prix. There's -- I don't know if there's a change. I think there's more of programming of that ilk that brings in different segments at different times. The Bruno Mars is of the world who will come back here now in the stadium, I'm kicking off his tour. We're fortunate to have him as part of our family, his tour was the largest selling tour on Live Nation is in the last couple of years, including Taylor Swift, by the way, in terms of Day 1 performance. And so, I don't know that's changed. I think there's more activity than there's been historically though.

And then it's obviously a pretty fluid geopolitical landscape. How do you think about any impacts or things that you're monitoring as it relates to your business? .

Look, I think one thing that has dynamically changed, and we have focused on this -- I'm also chair of U.S. Travel, is international travel. International travel for Las Vegas historically, has been in the mid-teens. That's fallen to 9% or 10%. Canada is off appreciably. I think that's our key focus market, particularly in the winter months like right now. And so we need to aggressively go back after that in a welcoming message that America is open for business, et cetera, et cetera. What was a $50 billion surplus has turned into a $70 billion deficit for the country. And Las Vegas is a big piece of that in that context. And so I think there's some of that -- and by the way, it's not the current administration. This all goes all way back to 2016. This is start -- the depth it started go the other way. And so whether it was Trump administration 1, Biden the administration or Trump administration 2, our ability to pay attention to that segment and treat it properly, we need to do a better job collectively at that. It's not just Las Vegas, but I think the country as a whole. .

The other impacts that we're watching relates to our supply chain, and we don't see -- nor do we foresee any impact on supply chain from what's going on right now. And the other is energy prices. And I think many in this room in the past have tried to draw correlations between the price at the pump and gaming revenue. And we have never seen that correlation -- and also in terms of our energy prices, they're largely fixed. And as people have probably seen almost wholly reliant now on solar power here in Las Vegas. So we really don't have exposure as a company to volatility in energy prices other than affecting as Bill said, maybe aggregate demand or air travel. .

And then just while we're on the kind of broader topic and the different things happening in the Middle East and the region, I mean you guys have a deal there, obviously, non-gaming. How are you thinking about that opportunity? Where you sit today? Are there -- I guess, have there been interruptions in terms of the construction?

I find it fascinating. There was a 1-day interruption. A company called China State is actually building the property on behalf of Wasl,our partner and they're back on the site. And so the answer is no. And we think about it long term, and obviously, we believe as I think everyone believes they'll be resolved in the region and safety in the region. So we're excited by it longer to go longer term now, it's a complex, it's probably over a couple of million bucks. It's not our project. So it's on beholding of Wasl, the construction of it and the capital of it. But in it is a platform for a Casino Sunday, time to tell. The ruler there will have the jurisdiction of if and when. But the ruler also -- their company is owned by Wasl. And so the owner of the property is ultimately the rulers company. And so longer term, we're excited by it, particularly where the airport is and where it's going, we think Dubai is the marketplace there. And so we're comfortable just having a management agreement to manage something we think is a real brand extended for now, and we'll see.

Can we talk about the kind of longer-term supply demand dynamic in Las Vegas? You've seen a couple of new properties come into the market over the last 5 or so years. You have another giant guitar that's coming off very quickly. How do you think about the next few years in terms of the supply and demand dynamic in this market?

Well, I would remind everybody, at least as it relates to our business, the Fountain Blue and resorts have not hurt us in anyway, actually, we grew through that, through those -- both those openings, if you will. The Hard Rock now, Mirage, the vast majority of those rooms were already in the market and now we're moving it. So you could arguably say 3,000, 3,750-odd keys or whatever it is are coming back. Look, Hard Rock are serious competitors. We deal with them in New Jersey. We know what they do in Florida. They have a meaningful database. I think Jim and his crew and Joe Lupo over there are good competitors, and we're going to get ready for it. We're not taking it lightly. I can assure you. They're going to have a 5,000-seat theater, which I'm sure will directly go after the kinds of things we do with Park MGM. And so we're thinking about it already every day what to do, how to think about it. Recognizing the kinds of things they've been historically. And again, we got caught, frankly, 4, 5 years ago, flat-footed in New Jersey. We've learned by it, we've now gained back our share and then some. So I think we understand how they play.

I guess, between now and then, you have some big CapEx investments across the strip that you're making and it sounds like more of your high-end properties. Can you guys -- can you just give us an update on kind of where we stand and what maybe you're most excited about there? .

Yes. The recent CapEx projects we've done have been largely around high-end gaming high-limit slot areas, high limit table areas and properties like the Bellagio, the MGM Grand, Aria. We're now doing it at Cosmopolitan. I think we've been very diligent in updating our room product. We did MGM brand last year. We'll start the Aria at the end of this year. And then Bill mentioned some of our very successful recent investments in the M&A -- or sorry, in the F&B category. . I think, though, the most promising and larger scale growth capital opportunity for us is to improved circulation between our -- the key parts of our luxury campus, Bellagio, Aria and Cosmopolitan. These are 3 massive properties that together, do call it, $1.8 billion to $2 billion in EBITDAR and they were built to compete in a way with each other. Now they're under our umbrella. Our customers love that choice. They have different offerings. And so capital investments that increase the connectivity of those businesses in a way that really customers old value, I think, is going to be something we were looking at in the next couple of years. .

And product offering around entertainment, nightlife, at scale, making sure we're competitive. Obviously, we watch what happens particularly in this building, and they do a very good job with that, and we want some of that back to be really specific. .

If you think about kind of that medium-term outlook, right, you guys have seen the headlines. We've all seen, I mean, to the extent that there is an evolving ownership landscape on the strip, does that impact you, to the extent that it's Tilman or icon whoever? .

No. No, look, I mean, Mr. Fertitta was going to come anyways arguably, and he's already trying to hear in some respects. No, not really. I would say one thing, though, it's kind of fascinating to us. If you do the math that's been applied to that transaction. And say it transacts for, call it, whatever the number is today or call it $35 and you put that same math to our company, we're like $60-plus a share. That math I like a lot. But I'm -- I don't know that it changes the landscape. What you've heard calling for is let's bring back some independent entrepreneurs who run with individualized properties. Think about Phil Ruffin and what he's done with Treasure Island and/or Circus Circus for that matter. But that transaction wouldn't change the landscape in my mind because it doesn't do exactly that. So I don't know if you think of it differently, but I don't.

Competitively, not really. .

Okay. Can we pivot to Macau? I mean we're past Chinese New Year. I don't know we've gotten the GGR numbers we saw for the full month and we can combine and look at them a lot of different ways. But how would you -- in terms of your properties and portfolio there kind of.

Volume grade, last year, the first quarter, the luck gods were with us, not as much this year, would be my overtake of it. And what's important, the volumes are great. and continue to grow. I think the expectations for the market, I think the expectations we've set for the market for the year, particularly are on track and then some. I think at the top line, we're all outperforming that. Market remains competitive. I don't think that's news to anybody here. I don't know if there's anything dramatically going to change this year in a context of competition. I think it's more of the same. It's a dog fight. For us, we have assets we've put in play mid-season last year, so we'll get the full benefit of a full year, whether it's the Alpha Club in Macau or a lot of the villas and suite products we brought in, we open up, I think it's starting next month, 124 new, I call workhorse suites in Cotai. We've converted 3 floors to just Suites and clearly like the business, but particularly there, premium mass, but premium of note has really made a difference. And so we're pushing hard into that. And we've enjoyed a 15% odd share. And I think over time, we'll continue to do that. I don't think the market changes much in that context.

And then it's long been promotional. It continues to evolve. But where are you seeing that promotionality in terms of your customers? Is it more going after the high end? Is it kind of that premium mask? And I just say that because you've seen in the last 6 months or 4 months -- 4 or 5 months, VIP has been growing a lot faster than the mass segment.

It's both. And so -- and we're a good example is we're converting spaces today that used to be junket because we still have old junket spaces left it into whether VIP and/or mass premium spots for us. And so look, we've -- VIP itself, although I will tell you, of our 10 biggest customers there, 6 or 7 of them are considered in mass premium and the other 3 or 4 are VIP, just like the way they want to deal and play. It's mostly an individual decision in many instances. And so I don't see that changing greatly. I just don't. I think Macau is on a pretty steady path now for the next year or 2 in the context of the shape of the market, the scale of the market, and how it's being catered to and addressed. We all are under the obligation to put more money into these non-gaming assets. And so it will be interesting to see how that gets manifested over the next couple of years. But I don't think the dynamic of how we're doing the marketing, casino marketing of note is going to change.

Dan, I think it's also more to point out while the competitive landscape for our properties in Macau is really important, and they've been executing well. What's equally important is our relationship, MGM Resorts with that company. We own 56% of MGM China. This is a business that has a absolutely rock-solid balance sheet, pretty low leverage and great free cash flow generation. And in particular, we raised our branding fees payable to MGM Resorts to a market rate. It was a pretty material increase a few months ago. And also the dividend flow that we get from MGM China together, those roughly $250 million a year of, we think, very reliable cash flow for our shareholders and that with minor increases or decreases in performance, those are very solid cash flows for our shareholders. .

And then, Bill, you alluded to the kind of the market share where you're at now, it's roughly doubled pre-COVID. I think part of that was some of the suite product that came online. I mean, do you think about -- how do you think about the incremental non-gaming investments, the competitive market and maybe the opportunity to further increase that share? Do you feel like that's just given how far you come?

Yes, I don't know that we'd go much harder than what we are given the scale of the company. Look, we're going to continue to try. I can assure you, but I think it to be realistic in some respects. The market dynamic of what we all -- and for example, our company committed to -- I remember a number far off $2.3 billion of incremental OpEx and CapEx into these non-gaming initiatives over the course of 10 years. We're about 35% into that spend. And so we brought on a show and a theater, we brought on a black box. We brought a museum, which has been highly successful in terms of foot traffic and well regarded in the context of the government and the kinds of things we've done there. We are all getting to a point, and we have underwritten and sponsored many activities, sports and otherwise, throughout the community and some community initiatives as have others. We happen to be leading the pack in some respects in that. That said, how we then spend the next money particularly given our scale and scope and footprint is a bit more challenged. And so we're going to have a lot of conversations around that, the government of how to make it effective and efficient or more effective and efficient. But I don't know -- I think go back to your core question, I think the market share we see in the mid-teens is fair and I see that to continue to grow. I'll go back to that. I mean, remember, this is a market that was at $45 billion, had aspirations to be in the 60s at one point, and we currently sit in the low 30s. And so I think there's more controlled rational market growth because the government, I think, will be very focused on that. That said, I still see growth in that market.

Maybe pivoting to BetMGM and on the digital side, I mean, that certainly has been a bright spot for the company. First, I guess, on the direct side, right, I think you've talked about up to $1 billion of investment. How do you think about that return over time? And I guess where are we along that trajectory? .

I mean the return has been phenomenal. Our company has invested about $625 million since inception in this venture and maintained the same amount. And last year, we received dividends of $130 million. We expect more dividends this year. And we built a business that has, depending upon the state, high single digit up to 15% or so market share in OSB and then over 20% in iGaming. I think everybody knows those numbers and growing very nicely. So I mean we are now recapturing our investment and built a business that is worth billions of dollars in our view. So I can't think of a better investment. And I've looked at a few of them in this space where that amount of value creation and return of capital has been as quick to mention the amount of investment that we made to build this business is probably a fraction of what others have made. .

And then, I mean, it feels like this is -- there's billions of dollars there. We look at the market cap, we look at your company. I mean, right now, I think you've turned on the dividend, so that's falling. I guess, longer term, is there a path to kind of extracting more value?

Well, we, of course, believe, I think it's pretty clear that the value in BetMGM is not reflected in our stock price, whether one looks at -- well, one can no farther say than Rush Street Gaming or some of the other public companies and those multiples. And when we apply that to the performance that we reported at MGM, it's clearly not there in our valuation. So we will do our level best through disclosure and the rest to make the value in that venture evident to our shareholders. And hopefully, our shareholders over time get rewarded for that. I do think there could come a point where if they're not being rewarded for it through our share price, I mean, we'd be compelled to look for other ways to monetize or make clear the value of that business because, again, we think that it's a venture that's worth billions of dollars right now, both for us and for Entain.

And I think -- and we've said this historically, on its current path, it's a business that's going to do 500-something main cash flow a year -- cash rate by the end of next year, we believe. Time to tell. There's a lot going on in place in the markets. All that being said, we firmly believe that. And so -- and that's with the existing we've got Alberta to go and a couple of other things to open up. If iGaming continues to open up over time, and we believe it will, that then puts another whole ratchet into all of that for everybody, including -- and particularly including us, we get iGaming a few more states. .

Yes. How do you feel about the regulatory landscape there in terms of the opportunity for iGaming and legalization? Obviously, you had Virginia feels....

I mean look, there are 2 or 3 or 4 states that I think it's rational. I think in the next 2 to 3 years will be on board. And look, remember, what's happening in this industry, we're generating over 65% of our bottom line in our BetMGM business on 3 states really. Although there are 6 states and we're in 5, it's really Michigan, Pennsylvania and New Jersey. So add of Virginia, add Illinois, I'm not giving lead in the word state, add a couple of meaningful states, 3 of them are literally 60% of our business today. The kind of numbers we're talking about with a $3 billion top line. And so the opportunity, while they may be small in the context of 3 or 4 states is massive when you think about it in retrospect. .

And do you feel like on the flip side, the uncertainty on the regulatory landscape, where we sit with prediction markets, yourselves and some of your brick-and-mortar peers kind of are on the sidelines. I mean how do you think about evolving over time? If we do have regulatory certainty, is this an area where you could potentially enter? And then, I guess, aside from that, if we're in this kind of murkiness period and there's additional competing products that come to market....

To be clear on the company's position, I think we've been clear about this. We see it as legal sports betting today catering to miners in many jurisdictions, by the way. We think in several states, led by Nevada and Massachusetts, have spoken out on that and told us you can't participate or you put your license in jeopardy. And I think we can see that message continue to go into other states as we talk about regulatory environments and political environments. Legally, there are 11 attorney generals pushing up against us right now, hard. The rulings have been favorable recently. I think this ends up or -- 2 or 3 things outcomes ends up in the Supreme Court. There's administration change at some point and the overall focus of it changes and/or if, in fact, it is continued to allow to go forward, this has been in the U.K. for 25 years. The idea of prediction markets is not new. It's got about 7% or 8% market share. It's a marginalized business at its very core. And so the actual business model itself is not a great model. All that said, if down the road, we had to get in, yes, would we be disadvantaged, i.e., the context of database growth? Yes. But we could get in and we would step in and we'd have a product like we want and need to participate. I don't think it gets there.

Okay. And then if there is some form of iGaming type prediction. Like is that just a bridge too far? .

Yes. And if they were foolish enough to attempt that, I think where there's been some consternation with regulators, I think you would see a very strong outcome. I could be wrong, but I don't think I am. .

Let's turn to the capital allocation. You guys have been a prolific buyer of your stock. It sounds like, obviously, the value is still there. Can you maybe talk about where you see the value? Is it Japan? Is it BetMGM? Is it kind of all of the above?

It's all of the above, but you don't really have to go too deep to really understand where the value is. And the market value of our holdings in MGM China is about $3.5 billion right now, roughly $13 to $15 a share. And depending upon your assumptions around BetMGM, a business that has guided to over $300 million of EBITDA this year, our 50% stake of that is probably worth another $13 to $15 a share in our view. So that leaves our domestic opco, a business that's generating over $2 billion in EBITDA. That's 2.5, 3x EBITDA, and Bill wasn't kidding when you just apply the simple math that was reported in the press yesterday around multiples being in the market for Caesars, that gets to a pretty healthy valuation for our company as compared to where we're trading today. That's the reason we've been so ambitious in our share repurchase activity, and we'll continue to do that so long as we see that value. . That being said, we do have some big projects. We're allocating this year, probably $450 million in equity investment to our Japan project, and that will grow next year and the year after. But we think that, that's going to be the largest and most successful integrated resort globally since Marina Bay Sands. So it's -- we're very happy to put capital there. And then we have opportunities in the domestic portfolio to invest, and we'll pick our spots for growth capital as well. As we've talked about earlier this morning, our digital businesses are no longer consumers of capital. They're providers of capital for our business. And the same, of course, is true for MGM China, which is generating free cash flow. So those are really our priorities. We have our Japan investment. We have some targeted capital -- growth capital investments domestically and then repurchasing our stock at I mean he multiple half that which we are selling our Northfield Park slot-only facility business, a good business, but it's a slog-only facility in Ohio, we're selling for nearly 7x later in the -- or early in the second quarter.

If there is a transaction in the market, and assets fall out, is there a scenario where you could look to be acquisitive?

It'd be remote. We have enough of Las Vegas in terms of concentration. We have been about diversity, and we like our positions in the markets and the idea that we are a diverse company. I think it proved itself out last quarter, and I think it will continue to prove itself out. So look, never say never. And I'm sure it might be 1 or 2 regional assets that would be attractive, but I'm sure they're attractive to the buyer, too. I mean so I doubt it. . And I do want to put a little color on Japan for a second because I think it's really important longer term. I'm betting my career on it literally, pull me on that, because I've been told that. Look, there's a market, if it just manifests itself what's going on today in Singapore, if we start with a $2 billion cash flow business, we're going to net about $800 million given our stake and given our share. It's a meaningful business. I think it potentially could be bigger than that, but time to tell, but if you put it in perspective, 120 million people, 6 million people. We are an 1.5 hours closer from Shanghai and Beijing, the Macau. And so the proximity, the scale, what's happening in the Pachinko business to this day in Japan is over $30 billion, that we're pretty sure about. And so the notion that this won't be just -- we've seen -- one of the additional concerns was well your machines is this isolated thing down in Osaka Bay. 1/4 million people a week went through the last week of the Expo. The infrastructure is there. It works. I think the product we're going to build is going to be exceptional world-class over the use term, but it will be, given the things we do and what we're known for. I'm very excited by what that potentially brings us. Yes, it's 2030. And we're going to put our money up front. That's the way Japan works with the banks. But by the end of '28, which should be a flash, we'll be through that. And then I think the reward will be substantive. I truly believe that.

So going back to kind of the capital allocation is the thought you shrink the share count today, you're going to have this influx in a few years and then the free cash flow percentage......

We've looked at it as steady growth, Las Vegas, steady growth regional. Let's just keep our steady growth growing. Midterm is all about digital and long term is Japan.

And yes. And the way I think about it is there -- we've bought back over half our shares in the last 3.5 years. There is tremendous potential energy in what we've created with the inflection in the digital business, the cash flow out of MGM China and our investments in Japan, and that potential energy is against a much reduced share count and one that will continue to be reduced. And that's that turns into a very strong free cash flow per share for our shareholders. It's kind of the way I think of it, too. .

Got it. Makes sense. We want to leave a couple of minutes here for questions from the field. Okay. All right. Thank you so much.

Thank you.

Thanks.