MGM Resorts Buys Out Boyd Gaming and Now Own 100% of Borgata
MGM Resorts came to an arrangement with Boyd Gaming to take over the Las Vegas Company’s 50% stake in Borgata, the flagship casino in the Atlantic City gaming market. Before this week, MGM Resorts and Boyd Gaming each owned an equal 50% stake in Borgata.
MGM Resorts agreed to pay Boyd Gaming $600 million in cash, while also assuming Borgata’s outstanding debt. In return, MGM Growth Properties receives control of a property which generated $812 million in revenues in 2015. Borgata generates approximately 40% of the revenue of the Atlantic City casino industry, placing it well ahead of the second place rival.
Forbes reported the deal was worth $900 million in all, between the cash and the transferal of debt burden.
About MGM Growth Partners
MGM Growth Partners is a subsidiary of MGM Resorts. The purchase of Borgata therefore strengthens a part of the company which was designed to lure investments from big money traders.
MGM Resorts CEO Jim Murren commented on the acquisition. Murren said in a written statement, “While the market continues to experience challenges, Borgata has outperformed and differentiated itself as the undisputed leader in the city.”
Struggling Atlantic City Economy
Atlantic City is struggling with a failing casino industry. Four casinos closed in 2014 and more are predicted to close, if a statewide initiative for two North Jersey casinos is passed. A North Jersey casino referendum is set for the November ballot and many expect the referendum to pass.
If so, then casinos are likely to be placed in Jersey City and the Meadowlands, near New York City. That would represent the first time since casino gambling was legalized in New Jersey in the mid-1970s that Atlantic City would have in-state competition. Though 7 of 8 Atlantic City casinos were profitable last year, several of those businesses are likely to struggle, if competition so nearby was developed.
While it helps that New Jersey lawmakers have promised that the Atlantic City casino license holders are going to be the recipients of any North Jersey licenses, that hardly helps the people of Atlantic City. Yet that clause might be the answer to why MGM Resorts is so bullish on Atlantic City, at a time when most others fear a collapse.
North Jersey Casino License
Owning 100% of the Borgata is likely to place MGM Resorts in a good position for one of those two North Jersey licenses. Given their proximity to New York City’s 10 million-plus residents, a casino in the Meadowlands or Jersey City is likely to be much more lucrative than the Borgata.
Having control of the most profitable New Jersey casino means MGM Resorts would have the most to lose from a North Jersey casino. Jim Murren would be in the best position to claim his company deserved a North Jersey license. Thus, buying out the Borgata’s other owner might be an investment in North Jersey. And if that fails, the Borgata is likely to always be a viable casino — certainly it would be the least likely Atlantic City casino to fail.
Boyd Gaming’s Decision
Boyd Gaming may have been an expedient for MGM Resorts over the years. In 2010, MGM Resorts’s was forced to leave the New Jersey market, because the Division of Gaming Enforcement was concerned about the company’s connections in their Macau ventures. The company was associated with Stanley Ho, the so-called King of Gambling in China. Mr. Ho had been an original investor in Macau casinos in the early 1960s, when Macau was still a Portuguese colony, but the DGE was concerned about his potential ties to Chinese organized crimes.
MGM Resorts gave up its stake in the lucrative Borgata casino. Last year, New Jersey once again approved MGM Resorts’s return to New Jersey, and the company regained its stake in the successful casino. Under the circumstances, it might have been only a matter of time before MGM Resorts assumed full control.
Jim Murren on Boyd Gaming
Jim Murren praised Boyd Gaming for their role in a lucrative partnership, saying “Our decade-long partnership with Boyd Gaming has been a great one, and Borgata’s talented employee base will complement and strengthen our more than 60,000-member worldwide MGM Resorts team.”
The deal is certain to be lucrative for Boyd Gaming and MGM Resorts. MGM Resorts now has a dominant position in the failing Atlantic City market, while Boyd Gaming gets paid handsomely for its role as caretaker of the Borgata this past half-decade.