MGM likely to focus on Strip remodels rather than new U.S. casinos, CEO says

New York-New York and Monte Carlo are reflected in the exterior glass of T-Mobile Arena on March 1, 2016. MGM Resorts International is in the midst of its “reimagining” of Monte Carlo into Park MGM and NoMad.

MGM Resorts International is done building new casinos in the U.S. and will likely spend future development dollars on remodeling its Strip properties in the same way it’s remodeling Monte Carlo, the company’s CEO says.

MGM Resorts CEO Jim Murren said in a recent conference call that with the exception of a potential casino in Japan, the company is largely finished building new resorts.

“Cotai (MGM’s newest Macau property) is on the horizon, opens in January,” Murren said. “And Springfield, Mass., will be the home of our newest property, and our last major development project here in the United States when it opens in September.

“And that really winds down our development cycle,” he added.

If there are larger new projects, Murren indicated they would be in Las Vegas. “Where we're focusing our capital is where we dominate, which is here, and obviously, in Las Vegas,” he said.

The template for those projects could follow the rebranding and remodel of the Monte Carlo.

In June last year, MGM announced it would be “reimagining” the Monte Carlo, and spending $450 million to create two new hotels in one building: Park MGM, a 2,700-room luxury hotel tied thematically to MGM’s outdoor space, the Park; and NoMad, a separate smaller hotel with 292 guestrooms and suites, its own lobby, swimming pool, casino and restaurants.

Murren said many of the new venues are already open and he expects the full conversion to be finished by the end of 2018. He also said results from the work finished so far have been good.

“When we have opened venues, and we've only opened a few new ones, they've been profoundly successful,” he said. “A couple new restaurants (and) the room product as it's being unveiled to the customers have been extraordinarily highly received. The returns on capital on Monte Carlo, I would say, would be some of the highest we've ever committed over the last five years, well in excess of any new build.”

As a result, Murren said, “that's the kind of project that I think you should look toward the future for us.”

Which MGM property would be chosen first for a remodel? At first glance, it would seem that some of the older ones such as Circus Circus would be likely candidates.

The family-themed property has expanded over the decades but has never undergone a major refurbishing. The only problem with that theory is that customers seem to like Circus Circus just the way it is.

“Circus Circus is doing really well from a cash flow perspective,” gaming analyst John DeCree said. “It’s firing on all cylinders.”

DeCree said the Monte Carlo made sense because it activated a new area of the Park. And for that same reason, New York-New York might also be a candidate, if only because it’s also next to the Park and T-Mobile Arena. Still, he said, the property’s facade was redone recently so that might take it off the list.

Anthony F. Lucas, a professor of gaming at UNLV’s William F. Harrah College of Hotel Administration, said if the deciding factor is what rooms are most in need of a reboot, then the Luxor would be a good candidate.

In April 2016, Murren told the Sun that MGM had long-term plans to remodel both the Luxor and Excalibur.

“Excalibur is going to get a tremendous amount of investment, and Luxor itself also will,” Murren said at the time. “My feeling there is that it is a great name — Luxor — and I doubt very much we’d ever change the name. We’ll keep Excalibur, as well. But there are some long-range plans to invest in both of those properties.”

But these decisions are often less about what hotels are in need of upgrades and more about what changes will return the most money for the company’s investment, said Lucas, who has worked for Harvey’s Resort, Harrah’s, MGM Grand and Palace Station.

If, for example, there’s more potential to make money from redoing the Mirage, then that could be the next project.

“If you look at the broader market, let’s say, and call it the Strip, you also have to look at the submarkets, like south Strip or center Strip,” he said. “Maybe investing in the center Strip might get a better return on your money, so that’s where you invest first. The Mirage may have more potential in terms of a return on investment.”

Once companies settle on a location, Lucas said, they then evaluate the competition in terms of market segments.

They might see more potential in the midmarket area or more potential in creating a premium-market Strip property, Lucas said.

“If I were going to do it, that’s what I’m doing,” he said. “I’m looking at all my properties and doing a needs assessment and then looking at the broader market and who are the direct competitors in each of submarkets.”

That’s very similar to how Murren described the reasoning behind the Monte Carlo’s refresh during the earnings call.

“(We’re) taking a property that is well-positioned geographically, but poorly positioned in the market to a property that is right at the center of the Strip and with extremely high brand recognition and that's driving a lot of revenue,” he said.