Reading David McKee’s post on the TI sale to Phil Ruffin, something clicked that made me realize the transaction made perfect sense. For a while now, MGM Mirage has been positioning itself as a casino builder and hospitality brand manager. The international moves are ample evidence of that, as are the City Center partnership with Dubai World and the only-on-hold JV with Kerzner. Let’s look at the Treasure Island “sale” in that light.
Ruffin is going to be leasing his employee parking garage and access to the MGM Mirage loyalty program, in effect, from MGM Mirage. The property will still be connected to Mirage. That means that it will remain in the MGM Mirage family of properties, and 99% of visitors won’t even notice that it has a different owner.
Isn’t this exactly what the various branding and JV efforts are doing, as well? For a half-billion dollars in cash, MGM gives up absolute ownership of TI, but they maintain a relationship with the casino on several levels. If MGM had announced that they were partnering with Ruffin to build a new casino and that he’d be providing $750 million in cash to build (I know that a new resort would cost twice that, but bear with me) and MGM was offering the land, everyone would say it was a smart move for both sides. This isn’t deconsolidation, so much as divesting an asset while retaining significant operational interest in it.
On another note, I think that the price absolutely vindicates those who thought the Tropicana Atlantic City was not worth $1 billion. If a newly-renovated property designed by one of the best teams in the business a stone’s throw from two of the busiest market’s newest casinos isn’t worth more than $800 million, why would a tired, thrown-together property at the slow end of a market under considerable competitive pressure go for more? I think that $650-$700 million is a more realistic valuation. Of course, I haven’t studied the EBITDA and all that fun stuff, but this seems to be what the market suggests.
Go ahead and use my new, registration-free, comment system–I’d like to hear what others think.