Checking the headlines in the AC Press as of 2PM Pacific time, I couldn’t find a word about the seemingly-momentous decision of MGM Mirage to sell its stake in Borgata. This is curious, since you would think that having one of the biggest casino companies in the world, which at one point had billions of dollars in the development pipeline in AC, officially announce it’s selling out would be at least DEFCON 2-level news.
But there is this separate yet equally compelling story about an imminent state monitoring of the city:
State intervention in Atlantic City government could become a reality if the city doesn’t “get its act together” within two to three months, a state senator said Monday.State Sen. Kevin O’Toole, R-Bergen, Passaic, Essex, said he would be willing to push for a state monitor with veto power over City Council minutes if the local government doesnt return to the Senate State Government, Wagering, Tourism & Historic Preservation Committee with a good-faith response to a recent state audit report.State Comptroller Matthew Boxer answered questions and described some of the findings in his offices report on Atlantic City’s fiscal management, which outlined more than $23 million in waste and inefficiency .
This isn’t directly linked to the Division of Gaming Enforcement’s decision re: Pansy Ho, but it shows the heavy hand that state government has in the city itself, not just its biggest industry. And with $23 million in tax money apparently being flushed down the toilet, it’s hard to say that there’s no justification there.
The irony is that, if Pansy Ho had been suitable, MGM Mirage might have found itself doing business in two “Special Administrative Regions.”
I’d guess that, on the strength of the $60 million a year MGM Mirage gets from the Borgata and the value of the real estate the company controls (which I assume would be part of the sale), the company might fetch something $200-$500 million. I haven’t run any numbers to confirm this; that’s just my first impression based on about 6X EBITDA, which is right in the middle of those numbers, with some degree of flexibility for the value of the real estate (on the high side) and the depressed state of the general market (on the low side).
The problem, of course, is finding someone willing to pay big bucks for an asset (albeit the top-performing one) in a regressing market, particularly when the seller is very publicly identified as “motivated.”
Most people are assuming that Boyd will be the suitor, which makes sense, though this wouldn’t necessarily be a bad buy for an equity firm if they went into it with realistic expectations.
It likely wouldn’t be anyone else already in the market, since Harrah’s is already far too exposed in AC, Trump has its hands full with its existing casinos (though 1/2 of Borgata would actually be better than 100% of the Marina right now), Colony Capital has lost one casino to its lenders already, and Carl Icahn’s plate is presumably full with turning around Tropicana Entertainment and the Fontainebleau.
Anyone not in the market would have to do some serious soul-searching about their licensing, since the state has made it clear that they consider no company too big to show the door to. Even if Borgata can retain its market share (which might be difficult when Revel opens), it’s still piece, though a big one, of a nonetheless shrinking pie.