MGM Mirage Plays New Game

By Staff -- HOTELS Magazine, 4/1/2007

LAS VEGAS "Las Vegas has been very good to us," says Alan Feldman, senior vice president, public affairs for MGM Mirage, Las Vegas. So has the gaming and leisure business that drives MGM Mirage's 23 owned and operated properties in Nevada, Mississippi and Michigan, and three other projects in which it has investments in Nevada, New Jersey and Illinois. But just as Las Vegas' largest landowner diversifi ed its casino hotels' business models to balance gaming income with revenue streams from rooms, entertainment and retail, the giant now is looking for ways to diversify further into nongaming ventures and new markets. "It is too early to tell how our portfolio will balance out, but we do not want all of our eggs in one basket," Feldman says.

Establishing a global presence got one step closer with the Nevada Gaming Control Board's recent decision to give the initial go-ahead to Pansy Ho Chui-king to form a partnership with MGM Mirage and develop a US$1.1 billion casino in Macau. Ho Chiu-king, daughter of Macau gaming magnate Stanley Ho, was the subject of an investigation by regulators because of rumored links to organized crime that swirl around her father. MGM Mirage did its own background checks, Feldman says. "We had to be absolutely certain about our partner," he says. "The process of getting approvals from Nevada gaming authorities was a very important opportunity for Ms. Ho. She got the public platform she had wanted to tell her story and establish her independence from her father."

With approval from the full Nevada Gaming Commission expected shortly, MGM Mirage announced plans for a 50/50 joint venture with Ho Chui-king for a second resort in Cotai. Plans will be submitted later this year for the MGM Paradise, which will include 600 rooms, 345 table games and 1,035 slot machines.

Macau may be a must-have market for a gaming powerhouse, but it is not the only way to play internationally. Feldman says MGM Mirage is considering deals in the Middle East and China that would add non-gaming hotels to its network. Negotiations are under way with Abu Dhabi-based Mubadala Development Co., a wholly owned investment vehicle of the government of the Emirate of Abu Dhabi, to develop luxury, non-gaming hotels. "We would be looking for opportunities not just in the Gulf but around the world," Feldman says. With talks still ongoing, he says it would be premature to discuss the exact category or number of hotels that could fl ow from the deal. MGM Mirage also signed an initial agreement with China's Daiyoutai State Guesthouse to develop non-gaming hotels in China.

Expansion with both partners would be highly opportunistic. According to Feldman, MGM Mirage will consider mixed-use projects as well as pure hotels. "We have done hotels from the ground up and created new concepts such as SkyLofts and The Mansion to enhance an existing offer. There is no pat answer. We will analyze each project on its own merits," he adds.

In its home market, MGM Mirage may be looking more toward higher mixed-use to monetize its real estate investments. Of the 18 million sq. ft. (1.7 million sq. m) in the planned CityCenter development in Las Vegas, only a few hundred thousand square feet will be devoted to gaming. Non-gaming also plays a major role in the mixed-use development being developed as part of a 50/50 joint venture with Jeanco Realty Co. on land currently owned by MGM Mirage in Jean, Nevada. The vision is of a "community" that will complement a new casino hotel with residential, commercial and retail elements.

Analysts reacted positively to MGM Mirage's direction. "First, this creates value using an existing asset, which should generate meaningful cash fl ow in the future," CIBC's David Katz says in one of his reports. "Second, it continues to develop MGM's strategy of diversifying away from gaming on the Strip, as it has with its Asian development and the Pequot Nation in the Northeast."

What will that mean for MGM Mirage's future? "Principally, we are a developer of casino hotels. However, we no longer approach development of every project with a casino hotel in mind," Feldman says.