After the state of Massachusetts allowed three casinos in its
territory in February,
MGM Resorts
(
MGM
) recently proposed an $800 million project in Springfield. The
project includes the creation of world class dining, retail and
entertainment center in about 10 acres, which was heavily damaged
during the tornado in 2011. MGM is competing with three other
players for the casino license and the decision will depend on the
state government and the local voters. MGM is looking to take
advantage of favorable geographic and demographic factors
in Springfield to geographically diversify and reduce its
dependence on Las Vegas.
The proposed entertainment district will be spread over an area
130,000 sq. ft. including a 250 room hotel, 89,000 sq. ft. of
gaming space and 70,000 sq. ft. for other facilities such as retail
outlets and restaurants.
See our complete analysis for MGM Resorts
International
MGM Will Have Geographic And Demographic
Advantage
Massachusetts is the third richest state in the U.S. Its per
capita income is $ 7,000 higher than the average U.S per capita
income. As spending on casinos depends on the disposable income of
the individuals, the entertainment district will attract gamers and
tourists from all parts of Massachusetts.
Furthermore, Springfield is the third largest city in
Massachusetts and is located in close proximity with Connecticut.
The city is well connected with other major cities of Massachusetts
and Connecticut by interstate 91 and 90. A space of more than three
blocks is available for casinos and hotels in the middle of the
city due to the destruction by a tornado last year. The proposed
casino will be just 200 feet away from the interstate 91 thus
eliminating transportation issues.
Targeting Local Population
MGM is targeting the emotional aspects of the local population
in order to increase its chances of getting the casino license. The
design proposed for the entertainment district will be based on the
local architecture. The company recently stated that it will
completely restore the city's legacy, The Union Station, to its
full potential and integrate it with its entertainment district.
MGM plans to employ a trolley system between its entertainment
district and other key locations in the city such as The Union
Station. This will be a modern addition to an otherwise historic
infrastructure. MGM expects that the city will welcome such
modifications.
MGM, in its plans, has also proposed one and two-bedroom
apartments at reasonable rates and new homes for the recently
employed younger professionals. The company has also created a
website for MGM Springfield in order to reach every individual for
providing them with the entire information on the development. This
will greatly help in building the company's brand image among the
local population, which will not only enhance its chances of
getting the license but also help increase its customer base.
The management of MGM stated that the partnership will provide
the city with essential resources and it will create more than
2,000 job opportunities for construction purpose, as well as
thousands of permanent jobs after the completion of the project.
The Massachusetts state government will generate a significant tax
income from the new industry. The company, which was the first to
apply, is leveraging these aspects in order to grab the license and
establish its brand value.
Impact On MGM
The slow economic growth, the legalization of gaming in the
other states of the U.S. and increasing popularity of Macau gaming
industry have adversely affected the Las Vegas gaming industry.
While the major competitors such as Las Vegas Sands (
LVS
) and Wynn Resorts (
WYNN
) have set their roots in Macau and other places, MGM remains
mostly confined to the Las Vegas strip. If MGM gets the license, it
could prove to be a major step in its revival strategy. The company
is trying hard in its quest be the first casino in one of the
richest states of the U.S. The gaming regulators will begin the
public voting once they have reviewed the financial statements and
ethics of the applicants.
Although the company will not produce fruitful results in the
short term, in the long term, it could have a positive impact on
the company's stock. MGM currently has 37,100 rooms across its
hotels, and we forecast this figure to remain the same over the
next seven years. However, with the completion of the project, the
rooms will increase even though it won't add any significant value
to the company (about 1%). The main source of value-add for MGM
will be gaming, retail outlets and food and beverages.
Our price estimate for MGM Resorts International
stands at $11
, roughly inline with the market price.
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