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MGM Resorts (MGM) Sells Properties in a Move to Free Capital

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MGM Resorts (MGM - Free Report) announced on Tuesday that they would be selling their Circus Circus Las Vegas property for $825 million to an affiliate of Treasure Island owner, Phil Ruffin. The gaming giant also announced that they would be putting their landmark Las Vegas property, the Bellagio, into a joint venture controlled by Blackstone Group (BX - Free Report) . MGM will receive a 5% stake in the venture, $4.2 billion in cash, and will continue to operate the hotel and casino, which it will rent from the venture for $245 million a year. The transaction valued the Bellagio hotel at $4.25 billion.

Paul Salem, chairman of MGM’s real estate committee, stated, “We want to make sure — if and when the next recession comes — we have a fortress balance sheet.” The company has been evaluating potential property deals to raise cash and pay down debt since its board of directors formed a real-estate committee in January. The sale will free up cash, offering MGM flexibility to operate in new and different ways, said MGM Resorts Chairman and CEO Jim Murren. Murren said he would be open to using the newly acquired capital to expand their sports gambling initiatives.

Sports Gambling

MGM’s CEO made it clear that he is keeping his sights set on the future of the industry and sees sports gambling as a potentially lucrative market. Ever since the Supreme Court overturned a ruling that banned sports betting in every US state except Nevada, casino and gaming companies like Caesars Entertainment (CZR - Free Report) , Scientific Games (SGMS - Free Report) , and International Game Technology (IGT - Free Report) have all been scrambling to position themselves in the emerging market.

Scientific Games has made deals with Wynn Resorts (WYNN - Free Report) and Caesars in the US, and recently won a joint-venture bid in Turkey. International Game Technology has struck deals with FanDuel and DraftKings, along with a smaller agreement with Boyd Gaming (BYD - Free Report) . However, IGT’s biggest deal yet was its agreement to provide a sports betting platform for MGM Resorts in Las Vegas and New Jersey.

MGM believes that involving itself with actual sports leagues is the best way to incorporate itself in sports gambling. In April 2018, MGM made a deal with the NBA that will allow MGM to use the league's data and images in its wagering. In addition to forming partnerships with the major sports leagues, MGM has even made an agreement with popular sports bar Buffalo Wild Wings, which will bring sports betting into the restaurants. MGM is using its sports betting venture, Roar Digital, which is half owned by GVC Holdings, to bring BetMGM to venues across the U.S.

Bottom Line

MGM Resorts’ latest move to sell its two properties shows that they are willing to free up capital in order to make investments in areas they believe will be the future of the industry. The company is clearly gearing up for an arms race between the gaming and gambling industry’s titans for control of the emerging sports gambling market.

MGM is looking to expand their sports gambling presence past their casinos through the latest deal they made with Buffalo Wild Wings. The Buffalo Wild Wings deal puts MGM in a position to snag market share in areas where there are no casinos. MGM sits at a Zacks Rank #3 (Hold).

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