A question that has been popping up on the Las Vegas forums a lot lately is asking about the recent news of the MGM being sold. So did the MGM sell the MGM, Mandalay Bay and the Bellagio? If so, what does that mean for the hotels?
The Short Answer
The short answer is “Yes” MGM sold the MGM, the Mandalay Bay, and the Bellagio Resorts. But they did not sell the MGM, Mandalay Bay, or the Bellagio. I know. Confusing? What they sold was the physical property of each resort with the idea to lease them back from the “new “property owners”. So they did not “sell” the resorts themselves.
Like most things in Las Vegas, the resorts were run a little differently then they do elsewhere in America. Look at it like this: When you go to your ordinary Holiday Inn, do you think that Holiday Inn franchisee owns the actual land and buildings? Oftentimes they don’t. It’s leased. That’s why you may see it as a Holiday Inn one year and a Motel 6 the next. Depends on who is leasing the building.
In Las Vegas, getting the money to build a casino resort was not an easy thing to do. The usual financial channels a business would use to loan money to build were not touching places like Vegas. That’s what helped bring in the Mob. Corporate America was not going to tarnish their squeaky clean reputations by buying into “Sin City”. That started to change thanks to men like Howard Hughes.
The Las Vegas Resort
So when they built a resort, the resort owned it all. The land, the buildings, and the business. Since Las Vegas was the only place in America for gambling, the casinos were busy making huge profits and using some of their profits to fund other areas of the resort. That how we got the 99 cent shrimp cocktails as well as the really cheap buffets. Much of the cost for these customer catching amenities were being paid for by casino profits.
As gambling started to open up around the country in the 1990s and with tighter air travel restrictions after 2001, more people gambled closer to home instead of gambling in Las Vegas. The casino was no longer the resorts profit center. Each department now had to become financially responsible.
Corporate America seized control of the Las Vegas Strip and homogenization became the operative word. One commercial piece of property had to be run like the others. The XYZ Resort in Las Vegas needed to be run just like the XYZ resort is operated in Detroit.
We can’t forget about the other keyword in Corporate America, GREED. The CEO’s of these resorts are making millions without much regard to what was actually happening down on the floor. They have multi-million dollar contracts with huge stock bonuses even if the resort companies fail to make a profit.
So now they found a new tool to fill their pockets with cash. They spin off the real estate of each resort into tax-sheltered Real Estate Trusts (RET). With them being the first stockholder of the new trust. So even if they retire, resign, or are actually fired for being bad caretakers, they will still be making millions from the Real Estate Trust. As well as whatever they made selling off their resort shares that were part of their golden parachute.
What Spooked Jim Murren?
This is why MGM’s former CEO Jim Murren became so concerned about Steve Wynn’s gaming license when they started to create the Bellagio Trust. MGM would be a minority owner of the trust and Steve Wynn could hypothetically buy back the one resort he wished he never sold. The Bellagio!! And with some really good legal work, he would be able to kick MGM off the property.
In order for Steve Wynn to do that, he would need to have his gaming license. So Jim Murren tried to get Steve’s gaming license revoked. When he saw that wasn’t going to happen, Jim Murren resigned to go work on an even bigger scam. The King of Nevada (Governor Sisolack), called upon him to run the COVID lockdown.
The man who loved to lay people off at MGM would now be in charge of making sure Nevada was the worst in the nation for job loss. Or would that be the best in the nation for the most jobs lost due to a politically motivated health crisis??
So to answer the question, most of the resorts on the Las Vegas Strip are run by two companies. You have the Real Estate Trust and you have the resort company. Example: MGM Resorts International is the resorts company. They are the company renting you the room. MGM Growth Properties is the landlord for the MGM Grand Las Vegas and Mandalay Bay. They own the building and the land the resorts sit on.
For you, the Vegas tourist who is staying at the Resort, it means nothing. Nothing will change except maybe the price. Now that the resorts have to pay a monthly lease payment regardless of the occupancy rate.