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MGM Mirage Bets Up to 5 Billion on Atlantic City
Listen to this articleIt plans a mega-resort even as the Northeast gaming capital faces increased competitionATLANTIC CITY
When Las Vegas-based MGM Mirage announced earlier this month it was going to spend between $4.5 billion and $5 billion to build a massive casino-hotel resort in Atlantic City, the industry
took pause.
ÂThis is one of the largest gaming and hospitality companies in the world, says David G. Schwartz, director of the Center for Gaming Research at the University of Nevada-Las Vegas. ÂIf they are saying Atlantic City is good for us to invest $5 billion, that would force a lot of other casino companies to say, ÂMaybe we should look there. Â
Mike Pollock, publisher of Gaming Industry Observer and managing director of Spectrum Gaming Group, a consulting firm in Linwood, was more succinct.
He says the mega-project Âverifies the future of the Atlantic City market and Âsupports the theory that the casino revenue decline in Atlantic City is a short-term problem.Â
The project, to be called the MGM Grand Atlantic City, will cost nearly five times as much as the cityÂs newest and most expensive hotel-casinoÂthe $1.1 billion Borgata Hotel Casino & Spa.
The Borgata, a joint venture of MGM Mirage and Boyd Gaming, opened in July 2003 with 2,000 hotel rooms in a single sparkling tower.
MGMÂs new project, to be on 72 acres it already owns next to the Borgata in the cityÂs Marina District, calls for three hotel towers totaling at least 3,000 rooms and suites.
It would boast the largest casino in the city with 5,000 slot machines, 200 table games and large poker rooms, the
company says.
It would also have a 1,500-seat theater, restaurants, nightclubs, a spa and 500,000 square feet of retail plus a convention center. About 60 acres will be used for construction of the MGM Grand, with 12 acres
reserved for future development,
possibly condominiums.
The company plans to seek land-use approval by early next year, with a groundbreaking expected in 2008 and an opening in 2012.
ÂNo one in Atlantic City is doing anything remotely as ambitious as this, Pollock says. ÂThe most interesting thing is the timing, considering the negative views of [Atlantic City] casino revenue in the past few months.Â
Faced with increasing competition from slot parlors in New York and Pennsylvania, a partial smoking ban on casino floors that began in April and the closure of the Sands last November, the cityÂs 11 casinos won a combined $3.8 billion in the first nine months of 2007, a 5 percent drop compared with figures in the same period a year earlier, according to the New Jersey Casino Control Commission.
Atlantic CityÂs casinos are heading for their first annual revenue decline in the gambling resortÂs 28-year history.
But many analysts, including Pollock who forecasted an annual decline this year, have said the downturn would be temporary as gamblers discover that slot parlors in neighboring states canÂt compete with Atlantic CityÂs increasing entertainment options, such as upscale shopping, big-name musical acts, top-notch dining, multiple casinos and the boardwalk. ÂThe new Atlantic City is going after the entertainment dollar, not [just] the gaming dollar, Pollock says. He says the city is seeking to become more like Las Vegas, a long-weekend destination, not just a day trip.
Further encouraging casino companies is New JerseyÂs relatively modest taxes.
The Garden State takes 9.5 percent of the casinos winnings while Pennsylvania and New York both tax more than 50 percent of the casinos winnings.
ÂThat differential travels straight to the bottom line, Pollock says.
In the past year, two companies besides MGM have announced plans to build ultra-modern casinos in Atlantic City, which would bring the number of casinos in the oceanside resort to 14.
Las Vegas-based Pinnacle imploded the 27-year-old Sands Atlantic City last week, and plans to replace it by 2011 with a $1.5 billion casino-hotel twice its size on the 18-acre property adjacent to the boardwalk.
And a newly formed company, Revel Entertainment Group LLC, is teaming with a subsidiary of Morgan Stanley to build a $2 billion casino resort on the boardwalk near the Showboat Casino Hotel.
The MGM project is by far the highest profile. The proposed resort will reportedly consist of three distinct hotel towers, each with its own personalityÂa contemporary tower, an upscale tower and an all-suites tower for high rollers.
ÂIt will have multiple options and multiple price points … to expand the audience and appeal, says Pollock, who adds that he would not be surprised if MGM manages the three towers as separate hotels with different names.
MGM, which has long said it would develop the property, says it was encouraged by the performance of the Borgata.
That casino-hotel, which opened to much fanfare, has bucked the decline and seen a 1 percent increase in casino revenue so far this year, including 8.8 percent at gaming tables.
ÂWe believe the success at Borgata demonstrates the eagerness for further evolution of the nationÂs second-largest gaming market, says Terry Lanni, chairman and CEO of MGM Mirage. ÂWe will continue to raise the bar and by doing so hope to re-energize the cityÂs resort offerings and attract a new market of affluent East
Coast customers.Â
The project is similar to MGM MirageÂs ongoing construction on the Las Vegas Strip of City Center, a $7 billion mixed-use development that will create a 4,000-room casino-hotel; two boutique hotels with 3,000 rooms and condos; and 500,000 square feet of retail space.
That Las Vegas property is expected to open in 2009.
ÂTheir Atlantic City project will raise the bar, just like the Borgata did, says Schwartz. ÂEveryone else will have to improve what they are offering or they will be left behind.Â
E-mail to sgoldstein @njbiz.com
