MGM Resorts International

On Sept. 24, Barry Diller's People announced it would not pursue the acquisition of the 73.9% of MGM Resorts it didn't own. Shares declined about 10% intraday.

Why it matters: While we continue to see MGM holding an attractive presence in the gaming industry, we never saw the synergistic rationale with People's media-related assets or the prospect of competing bids. We wonder if this decision signals economic and/or predictive market concerns. Second-quarter revenue for regional assets in our coverage universe was flat compared with low-single-digit growth in the previous four quarters. We think this reflects transitory inflation pressures consumers face. We think predictive markets are expanding the online sports opportunity, supported by narrow-moat DraftKings mid-teens handle growth in its second quarter and the start of the NFL season. That said, we are monitoring the situation amid Kalshi's continued robust growth.

The bottom line: We maintain our $48 per share fair value estimate for no-moat MGM. We believe investors are overestimating the impact of a potentially ominous economic environment and predictive market competition, while neglecting the company's growth prospects in Macao and Japan. MGM holds a high-teens gaming share in Macao (25% of revenue), where supply is limited to just six licenses and demand from China's 1.4 billion population will generate an estimated mid-single-digit revenue growth on average during the next 10 years. MGM will have the only integrated resort in Japan (8% of sales when it opens in 2031), which is home to 120 million high-income-per-capita residents and more than 100 million annual international visitors.

After reviewing second-quarter results, we have maintained our fair value estimate of $48 per share. Our fair value estimate implies an enterprise value/EBITDAR multiple of 7 times our 2027 estimate. MGM is reviewing Barry Diller's People cash offer of $48.30 per share, which was announced in June.

MGM's second-quarter revenue increased 1%, led by 3% growth in Las Vegas. Adjusted EBITDA decreased 6%, weighed by competition in Macao and digital investments in overseas markets. In 2026, MGM continues to participate in the Macao gaming industry demand recovery and is positioned to benefit from a stronger calendar in Vegas. Beyond 2026, MGM's Vegas resorts stand to benefit from the NCAA national football championship in 2027, while 2028 entertains the NCAA basketball Final Four and the start of the A's MLB team's relocation, with the Super Bowl in 2029, and a potential NBA expansion team in the future. We think MGM's Las Vegas assets can return to 1% revenue growth in 2026 from a 4% decrease in 2025, while its Macao resorts see 3% sales growth in 2026, following a strong 11% increase in 2025.

We expect Macao revenue to average 4% during 2026-35, helped by continued visitation growth, as only 2% of China's 1.4 billion population went to the gaming region in 2025, compared with a low double-digit percentage of the US population going to Las Vegas over the same period. We expect an increase in higher-margin mass gambling and nongaming activity to be mitigated by competition for players. We project Macao EBITDA margins to average around 27% from 2026-35 from 25% in 2019.

We continue to forecast MGM's total domestic gaming revenue growing a low-single-digit percentage on average during 2026-35, aided by its T-Mobile Arena, professional sports, US sports wagering, and ongoing renovations. We expect competition in Las Vegas to endure, capping Las Vegas EBITDA margins at an average of 35.4% during 2026-35 versus 33.9% in 2025.

MGM is expected to have a 40% ownership interest in a Japanese gaming resort opening in 2030, which we forecast to generate $4.5 billion in sales during its first full year of operation in 2031 with development costs of around $10 billion, and EBITDA margins averaging in the high 20s in 2031-33. We estimate its Japanese facility will generate 7% of the total company EBITDAR in 2031.

Although we estimate MGM held a mid-single-digit percentage revenue share of the US commercial gaming market in 2025, we see the company as having no moat due to its outsize exposure to Las Vegas (56% of 2025 EBITDAR) and US regional markets (low 20s) where regulatory barriers are lower, leading to competitive markets that result in returns on invested capital near the company’s weighted average cost of capital through this decade. That said, we believe MGM's execution and strong integrated resort experience in Las Vegas afforded it a gaming concession in Japan, a market we expect will generate economic profit worthy of a narrow moat. Also, we award the Macao gaming industry a narrow moat due to its high regulatory and land barriers, and MGM currently holds one of only six gaming licenses in the region. However, its exposure to Macao (23% of 2025 EBITDAR) and Japan (7% of estimated EBITDAR in 2031, the year we model an MGM resort to open) is too low to warrant a narrow moat for the company in aggregate.

Although we do not think the firm's Las Vegas and US exposure benefits from a moat, it is encouraging that long-term supply and demand characteristics have improved from past decades. After 79% and 24% room supply growth in Las Vegas during the 1990s and the first decade of this millennium, respectively, room supply did not increase through 2022, maintaining at around 150,000 rooms. The Fontainebleau resort and casino added around 4,000 rooms in late 2023. Still, we believe that demand will be able to match this supply addition, as historically, room expansion and visitation in the region have been correlated, as travelers are enticed to see new attractions. Further, Vegas is now home to professional football and men’s and women’s basketball teams, along with more marquee concerts, which we think will drive trips to the region.

Although MGM faces incremental competition from predictive event markets in the US sports and i-gaming industry, we remain constructive on the company's opportunity to participate in the markets revenue, which totaled about $17 billion and $11 billion, respectively, in 2025, up from $900 million and $500 million in 2019. The ramp in sports and i-gaming wagering has been driven by a Supreme Court ruling in 2019 that opened the activity to territories other than Las Vegas. We expect the nearly 40 states and the District of Columbia that have legalized betting to expand to the mid-40s by 2029, helping drive further sales growth. We expect MGM to hold a high-single-digit sales share in the US sports betting and i-gaming markets, given its omnichannel presence, which will leverage mobile and loyalty assets. MGM has 21 US physical casinos, with a dominant presence in the Las Vegas region. Further, the company has a leading loyalty membership of over 40 million, second only to Caesars’ 65 million. As a result, MGM can efficiently acquire, retain, and cross-sell customers across its physical and digital assets.

Although we do not view MGM as having a moat, it is still encouraging that its solid execution of operating some of the world’s best-integrated resorts has assisted in its approvals for new casinos in Massachusetts (only one of three gaming licenses awarded), Macao expansion in Cotai, and a Japan facility opening in 2030. While we do not attach moats to US casinos, we do believe the Japan and Macao gaming industries have moat qualities driven by a favorable demand and supply situation. In Japan, we estimate a limited gaming supply, with the only urban resort license being awarded to MGM. We also foresee strong demand for gaming in Japan, driven by the nation's high per capita income, density, and apparent propensity to gamble, exhibited by its existing $30 billion pachinko parlor industry. We think the attractive supply and demand dynamics in Japan will generate ROICs in the low teens, thereby supporting narrow-moat qualities.

The Macao gaming industry also has an advantageous supply and demand setup. With regard to supply, there are only six gaming licenses in Macao, which were renewed at the end of 2022 for another 10 years. This was our expectation, given the meaningful capital MGM and its peers have deployed during the past 20 years, which has positively developed the Macao economy (industry gaming represented the majority of the region’s prepandemic GDP). Demand for Macao's gaming market is aided by China's growing middle-income class, as well as the region's improving infrastructure, which will enhance accessibility for visitors. As a result of this solid supply and demand relationship, we believe the Macao region holds a narrow moat.

We see MGM maintaining its regulation intangible asset advantage in Macao. The MGM Macao is located on the Macao peninsula and not on the Cotai Strip, where the mix of traffic has migrated. However, MGM opened its Cotai property in February 2018, which increased its room share to 8% from 3% among the six concessionaires. MGM’s room count may increase by another 700 rooms in Macao toward the end of this decade if phase two of MGM Cotai moves forward, which would bring the total room count to 2,800.

In total, MGM’s ROICs do not offer enough quantitative support for a narrow moat rating. We forecast ROICs including goodwill, to average 7% over the next five years, near the company’s 8% cost of capital.

MGM was awarded the only urban Japanese gaming concession due to its strong experience operating leading resorts in Las Vegas and its successful record of working with partners.

MGM is positioned to participate in Macao's long-term growth opportunity (23% of 2025 EBITDAR) and has seen its room share expand to 8% from 3% with the opening of its Cotai casino in 2018.

MGM's US properties are positioned to benefit from the expansion of the multi-billion-dollar domestic sports and i-gaming betting market.

The majority of cash flow for MGM comes from the Las Vegas region, which has lower regulatory barriers, margins, and ROICs than Macao.

The Macao government is transitioning the region's mix toward a nongaming full resort destination site, which could place outsize pressure on growth for MGM, given its relatively low nongaming mix.

The Chinese government has full control over labor, table allocations, gaming licenses (which it could revoke), and travel visas. Also, it is increasing its supervision of VIP play, which can result in volatile periods of growth for the region.