Since it opened in 2003, Borgata Hotel Casino and Spa in Atlantic City, N.J., routinely receives the ultimate accolade: It doesn't feel like an Atlantic City casino. It pulses like a Las Vegas pleasure palace -- complete with a cool nightclub, restaraunts with celebrity chefs and posh accommodations -- as opposed to the tatty dives that have come to define A.C.
This polished approach has made Borgata the most successful property in town. Until this week, the casino was a 50/50 partnership between MGM Mirage (MGM) and Boyd Gaming (BYD). It feels more like an MGM operation than a casino under the auspices of Boyd, which owns off-strip properties in Vegas and mid-level casinos elsewhere in the U.S., even though Boyd actually manages Borgata and is largely responsible for its success.
"Associations With Criminal Enterprises"
On Thursday, MGM put its ownership stake into a divestiture trust, to be sold within 30 months. This unwinding began when the New Jersey Division of Gaming Enforcement (DGE) pressed MGM Mirage to maintain gaming interests either in Atlantic City or Macau -- where the DGE alleged, MGM's partner Pansy Ho (pictured) is "unsuitable" due to close ties to her father, gaming titan and billionaire Stanley Ho, alleged to have "associations with criminal enterprises"). Atlantic City is tanking, and Macau is booming, so even if MGM Mirage weren't saddled with billions in debt from the recent construction of CityCenter in Las Vegas, its decision would be a no-brainer.
With Borgata's revenue down year-over-year, the casino's worth is definitely not what it had once been. But analysts estimate a $400 million to $500 million price tag on MGM Mirage's share of the property. If the value of Atlantic City (and so, most likely, the Borgata) continues to depreciate, expect to see MGM's take going down as well.
In a note to investors, Deutsche Bank gaming analyst Andrew Zarnett described the sale as "an essential step forward to allow [MGM Mirage] to move ahead with its plans for an IPO in Macau." That's expected to happen in early fall. Steve Wynn's Wynn Macau and Sheldon Adelson's Sands China each raised billions with their Chinese initial public offerings.
Pinnacle Packs Up
More proof of Atlantic City's long losing streak came last month, after Pinnacle Entertainment (PNK) pulled out of the seaside gambling burg. Pinnacle, which focuses primarily on riverboat casinos in the Midwest, had purchased Sands Casino on the Atlantic City boardwalk from Carl Icahn for $250 million in 2006. The property was imploded, and Pinnacle vowed to build a megacasino with oceanfront rooms. Days before MGM publicly opted to stick with Pansy Ho, Pinnacle announced it would sell its East Coast beachhead.
While the company's departure was surely disappointing to those looking to see Atlantic City differentiate itself from Pennsylvania and its newly legalized table gaming, the development couldn't have been terribly surprising. In a city where more than half of the casinos are bankrupt, or heading in that direction, bad news is expected.
"Atlantic City is not for the faint of heart," says Cory Morowitz, chairman of the New Jersey–based Morowitz Gaming Advisors, and an A.C. optimist. "Atlantic City used to be a very predictable market. It grew a little bit every year. Now it's become unpredictable, and, in the short run, it doesn't look great."
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