MGM’s Sin City Success Overshadowed by Macau Loss

Sin City propelled MGM’s third-quarter earnings, but the Chinese gambling hub resulted in a $1 billion deficit.

MGM declared that Sin City revenue hit record highs, exceeding the previous year’s figures, but a $1 billion impairment charge related to its Chinese subsidiary led to a loss for the operator.

Sin City fueled MGM’s third-quarter revenue growth, but Macau’s impairment charges resulted in a $1 billion loss.
Total revenue climbed 26.2% to $3.14 billion.

A large portion of this increase stemmed from Sin City, generating $2.3 billion, up 66.6%, a record high. Unlike the previous year, hotel revenue in Sin City surpassed casino revenue.

“We are proud to announce our best-ever quarterly results on the Sin City Strip, both in terms of revenue and adjusted property EBITDAR, driven by the continued strength of our entertainment and convention offerings,” said Bill Hornbuckle, CEO and president of MGM Resorts.

MGM’s regional operations revenue reached $973.9 million, up 5.2%.

Conversely, MGM China’s revenue plunged to $87.5 million, down 69.8% from the third quarter of 2021 (which was already affected by the COVID-19 pandemic). This quarter, Macau implemented lockdowns, closing all casinos following a local outbreak.

MGM’s corporate and other revenue amounted to $53.6 million.

Expenses skyrocketed significantly this quarter to $4.44 billion, but this was primarily due to non-operating factors. The company paid $1.

MGM Resorts International’s administrative and general costs climbed to $21 billion, a surge of nearly 50%, primarily driven by escalating rental fees on numerous MGM properties. A large portion of these properties have been transferred to real estate investment trusts in recent years.

Casino earnings rose marginally to $653.6 million, lodging revenue increased to $256.1 million, and food and beverage income leaped by 75.2% to $529 million.

Macau Amortization
However, the most substantial expenditure originated from amortization. The firm recorded over $1 billion in amortization costs due to the expiration of its Macau sub-concession at the year’s end.

In early 2013, the operator secured rights to utilize a plot of land in Macau’s Cotai area until 2038. As a consequence, it amortized the Macau sub-concession over that span, assuming continued operations in Macau until that date.

However, with the implementation of the Special Administrative Region’s new gaming legislation, which maintained the same number of operators but only established primary concessions, no longer permitting sub-concessions, the company decided to alter its strategy. Consequently, the “useful life” of the sub-concession and land use rights were adjusted to last only until the year’s end.

As a result, the company effectively recognized 16 years of amortization in one instance, leading to a massive expense.

“We have been amortizing that intangible asset over a period between 2031 and 2038,” stated Chief Financial Officer Jonathan Halkyard.

Following the release of a legal stipulation in June, we collaborated with the external auditing firm Deloitte and determined that this is a novel allowance that we will commence implementing after December.

The existing intangible asset-based allowances must be depreciated by the conclusion of this year.

Furthermore, the company declared a $1.6 billion profit from the disposal of its city-center property in the third quarter of 2021, which also contributed to the negative expenditures and affected year-over-year comparisons.

After subtracting these expenses, and a $17.5 million loss from its non-consolidated subsidiaries, such as its joint venture with Entain, BetMGM, MGM’s third-quarter operating deficit was $1.05 billion. This represents a significant contrast to the $1.89 billion operating gain in the corresponding period of the previous year.

Excluding these extraordinary costs, EBITDAR reached $1.1 billion, signifying a 23.4% increase.

Interest and taxes resulted in the business ultimately incurring a loss of $1.06 billion, compared to a profit of $1.34 billion in the same period of the previous year.

During this quarter, MGM also finalized the acquisition of European online operator LeoVegas. MGM acquired LeoVegas for SEK 61.00 per share in cash, resulting in a total transaction value of $604 million.

Upon announcing the acquisition offer, MGM stated that it would facilitate the expansion of the business’s online operations into markets beyond North America, such as Europe, where BetMGM currently conducts business.

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