Posted on: May 10, 2024, 11:30h.
Last updated on: May 10, 2024, 11:54h.
Nearly two months ago, reports surfaced that MGM Resorts International (NYSE: MGM) is mulling the sale of its regional casinos in Ohio and Springfield, Mass. Officials in the Massachusetts city said they intend to hold the gaming company to the terms of the host city agreement should a transaction materialize.
In March, it was reported that MGM could be evaluating the sale of MGM Springfield and MGM Northfield, a racino near Cleveland. MGM Springfield opened in August 2018 as the first traditional casino in Massachusetts. That venue, which generated $278 million in sales in 2023, hasn’t lived up to the operator’s expectations.
In a recent interview with Western Mass News, Springfield City Council President Michael Fenton, who also chairs the casino oversight committee, said MGM cannot unilaterally decide to leave the city.
I don’t think the public should be concerned because we have safeguards at the city and state level to make sure there’s no unilateral movement by MGM,” Fenton told the media outlet. “MGM doesn’t have the right to decide to move out on their own.”
The Massachusetts venue cost the operator $960 million to build. MGM sold the real estate assets to MGM Growth Properties (MGP) for $400 million in 2021. VICI Properties (NYSE: VICI) acquired MGP for $17.2 billion that same year, gaining control of the property assets of MGM Northfield Park and the Springfield casino, among other MGM venues.
How MGM Can Do Right by Springfield
While MGM has acknowledged that the Massachusetts and Ohio casinos haven’t lived up to expectations, it hasn’t publicly confirmed it’s shopping those venues. The topic wasn’t addressed on the operator’s first-quarter earnings conference call earlier this month.
The obvious avenue through which MGM can assuage Springfield’s concerns about a possible sale of the casino is to line up a buyer from the gaming industry, which would be likely assuming the operator is looking to sell. That’s also important because the property is zoned to be a gaming venue.
As for potential buyers for MGM Springfield’s operating rights, names haven’t been floated, but it’s probably fair to rule out Penn Entertainment (NASDAQ: PENN) because it runs Plainridge Park Casino in Massachusetts.
It’s possible that tribal gaming entities in New England could be interested in MGM Springfield, but for now, that’s just speculation.
Springfield Wants ‘Same Pedigree’ as MGM
Fenton told Western Mass News that should MGM opt to depart Springfield, the city will require that the replacement operator be of the “same pedigree” as MGM. That’s a subjective term, but there are some hard details.
Under the host city agreement, MGM is required to deliver $25 million in annual payments to various groups in the city and book at least 12 acts per year at entertainment venues near the casino. Fenton said a new gaming operator of the Springfield casino would be held to the same standards.
A transaction involving MGM Springfield materializing over the near term is a possibility, but analysts believe gaming industry mergers and acquisitions are currently hamstrung due to high interest rates. That implies prospective suitors that need financing to buy the operating rights to the venue might be put off and eschew bidding, thus dwindling the pool of potential buyers to those that can pay in cash.
