Gaming companies and casinos get bought and sold all the time. However, what happens when the two biggest operators in Nevada — with 23 total properties on the Strip — are the ones being bought?
A couple of bombshells landed on the gaming industry in the past month. First, Caesars Entertainment said it would be bought by billionaire Tillman Fertitta for $17.6 billion, pending shareholder and regulatory approvals. Fertitta owns three Golden Nugget properties in Nevada.
Then, People Incorporated made an $18 billion offer to buy MGM Resorts. People is a publishing company headed by businessman Barry Diller, and it’s already MGM’s largest stakeholder. MGM’s board of directors, which includes Diller, is reviewing the deal.
The two deals have distinctions between them. For one, the Caesars deal largely comprises debt — $11.9 million — that the company has built up for nearly two decades. (By comparison, the People deal for MGM would include $5.6 billion in debt.) According to gaming reporter and "Casino Life" editor David McKee, highly leveraged company buyouts are risky in industries and economies that aren't booming.
"It's a huge wager that the Las Vegas economy is not only going to stay good, but it's going to improve, because it has to in order for this deal to succeed." McKee added that, as such, these buyouts could be "very bad" for the industry, barring a notable economic rebound.
Another interesting wrinkle is that Fertitta owns 12.6 million shares of Wynn Resorts. McKee said this could signal further plans for Fertitta's Las Vegas gaming portfolio.
"Wynn is strictly high-end focus," he said. "Caesars is kind of weak on the high end; they're a middle-market, low-end sort of company. So, if anything, I think what this puts in play down the road is Fertitta trying to roll the two companies together, so that he has one gargantuan casino company that's strong in the low, middle, and high end."
The potential MGM deal is noteworthy in that People — named after the magazine — is not a hospitality company. In a local industry that purports to be a leader in pleasing its customers, it remains to be seen if MGM's potential suitor can maintain whatever level of service its patrons have come to expect.
"I think the jury is very much out on this one — as opposed to Caesars, whereas Fertitta, in that case, is well-seasoned in the casino realm," McKee said. "Diller's company [does not have] gaming experience, so this is going to be a very interesting situation, if it plays out."
On the other hand, the scenario is not without precedent, according to gaming historian and UNLV history professor David Schwartz. "When Caesars Palace changed hands the first time, it was bought by [Florida restaurant company] Lum's, who were famous for hot dogs cooked in beer, and later they became Caesars World after they acquired Caesars. So everybody's got to start somewhere."
Mckee added that, if layoffs were to happen, as expected with company mergers and buyouts, they would likely involve middle- and upper-management.
Historically, patrons of properties that have seen an ownership change can expect some differences in the guest experience they were accustomed to, Schwartz said.
"Nobody's going to buy a property to keep it the same, so there's going to be changes once that happens," he said. "That could be personnel ... It could be something as simple as where they're getting their toiletries from. It could be a whole range of things."
Ultimately, Schwartz said, such acquisitions are part and parcel of the evolution of Las Vegas' gaming/tourism industry, which has been experiencing a lot of change over the last decade as companies like MGM and Caesars have sold their physical assets to real estate investment trusts.
"We went through the period first where you had more independent owner operators, then we had more consolidation [and] publicly traded companies, and now we may be evolving to the next stage," he said.
Guests: David McKee, gaming reporter and "Casino Life" editor; David Schwartz, gaming historian, UNLV History Professor and Ombuds
