If Las Vegas Sands Is Selling, MGM Resorts Is Buying

While rumors that Las Vegas Sands (NYSE: LVS) was about to make a bid for rival Wynn Resorts (NASDAQ: WYNN) were quickly shot down as false, speculation persists that Sands is preparing to sell its Bethlehem, Pennsylvania, casino, and that MGM Resorts (NYSE: MGM) is the buyer.

Recently, the president of Sands Casino Resort Bethlehem sent an email to employees saying negotiations were underway and that there was a single buyer interested in the property, although a deal was not imminent.

Following that, earlier this month, word spread that the other party involved was MGM, and that it was willing to pay $1.3 billion for the resort. So far, neither casino operator has confirmed or denied the rumors, but if MGM does turn out to be the buyer, it will make total sense: Bethlehem would be a perfect fit for it.

Image source: Las Vegas Sands.

Liking the odds here at home

Unlike Sands and Wynn, which now derive the greatest part of their revenues from their casinos in Macau, MGM only generates 20% of its $9.5 billion in annual revenues from the Chinese gambling enclave. Instead, it's focused mainly on Las Vegas, where 59% of its revenues originated last year, and on its regional resorts in Michigan, Missouri, Maryland, and New Jersey, from which it derived another 16%.

For a few reasons, MGM should see that domestic percentage rise this year; in August, it took full possession of the Borgata in Atlantic City, and itsNational Harbor resort in Baltimore opened its doors in December. Adding Bethlehem to that portfolio would mesh with its broad plan to develop U.S. resorts of world-class caliber, including its new casino in Springfield, Massachusetts, which is on track to open next year.

Building something out of nothing

Sands Bethlehem is arguably one of the most successful casinos of the dozen that operate in Pennsylvania. Located 70 miles south and west of New York City on the site of the former Bethlehem Steel Works plant, the resort features approximately 145,000 square feet of gaming space, 180 table games and more than 3,100 slot machines. It also has a hotel with 300 rooms; 150,000 square feet of retail space; an arts and cultural center; and a 50,000-square-foot event center.

Casino revenues at Bethlehem rose 3.7% last year to $530 million even though table games drop fell 1% to $1.12 billion due to its win percentage rising to 19.3% from 17.9% the year before. Its slot handle had a stronger showing, rising 5.9% in 2016, though its hold percentage fell 0.2 points to 6.8%. The fourth quarter was a bit rocky, however, as casino revenue fell 1% year over year.

Image source: Las Vegas Sands.

Although Sands has considered selling Bethlehem before, the prospect of legalized online gambling in Pennsylvania could be what spurred the resort operator to get serious about seeking out a buyer. While the owners of 10 of the state's 12 casinos back the idea, Sands and Parx Casino remain adamantly opposed.

Online gambling not the threat it appears

At least seven states have introduced legislation to legalize internet gambling, and with neighboring New Jersey having permitted it for its residents relatively recently, most of Pennsylvania's casinos see it as a growth opportunity. Isle of Capri's (NASDAQ: ISLE) Lady Luck casino in Farmington, Pennsylvania, said the state should follow a model similar to that of New Jersey, which requires online sites operate through existing physical casinos. That way, online gaming would "drive new customers to their facilities and increase revenues to the state."

MGM is quite familiar with how that system operates, as the Borgata has long been New Jersey's biggest and most successful operation, both land-based and online, though the landscape has begun to change as more competition has moved in.

Last year, Amaya's (NASDAQ: AYA) PokerStars site began operating in New Jersey via a deal with Resorts Casino Hotel, and though it still came in last out of five sites in revenues last month with a $3 million haul, that's a 131% increase from February 2016, and much of its take seems to come at the expense of the Borgata, whose internet revenues fell almost 12% to $3.7 million.

The Golden Nugget casino, which has an online affiliation with Betfair, is now tops online in the state: Year to date, it has generated $9.9 million in internet gaming win. Borgata slipped to third place behind Caesars Entertainment (NASDAQ: CZR), though they're virtually pennies apart at $7.5 million each. And through the first two months of 2017, internet gaming win in New Jersey is up 27%, which is probably the kind of growth Pennsylvania's casinos want to emulate.

While the growth of regional gambling centers in the Northeast will continue to chip away at any one state or resort dominating the industry, Las Vegas Sands' Bethlehem casino still would fit neatly into MGM Resorts diversified portfolio, so it would make sense for it to be buying what its peer is selling.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool is short Caesars Entertainment. The Motley Fool has a disclosure policy.