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MGM Resorts International Expected to be Named as Operator of Proposed
Luxury Casino at Baltimore, Maryland's National Harbor

By Michael Dresser, The Baltimore SunMcClatchy-Tribune Regional News

June 15, 2012--The developers of National Harbor are expected to announce Friday that Las Vegas giant MGM Resorts International would operate a luxury casino at the proposed gambling site on the Potomac River.

The Peterson Cos., the Virginia-based developer of National Harbor, and MGM are in the final stages of concluding an agreement for MGM to run any gambling facility the state might authorize at the sprawlingPrince George's Countycomplex, sources familiar with the talks said.

MGM executives were flying to Maryland on Thursday, and an announcement could come Friday morning, the sources said.

Peterson and MGM executives -- possibly including CEO Jim Murren and MGM hospitality chief Gamal Aziz -- are expected to meet Friday morning with Gov.Martin O'Malleyand Senate PresidentThomas V. Mike Millerbefore making a public statement.

On Wednesday, National Harbor developer Milton Peterson and Michael Evans, MGM Hospitality's executive vice president for global development, visited the State House in Annapolis for a meeting with House SpeakerMichael E. Busch.

Richard Clinch, who tracks gambling industry issues as director of economic development at the University of Baltimore's Jacob France Institute, said the partnership makes sense.

"MGM's a good company. It's a great location, and basically whoever goes in there is going to be given a license to print money," said Clinch, who has done research for Peterson and other gambling-related companies. "The higher the quality of the operator, the better story they can tell."

Raquel Guillory, an O'Malley spokeswoman, confirmed that the governor plans to meet Friday with Peterson and MGM executives. But she said O'Malley had no comment Thursday on the implications of a possible MGM-National Harbor alliance.

"He's looking forward to the meeting tomorrow to hear whatever they have to say, particularly if there's any jobs potential," Guillory said Thursday.

A source in Miller's office confirmed that meeting but said the Senate leader is unlikely to comment before it occurs. Busch was on vacation Thursday and could not be reached for comment.

Jon Peterson, a principal in the Peterson Cos. and Milton's son, would neither confirm nor deny the reports.

"We don't yet have a deal or letter of intent, so there's nothing more we can say," he said.

If the deal is finalized, the implications for the future of gambling in Maryland could be enormous -- though the state has not authorized a casino in Prince George's County.

MGM is the world's largest casino operator in terms of market share, with more than $19 billion in earnings, according to Reuters Factbook. The company, which is listed on the New York Stock Exchange, controls about 40 percent of the market in Las Vegas and 8 percent in the major gambling center of Macao, on the cost of China.

In Las Vegas, MGM operates a dozen casinos, including such top-of-the-line resorts as the Bellagio, MGM Grand, ARIA, Mandalay Bay and the Mirage. It also operates casinos in Mississippi and Michigan.

The company is known for its aggressive customer loyalty program, which seeks to keep high-rollers coming back to its properties with what it describes as "one-of-a-kind experiences, insider privileges and personalized rewards for guests."

In a 2011 interview, Evans told HVS Executive Search that "finding the right partner is key for us as we enter new markets." He said one of the things the company stresses in discussions with developers around the world is "creating a destination" -- the same term Milton Peterson has repeatedly used in describing his aspirations for the lavish waterfront hotel-convention center complex.

While Evans said MGM has been pursuing an aggressive growth strategy in East Asia, South Asia and the Middle East, he added that MGM has been looking for opportunities in the United States and Europe as well.

Situated on 350 acres at the foot of the Woodrow Wilson Bridge, National Harbor already boasts a half-dozen hotels, upscale stores and restaurants, and a marina anchored by the cavernous, 450,000-square-foot Gaylord National Resort & Convention Center, which opened in 2008.

James R. Karmel, a gambling industry analyst and history professor at Harford Community College, said MGM has had some issues in recent years. He noted that the company had taken big losses from its investment in Las Vegas' City Center project, which debuted just as the recession slammed that city, and that it has been involved in the money-bleeding Foxwoods casino in Connecticut as a partner with an Indian tribe.

Nevertheless, Karmel said, the likely alliance would probably give a small boost to gambling expansion proponents as they try to forge a consensus on a work group established by O'Malley to study the issue.

"It might sway some people on the committee who may be leaning one way or the another," he said.

The General Assembly has authorized five casinos around the state, but Peterson and Prince George's County Executive Rushern Baker have been pressing for a sixth site at National Harbor. They have argued that current operators could be compensated for the increased competition by allowing Las Vegas-style table games such as blackjack, poker and roulette.

That proposal has been criticized by David Cordish, CEO of the Baltimore-based company that developed the Maryland Live Casino at Arundel Mills, as a breach of what he considers a commitment to leave the Washington area in his market sphere.

Cordish did not respond to an email seeking comment, but Clinch said Maryland Live's developers have "a real legitimate ax to grind."

"They made decisions on having nothing to the south of them and significant competition to the north of them," said Clinch, who disclosed that he is doing some work for Prince George's County on economic development issues.

Cordish has argued that a new casino at National Harbor would saturate the gambling market in Maryland. But the staff of the General Assembly and its consultants have reached the opposite conclusion. They told the work group Tuesday that a sixth casino would not saturate the Maryland market and estimated that the state could gain up to $161 million in revenue by authorizing a casino in Prince George's County and adding table games statewide.

The combined report discounted concerns that a casino outside Washington would draw too much business away from others at Arundel Mills and an intended site in Baltimore. Current casino licensees, now limited to slot machines, could end up ahead in net revenue by adding table games, the Department of Legislative Services and PricewaterhouseCoopers said.

Caesars Entertainment, the sole remaining applicant for a license to run the Baltimore casino, said it would have no comment on MGM's expected role. Caesars, which has a long track record of sharing the Las Vegas market with MGM, has supported allowing a sixth Maryland casino in exchange for legalizing table games in the state.

The work group, which includes members from House and Senate as well as the administration, was formed by O'Malley in the hope that it could forge a consensus on whether to move forward with expanded gambling in Maryland.

The governor has said that if the panel can come up with an agreement that could win approval from both the Senate and the House, he would call a special session for July 9 to deal with the casino question. Proponents of expanded gambling want action this summer so that the broad policy question of whether to allow a sixth casino and table games can be put on the November ballot for voter approval.

If such a referendum is not put up for a vote this year, it would have to wait until 2014 -- possibly delaying any project by two years.

Lawmakers have said that if voters green light an expansion, they could work out many of the details in implementing legislation next year. The Republican legislative leadership has taken the position that there should be no special session and that any action can wait until next year.

O'Malley has given the work group a deadline of Wednesday to make its recommendations. The panel is expected to meet that day.

One of the big questions facing lawmakers is whether to cut back on the tax rate that casino operators pay on slot machine gambling -- now a whopping 67 percent -- in the hope that the state could make more money overall. Peterson has said a reduced tax on slots is needed to finance the type of high-end, Las Vegas-style casino he envisions at National Harbor.

Cordish has said he's not demanding a change in the tax rate now but expects the state to live up to what he views as a commitment to leave the Washington area within Maryland Live's market sphere.

The likely entry of MGM could cut both ways. The prospect of a Vegas-style palace run by a big name could increase excitement over a National Harbor casino. It also could lend credibility to National Harbor's assertion that the earnings potential of a casino there is greater than the legislative analysts estimated.

However, it could raise questions about why National Harbor needs a lower tax rate when it has a partner with the deepest pockets in the industry.

The Senate generally has been more comfortable with the idea of moving forward with gambling expansion -- even with a lower tax rate.

But House leaders, including Bosch, have expressed concerns about how voters would perceive a cut in the slots tax for casino operators when legislators have just raised income taxes on about 14 percent of Maryland taxpayers.

Their concerns could be further fueled by mailings such as one received by voters in Howard County. There, a resident reported receiving a flier urging voters to oppose a summer special session on gambling. "Do you support tax cuts for casino operators when YOUR taxes are going up?" it said, urging recipients to voice their concerns to Dels. Shane Pendergrass and Guy Guzzone, both Democrats.

But Clinch said Maryland's current 67 percent slots tax rate is "ridiculous" and eventually will have to come down. But he predicted that MGM would be willing to build at National Harbor even at that rate.

"You're not going to get the Bellagio on the Potomac at a 67 percent tax rate," he said. "I think they will build something more modest."

But Karmel said MGM's participation could be contingent on a lower tax rate.

"I'm guessing there's a lot of outs," he said. "I'm sure there's a way for them to get out of the partnership."

Clinch said that while the likely deal would be important, it falls short of being a game-changer in the political debate.

"That's up to Mike Busch and Mike Miller and Governor O'Malley," he said.

mdresser@baltsun.com

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(c)2012 The Baltimore Sun

Visit The Baltimore Sun at www.baltimoresun.com

Distributed by MCT Information Services




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