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Coronavirus and the US Gambling Downturn: MGM Resorts Edition

Numbers are starting to trickle in on the effects of the coronavirus on the US Betting Industry and to nobody's surprise, they aren't great. MGM Resorts International, one of the most recognizable brands in the business has had its share uninspiring news during the downturn but has remained optimistic, hoping to stay afloat with an eye on remaining one of the top dogs in business when the US legal betting goldrush is able to start up again.

But MGM Resorts International has seen their stocks drop, their credit ratings lowered and their overall pre-virus growth strategy come into question during the last few weeks. The questions are – can the global giant survive on name recognition and what will the company look like post-shutdown?


Some bad-news numbers

Most businesses with exception of medical and cleaning supply industries have been hammered the last couple of months with coronavirus dominating every aspect of life. The sports betting industry, with ZERO sports being played and ALL retail casinos being closed has been an obvious casualty of the global downturn.

MGM Resorts International closed 1.26% lower on Friday, but up slightly from its 52-week low of $5.90 a couple weeks ago. It’s far from MGM’s $34.64 high back in February. The slide followed a company update and a statement that read: “The company has incurred substantial operating losses in March and doesn’t expect to see a material improvement until more is known regarding the duration and severity of the pandemic, including when the company's properties can re-open to the public”.


Credit Rating

Fitch Ratings which in in charge of credit grades for the casino industry has had no choice but to lower MGM Resorts International to “BB-” from “BB.” Although negative news is understandable with regards to MGM's credit grade, Fitch has identified some questionable business moves that have also contributed for the slip in ratings, including the deals on their Vegas Strip properties.

"The downgrade primarily reflects MGM’s decreased financial flexibility following the recent sale-leaseback transactions, as well as the severe disruption to global gaming caused by the coronavirus outbreak,” said the research firm. “The sale and leaseback of Bellagio and MGM Grand, the company’s last two flagship Las Vegas Strip assets, reduce MGM’s liquidity levers vis-à-vis ability to monetize assets and increase MGM’s rent obligations to unaffiliated parties, most notably Blackstone Real Estate Income Trust, Inc. (BREIT).”

Zero revenue outlooks are forecasted to make the company burn more cash than expected. The report suggests that another downgrade is possible.


What's next?

MGM International is said to be weighing ways to cut expenses during these crazy times. The company is in the midst of considering hiring freezes, furloughs and other staff reductions as well as a cut in capital spending until things get back to normal.

According to an update from the company: “The company believes its strong liquidity position, valuable unencumbered assets and aggressive cost reduction initiatives will enable it to fund its current obligations for the foreseeable future”.


The silver lining

MGM International's development of a top-tier mobile platform may just be their saving grace as the industry endures a near-total sport betting halt. Their partnership with United Kingdom gambling operator GVC Holdings to create Roar Digital and their groundbreaking app should keep the company relevant since the platform allows users to switch between sports betting and casino gaming. It is not difficult to imagine that the BetMGM casino will be MGM's bread and butter for the foreseeable future.

MGM International's partnership with Yahoo! Sports is another deal that should keep the company's casinos in the forefront of the US legal betting industry. Roar Digital CEO Adam Greenblatt recently said that Yahoo! Sports: "is an exciting partnership for the BetMGM brand and Roar Digital, helping us reach the widest possible audience of engaged sports fans in the U.S… The Yahoo! Sports app and digital sports content [are] enjoyed by 60 million U.S. users every month, while Yahoo! Fantasy Football clocks 9 billion minutes of user time every year. Together, we offer fans a winning combination."

Things will get back to normal some day and despite a few hiccups during this unforeseen time. MGM looks as though it will be in good shape to remain one of America’s top legal betting providers. The downturn and the underwhelming report from Fitch should be considered a wake-up call for the company as it resets itself before the next wave of growth in the US Sports Betting Industry.