Casinos: MGM Mirage Reveals "Exit Strategy" Out of Atlantic City

Now that the New Jersey gaming control board has made it clear that MGM Mirage isn't welcome in Atlantic City any more (as long as it wants to do business in Macau) (H/T to Hunter), they've reached a settlement with the state to let go of its 50% stake in Borgata.

The deal was driven by the division's recommendation to the New Jersey Casino Control Commission last year that MGM Mirage's partner in the Chinese gambling district of Macau, Pansy Ho, be found unsuitable because of allegations her father Stanley Ho has had ties to organized crime.

The division recommended that MGM Mirage be directed to disengage from any business association with Pansy Ho. MGM Mirage instead chose to maintain its casino partnership in Macau and at least temporarily exit the New Jersey market.

Las Vegas-based MGM Mirage had previously disclosed settlement talks were under way focusing on placing the company's New Jersey interests into a divestiture trust. Under today's settlement, which is subject to approval of the New Jersey Casino Control Commission:

-- MGM Mirage's interest in the Borgata and the land will be placed into a divestiture trust and the interest is to be sold within 30 months.

-- MGM Mirage will cease doing business as a gaming licensee in New Jersey, but can re-apply for a license there 30 months after the sale

"We have the utmost respect for the DGE but disagree with its assessment of our partner in Macau," Jim Murren, MGM Mirage chairman and chief executive, said in a statement. "Regulators in other jurisdictions in which we operate casinos have thoroughly considered this matter and all of them have either determined that the relationship is appropriate or have decided that further action is not necessary. Since the DGE takes a different view, we believe that the best course of action for our company and its shareholders is to settle this matter and move forward with the compelling growth opportunities we have in Macau."

Well, what else can MGM do? And perhaps in the long run, this will be seen as a smart move. We all know just how lucrative of a gaming market Macau is quickly becoming. And with both Wynn Resorts and Las Vegas Sands now saying they're "primarily Asian companies doing some business in America", how can MGM be blamed for picking Macau over the rather thorny situation in Jersey.

And speaking of Jersey, Atlantic City continues to be in a free fall... Even as we recover here in Las Vegas and other big US gaming destinations are also seeing signs of recovery. But then again, not all of Atlantic City's problems are directly related to the economy. In particular, AC is now facing the harsh reality of increasing competition from Pennsylvania, New York, Connecticut, Delaware, and Maryland as all these states loosen their anti-gambling laws and allow more gaming (with PA, in particular, posing a real threat with new full hotel-casino resorts opening in or near Philadelphia, AC's biggest "feeder market").

So when we look at the full picture, it's easier to see why MGM is ready to leave AC. With increasing gambling options all over the Northeast, it's becoming increasingly difficult to see how AC can remain top dog. And at least now, MGM no longer has to worry about it.

Is MGM Mirage Ready to Leave Jersey?

One would think that the home of "Jersey Shore" and "The Real Housewives of New Jersey" would have no problem with whatever casinos want to do business in Atlantic City. But apparently, MGM Mirage is running into some trouble out there.

Why? Oh, just one of Macau's worst kept secrets...

When New Jersey casino regulators said last year that MGM Mirage needed to cut ties with an “unsuitable” business partner in China, the casino giant said it would defend itself against allegations raised in New Jersey, where MGM Mirage owns a 50 percent stake in the Borgata resort.

For the past eight months, both sides — with reputations and track records to uphold — have been gearing up for battle. Or reconciliation. [...]

Regulators red-flagged MGM Mirage’s 2004 deal with Pansy Ho because she is the daughter of controversial Macau casino boss Stanley Ho, who has reputed ties to Asian organized crime.

Nevada gaming regulators signed off on the partnership in 2007, saying that MGM Mirage had structured the Ho partnership in such a way that her father would not be able to exert his influence on the business. Nevada regulators said Ho, who ran a ferry and tourism company founded by her father, is a suitable partner because she is a successful and ethical businesswoman in her own right.

Because Ho didn’t need a Nevada casino license to do business with the company in Macau, MGM Mirage didn’t have to prove to Nevada regulators that she was a suitable partner. In passing judgment on Ho, Nevada regulators said they had no reason to believe she wouldn’t act ethically and that her father’s alleged associations — while distasteful — were not enough to harm Nevada.

It’s a different ballgame in New Jersey, where companies must renew their casino licenses every five years. Casino companies must prove their worthiness, and those of partners, at each renewal hearing as if they are obtaining licenses for the first time.

It's no secret that Nevada's gaming regulators are quite lax compared to New Jersey gaming authorities. If New Jersey regulators catch just one whiff of "organized crime influence", you're out and you're out for good. After all, why do you think Steve Wynn was forced out of Atlantic City in 1987? And why so many other big gaming industry players in Nevada are kept out of Jersey?

And now, the Pansy Ho connection may be enough to force MGM Mirage out of The Garden State. For all we know, Pansy Ho may really be a legitimate businesswoman and have no interest in her father's shadier operations in Southeast Asia. But in New Jersey, even family ties can be enough to lower the guillotine on a casino project.

So most likely, MGM Mirage will have two choices. Either they will have to abandon the MGM Grand Macau deal with Pansy Ho or they will have to end their partnership with Boyd Gaming on Borgata Atlantic City. Seriously, which one do you think MGM Mirage will stick with?

Macau's continually being touted as "the next big thing". The Asian gaming market continues to rise. Casino operators fight brutally over the very few gaming licenses the Chinese government permits.

And Atlantic City? Not so hot any more.

The Wall Street Journal is already reporting that MGM Mirage is ready to sell its 50% stake in Borgata, so I think we're starting to see where MGM really wants to go next.