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New York is still several months away from granting three downstate casino licenses, but investors and analysts believe there is effectively only one license up for grabs in the largest untapped gaming market in the northeast United States.
I have to expect that MGM (Resorts International) and Resorts World should be [two of] the license winners, said David Katz, managing director with Jefferies in New York. Who is going to get the other one? I guess my opinion has changed month to month.
MGM currently operates the Empire City Casino video lottery terminal (VLT) facility in Yonkers, near the Bronx, while Genting's Resorts World New York City video lottery parlor in Queens is the most lucrative casino facility outside Nevada, even though it also is limited to VLTs.
From a stock perspective, Katz said, a license adds a lot of value to MGM and Resorts World because they are wholly-owned projects, which he prefers to a minority-interest structure.
I am not personally a fan of the minority-interest structure. I dont think it transfers into the value of the stock price, he said.
Katz was speaking during a panel on the view from Wall Street on investment opportunities at the East Coast Gaming Congress in Atlantic City.
I just think it takes longer to get value in the stock price despite writing significant checks and investing capital, Katz said. So, Im voting for a wholly-owned circumstance with someone to own and control to have value.
New York officials are considering ten proposals for casinos in or around New York City and aim to issue licenses for the three projects by the end of December.
The field recently lost one proposal when Saks Global announced it had withdrawn its bid to convert the top three floors of its flagship Saks Fifth Avenue store into a 200,000-square-foot luxury casino.
If MGM and Genting are ultimately successful, that would leave eight other bidders competing for one license.
Among the other companies vying for a license are Hard Rock International and its partner, hedge-fund investor Steve Cohen.
The pair are proposing to build an $8bn mixed-use casino project on some 50 acres around Citi Field in Queens, the home of Major League Baseballs New York Mets.
Proposals have also been announced by Caesars Entertainment, Ballys Corp., Wynn Resorts and Las Vegas Sands. Potential development sites in and around New York City include Times Square, Hudson Yards and Long Island.
I think the first question that has to be asked, its three but what happens if it isnt? said Michael Wagman, president and managing partner of Clairvest Group, which owns a stake in the Meadowlands racetrack in New Jersey.
I think there needs to be more clarity, he told conference attendees last week. From my perspective, it cant happen fast enough. They would have been better off choosing Resorts World and MGM and saying we'll choose a third later on.
Jacques Cornet, a partner with New York advisory firm ICR, said New York obviously brings additional supply to the northeast gaming market, but from a competitive standpoint, it will be the product and amenities that come with this that will impact Atlantic City.
Wall Street right now is demanding a return on capital, Cornet said. It is not inexpensive to build in New York and generating that appropriate return on capital is going to dictate really the impact on the competitive set regionally. It will be interesting to see how it plays out.
The market is very regionalized and its probably the final step of the major cities in the northeast corridor, Cornet added.
Each license will cost a minimum of $500m, with a minimum tax rate of 25 percent for slots revenue and 10 percent for table games, but the actual rates will be determined through the license bidding process.
Atlantic City Prepares For New York Competition
Atlantic City casinos are facing a serious threat from new competitors in New York as gaming executives, politicians and analysts warn the city is not prepared to handle the impact of a new market.
I was here last year, and I said, New York is coming', Jim Allen, chairman of Hard Rock International and Seminole Gaming, said during a presentation at East Coast Gaming Congress.
We have to be prepared. They are issuing those licenses this year. Its now no longer five years; its three to four years away.
Robert Williams, executive director of the New York State Gaming Commission, outlined the process at a public meeting last month. According to Williams, the deadline for license applications is June 27, with a September 30 deadline for satisfying local community approval requirements.
The projected date for licensing decisions is December 1.
Atlantic City Mayor Marty Small Jr. told conference attendees that the city was well aware of the expected competition from New York City casinos.
We know New York is serious, Small said. We dont know when they are coming. We need to get our house in order.
A panel examining how integrated resorts in the New York City market would impact Atlantic City was reluctant to say whether any of the citys nine casinos might close due to the new competition.
Well, its not going to help, I can tell you, said Jeff Gural, who operates Tioga Downs Casino Resort in upstate New York, as well as the Meadowlands.
Jane Bokunewicz, director of the Lloyd D. Levenson Institute for Gaming, Hospitality and Tourism at Stockton University in Atlantic City, warned that any casino that is no longer profitable is at risk of closing.
If a casino is not profitable theres a chance they will close, Bokunewicz said. But I think the operators here do have a sense of community and they want to stay open. So, I think that theyre not going to go down without a fight.
