Caesars has had a troubling few years.
That makes Caesars look vulnerable, and just maybe that creates an opportunity for MGM.
The New York Post reports that according to sources, “MGM has hired investment bank Morgan Stanley and law firm Weil, Gotshal & Manges” to analyze the idea of a merger.
Those sources also say that some of Caesars’ biggest hedge fund investors are backing the idea.
MGM and Caesars own a third of the New Jersey casinos
Any merger would create a very powerful presence in the US gaming industry. Caesars is worth about $22 billion with MGM at around $30 billion.
Put them together and they would own one-third of the Atlantic City casino market.
In Nevada, the situation is similar, but the numbers are bigger. Between the two companies, they own most of the Las Vegas Strip — more than 30 properties in total, excluding golf courses.
Concentrating that much of the industry into the hands of one company will make regulators sit up and take notice.
Local monopoly, national influence, international presence
Market concentration is a concern at the state level, but federal regulators are unlikely to see a bigger issue.
Both companies operate across the US, but not across all states. In fact, MGM’s recent partnership with Boyd Gaming only gives it direct access to 15 states worth of real money gambling.
As sports betting spreads, MGM with its partners GVC and Boyd plans to expand everywhere it legally can.
Caesars has expressed the same strategic intent with its partner Scientific Games.
But that expansion is in the face of tough competition.
Expansion in sports betting
CEO Peter Jackson told investors when presenting Q3 results that FanDuel is already active in 41 states. And they aim to be competitive in all states where legal sports betting is allowed.
In fact, all the big European gaming operators have taken a position on US sports betting expansion.
Internationally, the presence of Caesars and MGM is actually rather thin. Caesars operates in Canada, South Africa, Egypt, and the UK. MGM has gambling businesses in six Chinese locations including Macau.
There’s an easy argument that merging Caesars and MGM would create a more internationally competitive group.
Sell off Nevada casinos? Maybe
If regulators did kick up a stink, it’s unlikely that it would be in New Jersey.
Four out of nine casinos would not create the kind of monopoly pricing power that would worry the New Jersey Division of Gaming Enforcement (DGE).
As for online gambling, there are more than 25 licensed NJ gambling sites, sports betting and poker sites. And many of them have partnerships with foreign brands.
The Nevada Gaming Control Board (NGCB) may have more serious concerns. But at worst it would require no more than a combined group divest itself of some Strip properties.
At that point, there’s a math problem. What tradeoff would actually work for MGM and Caesars?
Both companies are heavily reliant on Nevada for their revenues. They may well be diversified elsewhere, but Las Vegas is still the jewel in their respective crowns.
Having to sell any properties in Nevada might actually be a deal breaker.
What about Wynn and Caesars? Or anyone else?
The New York Post also pitched Wynn Resorts, the Genting Group, and private equity firm the Blackstone Group as potential buyers.
Wynn would generate fewer concerns over market concentration in Nevada. The company is expanding in Las Vegas and building a new casino in Boston, but taking over management of Caesars’ large property portfolio might be biting off more than it can chew.
The Genting Group is a Malaysian gaming company with several Resorts World Casinos in the US. It would be no surprise if it decided to expand in the US through acquisition.
The company has a large global presence already with casinos in:
- United Kingdom
- Hong Kong
Blackstone is a different beast entirely. It is one of the world’s largest private equity investors and a natural replacement for one of the existing hedge fund owners of Caesars.
But would it be interested in Caesars with its current strategy? Maybe not.
Rivalry in New Jersey and beyond
While speculation is fun, Caesars is not an easy takeover target. No matter how much its private owners might want to sell, finding the right partner will not be easy.
New Jersey players can expect the rivalry between Caesars and the Borgata in Atlantic City to continue, at least for the time being.