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MGM Resorts to develop project in Louisiana21 October 2011
The company's real targets, however, are Houston and other communities in customer-rich Texas.
Analysts said running the planned 400-room Mojito Pointe hotel-casino in Lake Charles, roughly 145 miles east of Houston and its roughly 6 million residents, gives MGM Resorts a foothold near an important feeder market to Las Vegas and an edge in attracting new visitors to its 10 Strip resorts.
Deutsche Bank gaming analyst Andrew Zarnett estimated that 50 percent of visitors from Southern states to Las Vegas come from Texas.
Union Gaming Group principal Bill Lerner said Mojito Pointe could open the Lake Charles market to other Texas cities, such as Austin and San Antonio, which would eventually benefit MGM Resorts.
"(The partnership) becomes quite attractive in our view," Lerner said.
Financial terms of the deal between MGM Resorts and Creative, which is privately owned by longtime gaming executive Dan Lee, were not revealed.
According to a joint statement, MGM Resorts gains an undisclosed ownership stake and would manage Mojito Pointe, which will be designed and developed by Creative. The agreement will place Mojito Pointe into MGM Resort's M Life customer loyalty program. Also, Mojito Pointe would have access to MGM Resort's database of customers worldwide.
MGM Resorts now operates two hotel-casinos in the south, Beau Rivage Resort & Casino in the Gulf Coast community of Biloxi, Miss., and the Gold Strike Casino Resort Tunica in northern Mississippi, which attracts customers from nearby Memphis, Tenn.
"The relationship (with Creative) provides MGM the opportunity to expand the reach of MGM's brands into an important regional market," MGM Resorts Chairman and Chief Executive Officer Jim Murren said in a statement.
Lee was in Baton Rouge, La., Thursday presenting the deal to state gaming regulators. He said in an interview Creative would retain majority ownership in Mojito Pointe.
"The amount of money is not very material to MGM, but it's very much material for us," Lee said.
He believes the agreement with MGM Resorts will help Creative complete the financing for Mojito Pointe, which could grow to $450 million when financing-related costs are factored in.
"We know Louisiana well and we've been talking with investors and lenders," Lee said. "Clearly this will get done."
Lee's company gained the rights to develop Mojito Pointe in February when he was awarded Louisiana's 15th and final gaming license. The project has been approved by state gaming authorities and by residents of Lake Charles in a ballot referendum in April.
The 242-acre Lake Charles site is adjacent to Pinnacle Entertainment's L'Auberge du Lac resort, which Lee developed when he was the company's CEO. In May, Lee and his former company resolved a legal dispute over the Lake Charles site, allowing Mojito Pointe and L'Auberge du Lac to coexist.
In September, gaming revenues in Lake Charles grew 12.7 percent compared with a year ago. All of Louisiana's gaming revenues increased 5.8 percent in the month to $196.6 million.
"While the development presents incrementally more formidable competition for Pinnacle, we believe the Houston feeder market remains under-penetrated and should provide ample demand for both primary operators," Jefferies & Co. gaming analyst David Katz told investors.
The companies hope to break ground on Mojito Pointe by year's end and open the project by the middle of 2013. The casino is expected to have 1,500 slot machines and 50 table games. The project would also include an 18-hole championship golf course.
"Creative has been seeking an equity partner for some time and we are surprised that MGM has excess capital to invest in regional development projects," Credit Suisse gaming analyst Joel Simkins said. "Relative to being a stand-alone property, this will give Mojito a better chance than expected at being a stronger competitor versus Pinnacle's L'Auberge facility."
Shares of MGM Resorts dropped down 9 cents, or 0.89 percent, Thursday to close at $10.01 on the New York Stock Exchange.
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