The shock announcement by MGM Resorts this week that it was withdrawing from the race to win one of three possible full casino licenses in downstate New York has significantly increased the chances that one of those licenses will be awarded to Genting Malaysia’s Resorts World New York City.
But according to investment bank Nomura, it also raises questions over the economics of Genting’s expansion plans, with the company set to invest US$5.5 billion into expanding its existing property and earlier this week submitting a revised proposal that includes aggressively enhanced license fee and gaming tax payments.
MGM’s withdrawal, citing concerns over the geographic concentration of casino licenses offered in remaining bids and a shorter-than-expected license duration of 15 years versus an anticipated 30 years, leaves just three candidates for the three licenses – the others being Hard Rock’s Citi Field bid and Bally’s in the Bronx – although the New York Gaming Facility Location Board can opt to recommend fewer licenses be issued.
While Nomura believes Genting Malaysia remains a strong contender even if only two licenses are issued given its comprehensive bid and the advantage at its existing EGM-only premises, it added in a Wednesday note that MGM’s withdrawal also raises some concerns about the project economics.
“Given that some of Genting Malaysia’s Resorts World assets like Resorts World Catskills, Resorts World Bahamas and Resorts World Las Vegas also have sub-par returns, one might also question the economics of a multi-billion dollar potential Resorts World NYC expansion,” wrote analyst Tushar Mohata.
“Adding to this, Genting Malaysia’s supplemental bid submitted yesterday revealed aggressive terms, including a US$600 million license fee (versus the minimum requirement of US$500 million) and industry-leading tax rates of 56% on slots and 30% on tables. These rates significantly exceed those proposed by the [other candidates].
“While Genting Malaysia’s higher license fee payment comes with expectation of a 30-year license term, we do think that Genting Malaysia’s proposed tax rates are on the high side, although this is likely to have been decided prior to knowledge of MGM’s withdrawal.
“One other factor is that the distance between Cohen/Hard Rock’s Metropolitan Park and Resorts World NYC is only 10 miles, raising cannibalization risks.”
There are, Nomura added, some mitigating factors working in Genting Malaysia’s favor. These include the ability to complete and open Phase 1 of its expansion, including 4,000 slots and 250 table games, by July 2026, giving it a four-year head start over the other candidates who must build from scratch.
“The full project ROIC impact will not be clear for several years given the staged nature of the capital deployment,” the investment bank said. “Genting Malaysia’s phased development approach should better its capital management and help to mitigate risks.”
Mohata also noted the Genting Malaysia proposal includes a suggestion that “if a nearby facility is also granted a license at lower tax rates than those proposed by Genting Malaysia , then Genting Malaysia should also be granted a similarly lower tax rate to create a level playing field”, which the analyst says should ease concerns about the originally proposed high tax rate.
