Atlantic City bet
LAS VEGAS – MGM Mirage Inc. said Wednesday it will spend up to $5 billion to build a massive casino resort whose three towers will dominate the Atlantic City skyline and lift the level of luxury in a city hit hard by competition from slots parlors across the Northeast.
The 3,000-room resort, planned to open in 2012, is part of a gamble by casino operators to reverse what is expected to be the first decline in casino revenue in Atlantic City in 29 years by polishing its image to lure more affluent visitors.
The MGM Grand Atlantic City will be built on a 72-acre site next to MGM Mirage’s joint venture with Boyd Gaming Corp., the Borgata Hotel Casino & Spa, which has led the market since it opened in 2003.
“If you raise the bar, the market will react,” said Ken Rosevear, president of development for MGM Mirage. “You’ve seen what Borgata has done to that market. This is taking a leaf off the Borgata book.”
The project also expands the company’s use of its MGM Grand brand, which began in Las Vegas in 1973, branched out last week in Detroit and is set for development in Macau this year and in 2008 at Foxwoods in Connecticut, run by the Mashantucket Pequot Tribe.
“The MGM Grand brand is something we’re taking around the world,” Rosevear said.
The new resort would offer the largest casino floor in Atlantic City, with 5,000 slot machines, 200 table games and a poker room. Plans also call for a 1,500-seat theater, restaurants, nightclubs, a spa, 500,000 square feet of retail space and a convention center.
The city’s 11 casinos have invested billions of dollars to attract upscale visitors who are drawn by entertainment, dining and shopping options as opposed to day-trip gamblers who ride buses into the city, play for a few hours, then go home.
Harrah’s Atlantic City, run by Harrah’s Entertainment Inc., is in the midst of a $550 million expansion that will add, among other things, a 941-room hotel tower in February.
“It’s a very exciting project that is another step in Atlantic City’s evolution to a full-scale destination resort, which is critical given the competition we currently face,” said Joe Corbo, president of the Casino Association of New Jersey.
Atlantic City’s casinos are being hurt by slots parlors that have recently popped up in Pennsylvania, Delaware and New York.
Through August, Atlantic City’s gambling revenues are down 4 percent from the same period last year. It will likely mark the first annual revenue decline since gambling began in the city.
MGM Mirage plans to build on approximately 60 acres of the site, setting 12 aside for future development, which may include a residential condominium tower. The Borgata is adding a second hotel tower called The Water Club, which is expected to open before next summer after a recent fire set it back.
MGM Mirage also owns a 14-acre plot across the street beside the Trump Marina. Rosevear said other plans include linking the sites with a monorail “like we do with our properties here” in Las Vegas.
MGM shares dipped $1, or 1 percent, to close at $98.75, but the drop follows a rise from $84 since the beginning of September.
Analysts were bullish on the news.
“As in the past, quality products will help drive the Atlantic City market,” said Jefferies & Co. analyst Lawrence Klatzkin in a research note. “Worries about negative Pennsylvania effects are overblown given the lack of table games there.”
Susquehanna Financial Group analyst Robert LaFleur said the market is shifting its focus from day-trippers to become more of a Las Vegas overnight destination.
Several analysts speculated MGM Mirage might take on a joint venture partner such as Dubai World, which recently announced it would take a 4.9 percent stake in the company and invest billions in MGM Mirage projects on the Las Vegas Strip.
Rosevear dismissed the idea as speculative but added, “Anything can happen in the life of a company.”