Bernstein: MGM play on Entain could be sign of reduced Asian interest

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The new year is going to bring a lot of changes in the gaming industry and one of the most-watched could be the potential purchase of Entain by MGM Resorts International. The casino operator has confirmed its interest in buying its sports gambling partner, but reaching an equitable resolution won’t be an easy feat. More than just a ploy to control all of its US-based operations, the move could be an indication of something bigger coming. According to analysts with Sanford C. Bernstein, it could be a sign that MGM is planning on greatly reducing its interest in Asia. 

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MGM offered to purchase Entain for around $10 billion, but that initial offer was rejected. It’s back to the boardroom for the operator so it can crunch numbers and wheel and deal to find more money, and the needed funds could possibly be collected by reduced operations in Asia. That’s the position of Bernstein’s Vitaly Umansky, Kelsey Zhu and Tianjiao Yu, who said in an update yesterday that if the Entain deal “were to be consummated, we would expect MGM to eventually bow out (or take a much smaller role) of a Japan integrated resort development, which has been plagued by delays (partly due to [COVID-19]) and by concerns around cost.”

MGM has continued to show interest in getting involved in Japan’s nascent gambling industry, when it’s finally launched, but has recently seemed less enthusiastic about the idea. CEO Bill Hornbuckle, who has been officially running the show since last summer, said late last year that trying to get involved might not be such a good idea, given the investment and the ramp-up time needed to start seeing a return. The company, as part of a consortium of entities, had been selected by Osaka as the city’s casino partner, but that might no longer be a definite possibility.

In Macau, where MGM controls MGM China, 2020 was a bad year and 2021 isn’t going to bring a massive turnaround, even if a recovery is already underway. Umansky and the other Bernstein analysts added, “While we do not see a transaction with Entain impacting MGM Resorts’ commitment to MGM China in the near term, if MGM [Resorts] chooses to focus on the digital opportunity (which we do not see forthcoming in Macau/China in the foreseeable future), MGM China may eventually be divested.”

MGM’s properties lost massive amounts of money last year because of COVID-19, but sports gambling helped it, to a certain degree, keep things moving forward. The global pandemic also proved that, while physical casinos can suffer long-term shutdowns, the online gambling segment can stay afloat. Both online sports and online casino gambling were lifesavers to states that allow the activities, and MGM might be ready to embrace the future of gambling entertainment. Bernstein’s analysts added that the purchase of Entain by MGM would be “transformative” and could be a precursor to MGM’s move “into digital betting, reducing its reliance on Las Vegas.” They asserted, “The combination would create a true digital and retail betting giant.”