Fitch Maintains MGM Resorts Credit Rating at Junk Status, Reflecting Volatility in the Casino Industry

MGM Resorts International (NYSE: MGM) continues to hold a prominent position within the global casino industry, though its financial standing has recently drawn scrutiny. The company, a powerhouse in the gaming sector, has had its credit rating confirmed at “BB-” by Fitch Ratings, placing it three notches into non-investment-grade territory and signaling shifting dynamics for one of the biggest players in the casino industry.

The esteemed research firm has assigned a “stable” outlook to MGM’s credit profile, which is seen as a reflection of the company’s strong competitive presence in Las Vegas, where it stands as the largest operator on the Las Vegas Strip. According to Fitch, the Cosmopolitan operator is trading at five times earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR), which is consistent with this ratings level. However, there are several factors that act as offsets against this rating.

Factors Influencing the Credit Rating

• Active development plans
• Earnings volatility due to high-stakes play in Las Vegas and Macau
• Increasing cost pressures
• Lack of ownership over some properties affecting financial stability

Despite these challenges, Fitch indicates that the stable outlook represents MGM’s potential to maintain steady leverage and retain sufficient liquidity for future growth opportunities. Projects like MGM Osaka and the potential transformation of the Empire City Casino in New York into a full-fledged gaming venue are on the horizon.

MGM’s Financial Position

As of the end of 2024, MGM reported cash and cash equivalents totaling $2.41 billion, veering closer to its goal of maintaining liquidity of at least $3 billion. This financial cushion allows the gaming giant to pursue shareholder initiatives such as stock buybacks. In the last year alone, MGM repurchased $1.4 billion of its own shares, marking a substantial reduction of its outstanding shares by 40% since 2021.

Fitch has also commended MGM for its robust asset portfolio in the U.S., where the company is not just a dominant force on the Strip but also manages some of the most profitable regional casinos.

Diversification Strategies

According to Fitch, MGM benefits from a well-diversified geographic portfolio that includes not only its premier Las Vegas Strip properties but also a variety of highly successful regional gaming establishments and assets in Macau. Although Las Vegas Strip properties may experience cyclical downturns, the strength of the regional portfolio helps to balance these fluctuations.

The Future of BetMGM

Looking ahead, BetMGM is positioned to be a key player in MGM’s diversification strategy, especially in the realms of iGaming and online sports betting. However, Fitch notes that BetMGM is currently not a significant contributor to MGM’s overall revenue.

• Expectations for BetMGM’s EBITDA contribution to remain low in 2025 due to reinvestment strategies
• Continuous investment in customer acquisition and product enhancement

Speculation surrounding BetMGM often includes discussions of MGM pursuing a complete takeover of its partner, Entain (OTC: GMVHY), which could provide the casino company with full control of BetMGM and its future profitability.

Conclusion

MGM Resorts International has been rated “BB-” by Fitch, confirming its status in the non-investment-grade bracket but with a stable outlook due to various favorable factors including a strong asset mix and substantial liquidity. However, challenges such as development plans, earnings volatility, and property ownership remain pertinent considerations. The casino operator’s future growth will also hinge on emerging prospects like BetMGM as it seeks to expand its influence within the gaming industry.