New York casino bidder could take on massive debt if he wins
Operators vying for New York City casino licenses could take on significant debt to pursue these projects if selected by the state.
That's according to data from S&P Global Ratings, which said in a new report that gaming companies that have secured New York state's next three casino licenses are likely to increase their leverage. At the same time, their efforts to improve corporate credit metrics are likely to slow.
Project sizes range from the low end of $2 billion for expansion or renovation of existing properties to more than $5 billion for new development. However, the leverage effect will not materialize for 12 to 18 months,” the research firm said.
The expansion and renovations will apply to MGM Resorts International's (NYSE: MGM) Empire City Casino in Yonkers and Resorts World New York in Queens. It is widely believed that these slot machine-only venues will have two of the three in-state licenses. But for now, this is just speculation.
New York casinos are expensive
New York City is one of the last undeveloped gambling venues in the United States. Local policymakers know this and are likely to use this position to get as much money as possible from operators for the cash-strapped country.
There have been recent rumors that New York could attract winning bidders for casino licenses with royalties of up to $1 billion per license, well above the previously expected $500 million license cost.
The $1 billion license fee does not include the operator's construction costs, which means Las Vegas Sands plans to build a casino-hotel in Nassau County, as well as Hard Rock International International plans to build an A site near Citi Field in Queens at a cost of approximately $1,000,000. The cost is as high as $6 billion or $8 billion.
"We believe New York is unlikely to issue licenses before the second half of 2024 and do not expect successful bidders to make significant investments before 2025," S&P added. "Given the complexity and expected large scale of construction in New York Projects, these developments can take several years to complete.”
Given the current progress of the New York casino bidding process, there appears to be optimism that the winning bidder will be announced later this year.
For operators, uplink/downlink
New York may be a short-term problem, but a long-term gain for operators who are victorious in their quest to obtain three intrastate licenses.
Competitors such as Las Vegas Sands (NYSE: LVS ), MGM and Wynn Resorts (NASDAQ: WYNN ) are currently deploying capital for improvements and new developments elsewhere in the world, And Caesars Entertainment is actively reducing debt.
Add to that billions of dollars in bills in New York, and winners there could face rising debt ratios and already fragile credit ratings. However, the effort may be worth it in the long run, as some industry experts believe that once New York City's three casino hotels mature, their revenue could be on par or higher than that of the entire Las Vegas Strip.
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Source: www.casino.org
