MGM MIRAGE entering U.K.’s casino market

By Liz Benston

Tuesday, May 27, 2003 | 11:22 a.m.

MGM MIRAGE said today it acquired a stake in a British casino developer and expects to develop casinos in Bristol, England, in anticipation of that country's move to liberalize its gambling industry.

The deal marks the first formal announcement by a Las Vegas casino company to build casinos in Britain. Executives at MGM MIRAGE as well as Park Place Entertainment Corp. and Mandalay Resort Group have touted the country as one of the next big markets for gambling expansion, especially in light of prospects in many states nationwide to increase casino taxes and with limited expansion opportunities in the United States.

The company aims to buy a 25 percent interest in Metro Casinos Ltd., which is developing a casino in Bristol that is expected to be open by the end of the year. Metro Casinos is a subsidiary of RJ Brown Holdings Ltd., which owns the Westcliff Casino in Essex, located on the east coast of England near London. Bristol is more than an hour from London on England's west coast.

Terms of the deal weren't disclosed.

The companies expect to work together to develop other casinos in Bristol as well as a possible expansion of the Westcliff Casino. MGM MIRAGE's involvement in the Bristol casino will require approval by U.K. gaming regulators.

MGM MIRAGE also has established a U.K. marketing office and has hired Lloyd Nathan as a European managing director for MGM MIRAGE Development.

The company intends to play a "significant role" in the region's casino development in the years to come, Chief Executive Officer Terry Lanni said in a statement today.

"The deregulation proposals under consideration have the potential to make the U.K. one of the most exciting gaming markets in the world," Lanni said.

The company expects the English Parliament to implement reforms as early as next year.

A government-commissioned report in 2001 -- the country's first wide-ranging review of gambling in more than 30 years -- called for a loosening-up of gambling restrictions to help stimulate market growth and competition.

The review, entitled "The Budd Report" after former Treasury adviser Sir Alan Budd, also called for gambling operators to implement controls to prevent betting by youth and gambling addicts.

Proposed changes could include allowing casinos to increase the number of slot machines with high jackpots as well as offering sports betting, keno and bingo games. New rules also could allow casinos to advertise and end a requirement that new players sign up to join a casino 24 hours before gambling.

The country offers dozens of smaller casinos with mostly table games. The clubs require players to join 24 hours before gambling. They can only offer a handful of slot machines with lower jackpots than are typically offered in U.S. casinos. They also are barred from serving alcohol and offering entertainment on the casino floor.

Casino industry analyst Joe Greff of Fulcrum Global Partners said the deal marked a "positive option" for the company.

"Although gaming regulation is still very strict in the U.K., we believe that (MGM MIRAGE) is making a smart strategic move by establishing an early position in the U.K. gaming market when (and) if gaming laws are liberalized," Greff wrote in a research note to investors today.

Britain's gambling regulatory body, the Department for Culture, Media and Sport, has estimated that gambling revenue could grow by 2.5 billion pounds over five years.

The investment bank WestLB Panmure in Britain confirmed that number in a report published in April. According to the report, the average amount spent by gamblers after reforms could increase by 35.3 percent, to about 5 pounds and 25 pence per person. Gamblers now represent about 10 percent of the population but could rise to 12 percent, the report said.

Some indications of the potential gambling market have been overblown because they use growth patterns in the United States that don't reflect significant cultural differences between U.S. and U.K. bettors, said Sebastian Sinclair, an analyst with Christiansen Capital Advisors in New York.

Gambling in Britain is dominated by sports betting activity, as opposed to slot machine betting and other casino gambling activities dominating the U.S. scene, he said.

"Cultural differences will lead to a much lower spending basis for casino gaming than you would find here," he said.

Visions of large destination resorts sprouting around London, creating a mini Las Vegas far from the nation's gambling capital, are more hype than reality, he added.

"In my view, you're not going to achieve that in London," he said. "It's a tourist destination that is separate and unique from gambling, whereas Las Vegas is tied inextricably with gambling. People go to Las Vegas to gamble."

Still, he said, the country represents a new development opportunity that will likely be tapped by other Las Vegas casino giants in the future.

Reform is gaining momentum in the United Kingdom, with many observers predicting some announcement to be included in the Queen's speech in November and approved in Parliament next year, Greff said.

"However, we recognize that gaming legislation is typically a controversial issue and realize that any sort of modification in gaming laws could be extremely contentious."

There are already some indications that political infighting may slow or complicate the process.

The Department for Culture, Media and Sport is working on drafting a bill to introduce in Parliament but was unable to confirm that the proposals would ready to be included in the Queen's speech this year, according to a recent report by U.K.-based Internet gambling site ATEOnline. ATE previously reported rumors that large sections of the proposed bill may be temporarily dropped over concerns by small casinos and sports betting operations that the reforms could benefit larger casinos.

According to the WestLB Panmure report, the winners under the proposed rules will likely be high-volume casinos. High-roller clubs could benefit at the risk of short-term volatility and mid-roller casinos' earnings are threatened by economic uncertainty. Wider casino reform is viewed as more of a threat than an opportunity for sports betting offices, particularly low-rent operations, the report said.

RJ Brown isn't among the largest of the United Kingdom's casino and betting outlet operators. The privately owned holding company is involved in casinos, holiday villages, property development and other activities. Its Westcliff Casino is considered one of the largest outside London.

MGM MIRAGE stock traded up 70 cents this morning. The company said on Friday after the stock markets closed that it agreed to pay a state-record $5 million fine for currency transaction reporting violations at its Mirage resort on the Las Vegas Strip.