MGM Resorts Considers New Fees at Its Properties in 2025, Analyst Writes

Deutsche Bank’s Analysis

Deutsche Bank, in a note to investors, looked beyond the challenged first quarter of 2025, which is hindered by the “optically reasonable” comparison to last year’s Super Bowl in Las Vegas. Deutsche Bank analyst Carlo Santarelli sees a few elements that will drive investor confidence.

Resort Fees and Parking Fees

• MGM increased resort fees at all of its Strip properties by between $3 and $8 in early December. Deutsche Bank estimates on a room-weighted basis that resort fees are up 13% year-over-year for 2025 or about $6. The incremental resort fee adds 2% to average daily room rates and revenue per room for 2025 relative to 2024, Santarelli said. The fee should add $70 million of high-flow-through incremental net revenue this year, equating to about 80 basis points of year-over-year growth and 2% EBITDAR growth, Santarelli said.
• In addition to the resort fee, MGM raised parking fees by a low-double-digit year-over-year percentage.

New Revenue-Generation Strategies

Santarelli believes MGM is also contemplating new revenue-generation strategies. These ideas, while unlikely to drive material top-line growth, would likely be high flow-through revenue channels with low start-up investment costs. One of these potential paths would be tiered seating in restaurants, where customers pay a fee for a specific seating area or table in a restaurant, much like an airline seating up-charge.

“While the revenue opportunity with ideas like this are unlikely to be overly material from a revenue perspective, we do believe creative, and more importantly, high-margin flow-through concepts of this sort could be additive to EBITDA and are currently under the radar,” Santarelli said.

BetMGM and MGM’s 2025 Narrative

Rather than the brick-and-mortar top casino online real money business, Deutsche believes BetMGM will drive MGM Resorts International shares in 2025.

• The firm has placed a $48 price target on the shares that have been trading in the low $30s to end 2024.
• “With the broader brick-and-mortar business unlikely to create a growth tailwind for MGM from a valuation perspective, we see the largely nascent 2024 BetMGM vertical as a key element of the 2025 narrative around MGM,” said Santarelli.
• “For starters, after an investment year in 2024 where the BetMGM story was pushed to the periphery of the MGM narrative, we expect MGM to materially improve disclosure around BetMGM in 2025.”

Transparency and Consolidation Efforts

Santarelli said they don’t anticipate reporting quarters will mirror calendar quarters, which has also created some confusion, but they believe MGM will provide reporting metrics that will allow investors to better compare the business to peers and monitor its health. In addition to the improved disclosure, which he said will be positive for valuation, MGM could make efforts to consolidate the BetMGM business.

“This could include anything from buying a stake of the joint venture and allowing MGM to consolidate results – something we saw work favorable for the stock in 2011 when it acquired an incremental 1% interest in MGM China (50% to 51% at the time) to something broader,” Santarelli said. “We believe unlocking the value of the business, a challenge for other brick-and-mortar peers as well, will be aided by the aforementioned disclosure and potential consolidation efforts with a presumed pivot from material losses of 2024 in 2025.”

EBITDA and Revenue Growth

Santarelli believes the scope of the business from a revenue perspective is healthy enough to garner a reasonable valuation, once investors gain comfort with the pivot away from investment and see the path to positive EBITDA.

• On the third-quarter earnings call, management noted an initiative that sought to eliminate about $200 million of costs across the Strip and regional markets. In an environment where net-revenue growth on the Strip could be challenged, cost elimination will be important to maintaining margin levels in the mid-30s as management has said.
• “We believe MGM Strip net revenue growth of 3% is required to maintain flat property-level Strip EBITDAR.”

MGM China Performance

Throughout 2023 and into 2024, MGM China broadly outperformed peers from a gaming-revenue market-share and EBITDA-growth perspective, Santarelli said. These trends have slowed in the second half of 2024, with revenue share rationalizing and EBITDA growth broadly mirroring the market rate of EBITDA growth.

Looking ahead to 2025, Deutsche Bank expects market share to continue to consolidate, with margins likely continuing to feel pressure from incremental operating expenses related to amenity additions.

“Given what we expect will be a challenged fourth-quarter margin result, we believe 2025 property margins are likely to come into focus in conjunction with the fourth-quarter earnings result,” Santarelli said. “As such, we believe MGM China’s ability to offset these expense headwinds, while combating gaming revenue market share loss, will shape the sentiment around the entity for the year. We note that both our forecast and consensus matrix project year-over-year EBITDA contraction in 2025.”

Share Repurchases and Capital Investments

MGM has remained aggressive with share repurchases throughout 2024 by taking advantage of favorable buyback conditions, given the implied core valuation, Santarelli said. He added they expect the buyback to remain a staple of the story through 2025, despite the market giving little to no credit for it.

• Beyond the traditional maintenance spend of $600 million, which will include renovations at MGM Grand Las Vegas, the pipeline-related spending is likely to escalate in 2025 relative to 2023 and 2024.
• In 2025, Santarelli expects capital allocated toward the Japan initiative is likely to rise modestly, while spending around New York remains subject to the timing of the license awards. Should MGM receive a full casino license at Empire Resorts, it would be subject to a $500 million license fee, in addition to plans to upgrade the facility.

Sum-of-the-Parts Valuation

“We expect the capital-return agenda to remain consistent in 2025 relative to 2024, with the caveat being mergers and acquisition activity or strategic action around the BetMGM business,” Santarelli said.

Deutsche Bank’s $48 price target is based on a sum-of-the-parts approach, Santarelli noted. They value MGM’s domestic OpCo asset base, its domestic managed operations, and the royalty fees associated with MGM Macau at a blended multiple of 6.4x Deutsche Bank’s 2025 adjusted EBITDAR estimate.

“We then make value adjustments for MGM’s 50% stake in BetMGM and the $370 million stake in VICI before extracting net debt, including the capitalized lease debt,” Santarelli said. “We estimate the domestic portfolio is worth $34 per share. On a SOTP basis, we derive a blended multiple of 9.9x our 2025 adjusted EBITDA estimate for MGM Macau, of which 56% is attributable to MGM. We extract net debt and arrive at an equity value of $25 per share with MGM’s 56% stake worth $14 per share. Our multiples are based on peer trading levels and asset transactions in the respective markets.”