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Analysts: Operators to Build on Las Vegas

23 Oct 2003

By Jeff Simpson

LAS VEGAS -- Wall Street analysts Tuesday predicted Nevada's biggest casino operator will choose to build its next billion-dollar-plus megaresort on the Strip and not in Atlantic City.

MGM Mirage executives said during a Tuesday conference call with investors and industry analysts on the company's third-quarter results that they had yet to decide where to build their next project.

The company's 55-acre Atlantic City site, called "55 East" by MGM Mirage executives, is next to the Borgata the company jointly owns with property operator Boyd Gaming Corp. Its Strip site, a 55-acre-plus parcel now occupied by the company's Boardwalk, is known inside the company as "55 West."

MGM Mirage Chairman Terry Lanni said the company needs more time to analyze the effect Borgata is having on Atlantic City before deciding on which site to build next, noting that it's safe to presume it won't simultaneously build both.

"Both are prime locations and great opportunities and we continue to evaluate," Lanni said during the conference call.

Although Lanni didn't say whether one of the two potential sites is likelier than the other, Wall Street casino industry analysts believe Las Vegas is the likeliest spot.

The reason, they said, has more to do with Atlantic City's negatives than Las Vegas' positives.

"Historically Atlantic City has had a much more difficult time absorbing (new resort) supply," Deutsche Banc casino debt analyst Andrew Zarnett said. "Las Vegas has been better able to absorb new supply."

The 1998-1999 wave of megaresort openings, which included Bellagio, Mandalay Bay, The Venetian and Paris Las Vegas, exemplified Las Vegas' ability to absorb new properties, and the reason the Strip is a favorite to land MGM Mirage's next project, Zarnett said.

"I'd say it's 2-to-1 in favor of Las Vegas," he said.

Bear, Stearns & Co. casino debt analyst John Mulkey noted the threats Atlantic City faces.

"States all around Atlantic City are considering slots at racetracks," Mulkey said. "Pennsylvania and Maryland are likely, and potentially New York racetracks with (video lottery terminals) could open, and even New Jersey potentially could allow slots at tracks."

Mulkey said there are several wild cards that could affect MGM Mirage's decision.

"If I had to lean, I would say Las Vegas is where they'd choose to build next," Mulkey said. "At the end of the day it's been shown that the new kid on the block in Las Vegas can build a profitable casino -- Aladdin excepted."

Wynn Las Vegas' scheduled April 2005 opening could be a springboard for another wave of Strip growth, he added.

A third Wall Street analyst, who spoke on condition of anonymity, was blunter about Atlantic City's competitive disadvantage.

"No one in their right mind would invest a billion dollars in the Atlantic City market right now," the source said. "Borgata didn't expand the market, slots are a definite in Pennsylvania and are probable in Maryland, and who knows about New York."

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