MGM Resorts International

NYSE:MGM

Earnings Call Transcript 2020-Q4

[Operator]

Good afternoon and welcome to the MGM Resorts International Fourth Quarter and Full Year 2020 Earnings Conference Call. Joining the call from the company today are Bill Hornbuckle, Chief Executive Officer and President; Corey Sanders, Chief Operating Officer; Jonathan Halkyard, Chief Financial Officer; Adam Greenblatt, Chief Executive Officer, BetMGM; Hubert Wang, President and COO of MGM China; and Jim Freeman, SVP of Capital Markets & Strategy.

Participants are in a listen-only mode. After the company’s remarks, there will be a question-and-answer session. In fairness to all participants, please limit yourself to one question and one follow-up. Please note this conference is being recorded.

Now, I would like to turn the call over to Jim Freeman. Please go ahead.

[James Freeman]

This call is being broadcast live on the Internet at investors.mgmresorts.com, and we have furnished our press release on Form 8-K to the SEC.

On this call, we will make forward-looking statements under the Safe Harbor provisions of the federal securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that could cause actual results to differ from these forward-looking statements is contained in today’s press release in our periodic filings with the SEC.

Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise.

During the call, we will also discuss non-GAAP financial measures in talking about our performance. You can find the reconciliation to GAAP financial statements in our press release and our investor presentation, which are available on our website. Finally, this presentation is being recorded.

And I’ll now turn it over to Bill Hornbuckle.

[William Hornbuckle, Chief Executive Officer and President]

Thank you, Jim, and thank you all for joining us today. I hope you and your families continue to be safe and well. Before we get to the details of our performance in the fourth quarter, I want to take a moment and thank the thousands of MGM Resorts colleagues around the world, who have helped, worked so hard over the past several months.

I along with the other members of the senior management team am eternally grateful for the resilience and commitment that our employees have shown throughout this crisis.

I continue to be amazed by what we have accomplished together. We have adopted seamlessly to rapidly changing environment, always putting the safety and enjoyment of our guests and our employees first and foremost. More than anything else that gives me confidence in our company’s future success.

I’d also like to welcome the newest member of our executive team, our CFO, Jonathan Halkyard. Many of you know Jonathan from his tenure as CFO of Caesars, and most recently, as a Chief Executive Officer of Extended Stay America.

Over the past 20 years, Jonathan has built a well-earned reputation for integrity, developing people, driving strategy and delivering results for shareholders. I’m excited to have him here at MGM and even though it’s only been a short time, I can assure you he’s already having an impact. Welcome Jonathan.

At MGM, our long-term vision is clear and differentiated. Our goal is simple, to be the premier omnichannel gaming hospitality and entertainment company in the world. We will achieve this vision by investing in the development of our people, providing fun and inspiring entertainment experiences for our guests, delivering operational excellence at every level, and allocating our capital, drive the highest returns for our shareholders.

During the quarter we made progress on each of these fronts. As the pandemic unfolded over the past year, we had to take the unfortunate steps of furloughing many of our employees to match business levels. As the business begins to recover and operating restrictions abate, we expect to continue re-mobilizing our fantastic teams, re-hiring and retraining them in order to serve our guests.

Over the course of this year, we will do the same with our industry-leading entertainers across all of our properties. Our BetMGM sports betting and iGaming venture is growing at a historic rate, enabled by what I believe is digital gaming’s most talented management and technology development teams.

I believe our people are truly the best in this new industry. Operational Excellence is a mantra here. Beginning in late 2019, we refined our operating model, increasing spans of control and simplifying organizational layers to accelerate decision making, bringing us all closer to our guests and to reducing costs.

These moves are already paying off. Our program of $450 million in domestic cost savings helps drive margin improvement, especially at our regional properties in the fourth quarter. And we should achieve the full target when business demands return to our 2019 levels. And finally, we’re focused on being disciplined allocators of capital, always driven by the goal of creating value for our shareholders.

In the first and second quarter of 2020, in the early days of the pandemic, it was critical to create and sustain liquidity cushion for the company. With the top-line still under pressure and the travel climate a bit uncertain, our fortified balance sheet is essential to protect equity value, while enabling MGM to be aggressive when identifying opportunities to invest for growth.

And invest for growth, we have, even as we’ve been managing through the crisis before us, we have kept an unwavering focus on the future, and particularly on several attractive ROI growth opportunities that align to our long-term vision.

Along with our partners Entain, we’ve invested in BetMGM, and we have seen it emerge as a leader in the U.S. sports betting and iGaming business. We’ve launched an extensive roomy model program here at Bellagio, slated to be done this summer. And we’re taking steps to expand the company’s digital capacities and strengthen our omnichannel strategy globally.

And we have been laying the groundwork for growing our presence in Asia, to the Japan IR opportunity and additional investments in Macau.

With that, let’s focus on, obviously, the fourth quarter’s results. Our consolidated fourth quarter 2020 revenues were $1.5 billion, incrementally better than our third quarter by $1.1 billion. Our fourth quarter adjusted EBITDAR has improved sequentially to a positive $97 million this quarter.

Our full year 2020 revenues were $5.2 billion, about 40% of 2019 levels. And our full year 2020 adjusted EBITDAR loss was approximately $148 million. The operating dynamics in Las Vegas and our regional properties were however quite different in the fourth quarter.

Let’s start with Las Vegas. Our fourth quarter Las Vegas Strip revenues were $480 million, about flat from the third quarter. However, our Strip’s property EBITDAR was $54 million, up from $15 in the third quarter, driven almost entirely by October and the first half of November.

The fourth quarter started relatively strong here in Las Vegas, with hotel occupancies of about 46% during October. And in fact, October was our strongest month since the beginning of the pandemic. But public health concerns dampened visitation over the course of the quarter. And this is obviously continued at least till now through February.

Our fourth quarter hotel occupancy finished at 38% with weekends running at 52% and midweek at 31%. Our M life loyalty members continue to drive visitation, with our casino segment contributing to total room nights improving by about 13 points over last year. And our casino customers and new M life member signups also continued to skew towards higher worth and younger customers during this quarter.

It’s our belief these headwinds will continue into the near term. With current Nevada gathering guidelines in effect and public health sentiment where it is, we expect midweek business will be challenged throughout the first quarter. In this demand environment, we have remained flexible to minimize our cash usage, and ultimately, maximize our portfolio-wide profitability. In the fourth quarter, we closed our hotel towers at Mandalay Bay and Park MGM during the mid-week, and in early January, we also announced the full closure of Mirage during the mid-week. We remain diligent and closely aligning labor needs to demand.

The good news is the approved vaccines appear highly effective for vulnerable populations, and we’re monitoring the rollout closely. As the burden of our healthcare system is gathering, travel restrictions are being lifted. Assuming that most of the population is willing to resume normal activity, which we certainly saw glimpses of last summer, then we believe the demand for travel and visitation Las Vegas could be robust later in the year, in fact, our gross bookings in January was the strongest since the start of the pandemic, and guests are increasingly booking 90-plus days out.

I’m also looking forward to the coming pool season with much optimism. While the return of the larger groups will ultimately depend on the easing of gathering guidelines and other factors, we remain bullish on the long-term demand. We still have significant rooms on the books in the third quarter and have more on the fourth quarter than we had at this time last year. Both 2022 and 2023 are approximately one on pace compared with prior years and it’s interesting, the LVCVA recently conducted a survey, which indicated that 91% of those surveys missed the face-to-face nature of meetings and the majority were also just simply burnt out from virtual meetings.

The survey also indicated that business travelers believe Las Vegas is more prepared than other leading business destinations to safely host in-person events. Data points like these tell me that the fundamental drivers of Las Vegas as a tourism and meeting destination remain firmly intact. We remain bullish and its proven ability to drive demand and believe the markets returned to pre-pandemic levels overtime.

Now, let’s move on to our regional performance. Our regional operations performed exceptionally well in the fourth quarter, despite being subject to a series of operating restrictions. Our fourth quarter regional operations revenues were $595 million, up 7% sequentially versus a third quarter and Adjusted Property EBITDAR was up 9% sequentially from the third quarter to $159 million. As in Las Vegas, we were highly encouraged that our performance was led by a higher level of casino spend by younger demographic.

Gaming volumes were approximately 70% of last year’s fourth quarter. But our regional properties on delivered 129 basis points year-over-year EBITDA margin growth to 27%. We achieve this despite the statewide restrictions including the full closure of Detroit per month, as well as the week long exposure and extended hurricane repairs at Beau Rivage. Adjusting for these headwinds and other state-by-state restrictions, we expect our margins for the quarter would have been up 580 basis points year-over-year. These continued cost improvements predominantly in labor and marketing efficiency are largely sustainable. I expect continued strong regional margins as revenues returned towards our 2019 levels.

Finally, I know we are all encouraged by the state’s lifting operating mandates over the past couple of weeks. No doubt this will enable our properties to serve greater numbers of guests and expect these guests will lead the recovery in our system.

Now, I’d like to spend a few minutes on BetMGM. Sports betting and iGaming market is one of the largest and most exciting growth opportunities in the USA today. And BetMGM is emerging as a long-term leader. BetMGM began 2020 in just 3 markets, and it has ended the year with 10. It is now currently live in 12 states and we expect to be in 20 states by the end of 2021 with access to approximately 40% of the U.S. adult population.

As each state rolls out, BetMGM is securing a leading market share position in the fourth quarter, BetMGM’s market share was 17% and its retail and online markets, and 19% if you exclude Pennsylvania, which were only open for a part of December. This is a testament to BetMGM’s successful execution and strong management teams as it continues to enter new states on a day one in game share and its existing markets.

Consider the ventures entry into Michigan, just a couple of weeks ago. We had a fully operational iGaming and online sports betting offering on day 1, and pre-launch registration efforts to build momentum into go-live day. Between December and January, BetMGM registered 138,000 new customers in the first 10 days of launch BetMGM generated $13 million in GGR. That’s especially impressive is that our iGaming GGR per day in January was higher than in New Jersey were BetMGM is the number 1 operator.

Michigan is a market where we knew we had the right format to win. We have an MGM branded retail presence with a loyal customer base, the ability to go-live on day one with both iGaming and sports betting a compelling product and an attractive target demographic. While it’s still very early, we’re extremely pleased with these results thus far.

Our leadership positions have proven sustainable, BetMGM was the number 1 iGaming operator in the U.S. in the fourth quarter, and we expect to continue growing our market share. On the sports wagering side, BetMGM delivered impressive online sports betting results in 2 of its newest markets, Colorado and Tennessee. In the fourth quarter, BetMGM had market shares of 31% and 34%, respectively. These share gains led to $178 million of net gaming revenues associated with BetMGM in 2020 well above its target of $150 million. And in fact in the fourth quarter BetMGM’s net revenues doubled the previous quarter.

The convergence between BetMGM and Mlife has been monumental. In the fourth quarter, 17% of BetMGM’s signups have come from MGM and 39% of the new Mlife signups have come from BetMGM. BetMGM’s key competitive advantage is its ability to lever MGM’s destinations, our broad based experiential offerings, and our Mlife loyalty program as efficient and effective customer acquisition tools. Once engaged, we know that omni-channel customers have vastly greater value to our company than single channel customers. And again, while we’re still in the early days in Michigan, we are already proven this out. We are currently seeing customer acquisition costs below the $200 range.

In 2021, we and our partners Entain expect new revenue associate with BetMGM to grow well over 100%. In fact, preliminary estimates of January’s net gaming revenues associated with BetMGM operations was $44 million. On Super Bowl Sunday, the number of online bets placed, BetMGM was 11 times last year’s online bets, and the online handle was 17 times last year’s handle. That’s why we remain aligned on investing aggressively to fund the growth of this business. And we expect to continue doing so this year in pursuit of this market opportunity.

Let me conclude now with our performance in Macau. This market continued to steadily improve sequentially with fourth quarter market-wide GGR declining 70% year-over-year, compared with 93% year-over-year decline in the third quarter. MGM China’s fourth quarter revenues were $305 million, up sequentially from the third quarters $47 million and Adjusted Property EBITDAR was also up sequentially from a $96 million loss in the third quarter to $41 million in the fourth quarter. This included a $23 million bonus accrual reversal during the quarter.

We’re pleased to finally see that MGM China’s back in the black driven by strong market share gains, as well as continued cost mitigation efforts. Better yet, we think the evolving market structure of Macau’s gaming squarely meets our strengths in the market. MGM China has always been geared to the premium mass segment between our branch office infrastructure, our product design, and our marketing capabilities.

We’ve always had an advantage in the segment and our growing market share is evidence of this evolution. There is no question that we recently reemerged – with recently reemerged COVID cases and government warning of limited travel during the Chinese New Year holiday seasons have impacted demand in the near-term. But we expect the broader rate of recovery will continue to be gradual and driven by the premier mass market.

I like our opportunities for creative investment in Macau. Currently, construction of additional suites in the south tower of MGM Cotai is underway and will be ready in mid-2021. We’ve also begun remodeling our MGM Macau villas in the gaming space on level 35. And that both properties we’re adding F&B options focused on the gaming floors.

And in longer terms, we’ve also had the ability to build another hotel tower at MGM Cotai, along with meaningful entertainment assets to diversify our offerings. For the past 13 years, MGM China has been committed to supporting Macau as a world tourism destination. We again look forward to working with the government to the licensing renewal process in hopes to further our support for many more years to come.

Switching on to our liquidity, it remains extremely strong and is served as a strong foundation from which to navigate the crisis with an eye towards our longer-term goals.

As of December 31, MGM had $8.8 billion of consolidated liquidity, which included $2 billion at the MGP Operating Partnerships, and $1.2 billion at the MGM China, leaving our domestic operations liquidity at over $5.6 billion. Before I turn this over to Q&A, I’d like to close just with a few final thoughts.

We remain diligent in navigating near-term operating environment, aggressively managing our operating model and our cost structure. I am optimistic about the long-term recovery of all of our markets and believe that MGM is well-positioned to gain share. I’m also excited by BetMGM’s position in the rapidly growing U.S. sports and iGaming betting market. And we are confident, despite near-term headwinds our balance sheet delivers a strong foundation upon which to build the future of our company.

With that, I’ll be happy to open this up to any of your questions. Thank you.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will be from Joe Greff with J.P. Morgan. Please go ahead.

[Joseph Greff, J.P. Morgan]

Good afternoon, everybody.

[William Hornbuckle, Chief Executive Officer and President]

Hi, Joe.

[Joseph Greff, J.P. Morgan]

Thank you for taking my question. Bill, either based on conversations with Nevada health officials or Governor Sisolak’s office, when would you anticipate a rollback in the more recent capacity restrictions in Nevada? And does March seem likely seasonality, ideally would make sense? And how do you then think about some of the midweek room closures and reopening some of that hotel capacity?

[William Hornbuckle, Chief Executive Officer and President]

Look, obviously, we’re in constant dialogue with the Governor’s Office and the health officials. We are hopeful that there’ll be a March rollback, probably till October levels would be ideal. There are no promises. The governor has slated a call for later this week.

I would suspect we’ll see something targeted towards March or I think March may hopefully begin to feel like October, if we’re lucky. And by the way, this is my presumption, not my knowledge. And then, I’m hoping by end of spring, as we go into June, we’ll see yet another significant rollback. As we get ready for events, there are several large conference conventions that want to come, both City Wide and here at the property.

And then, as you know, March Madness and followed by really spring break, pool season around here is substantive and meaningful. And so, I think we’ll see occupancies hopefully go back to October and then beyond. I know Corey is planning on – maybe you can speak to Corey quickly, some openings here and sometime in March.

[Corey Sanders, Chief Operating Officer]

Yeah, Joe, our focus on openings will be if we could burn less cash being opened. And what we’re seeing on our booking page is that that will definitely occur at the beginning of March. So we would expect to open those 3 properties 7 days a week, beginning in March.

[Joseph Greff, J.P. Morgan]

Got it. And when you look at sort of the net group convention booking activity, what’s sort of the period or month where you see, call it, a slippage from the canceling every booking at a future date fees, is that September or is that October?

And then, when you look at 2022 bookings, I know you were generally pretty positive on that. If you look at the number of conventions versus the number of anticipated attendees associated with the convention, is there much of a difference there? So do at some point we have to be concerned with attendees, not just sort of whether or not the event will take place when we think about next year?

[Corey Sanders, Chief Operating Officer]

Yeah, Joe, this is Corey. I do think especially the ones that will come this year, and we have some association groups, some pretty big sized ones scheduled even beginning in June. We do expect the attendees to be a little bit less initially, but I think as vaccines roll out and as people feel more comfortable traveling, the amount of people coming, may not approach what it was at peak, but we hope to see that return in the beginning of 2022.

The first big City Wide event is actually been scheduled and has been talked about. That’s the World of Concrete at the new convention center edition, which I walked yesterday, and it’s quite spectacular. It will be really great for the City. I think it will give the City a competitive advantage.

And then literally 2 weeks later, they have Barrett-Jackson. So we are optimistic what we see on our books in the third and fourth quarter. We still have quite an amount of rooms on there. And we’re – fourth quarter, we actually have more rooms on the books than we did same time last year as we look at year out.

And so, we’re pretty optimistic on what we see in the future. The other data point that we’re starting to see is people are starting to look to book and we have over 120,000 rooms under contract for 2021 out there right now, that I think people are just looking for one more sign to say things are going to be on the clearer side.

[William Hornbuckle, Chief Executive Officer and President]

And then, Joe, maybe a little color to put things in perspective, I always found this number interesting. We collect a lot of advance deposits for entertainment. I remind you, we haven’t had entertainment now for better part of the year.

We’re still holding 82% of those advance deposits, for things like Lady Gaga and other shows that some of them aren’t even rebooked yet. And I think what It simply says is that, when available, people want to come back. And the idea of there being, yes, some of the groups may be light in participation, but I think the overall leisure travel and the notion of us with this massive amount of pent-up demand for people to get out, I think will offset in occupancy.

For us, some of it’s going to be about RevPOR over the short term, not the long term. But I’m pretty excited by the trends and the way people have reacted today. We just had a great Super Bowl weekend in terms of participation. So I think people will respond as we come out of this.

[Joseph Greff, J.P. Morgan]

Great. Thanks so much for the thoughts, guys.

[Operator]

The next question will be from Chad Beynon with Macquarie. Please go ahead.

[Chad Beynon, Macquarie Group Limited]

Hi, good afternoon. Thanks for taking my question. I wanted to touch on the press releases that were out during the quarter, just on the Entain situation. You were very clear in terms of everything you’ve been able to accomplish recently with BetMGM. But just wondering if you could elaborate a little bit more in terms of what was announced, the process, and then if you would expand beyond the United States, given your success here if that was part of the thinking with your original proposal. Thanks.

[William Hornbuckle, Chief Executive Officer and President]

Chad, look, I mean, the thinking is we see a great deal of opportunity in digital gaming, sports or iGaming and other potential channels, actually where entertainment and gaming could converge. That being said, it’s a big world. Obviously, we have a very good partner in Entain. We have our JV with BetMGM, that I’ve just articulated how well we think it’s doing. There’s a lot I can’t say, the UK takeover rules. So there’s a whole lot I can’t say about our thoughts around that.

Obviously, we had an interest. We’re now in a quiet period. We’ll have to see what happens. But I will say this, it is MGM’s intent to play in this space on a substantive and significant level on a global basis. And so, whether this is the avenue of the route to do it or not, I think time will tell. But we do want to diversify our revenues. We think this is where the industry is.

It’s already started to prove itself. This is where the industry is going. And we want to be a larger part of it.

[Chad Beynon, Macquarie Group Limited]

Thanks, Bill, I appreciate it. And then, one thing you hadn’t touched on yet is Japan. There were some announcements out there on another market, not the market that you’re focusing on. Could you just give us an update in terms of what’s the latest in terms of timing provincially, and then with the federal government over there? Thanks.

[William Hornbuckle, Chief Executive Officer and President]

Sure. The federal government announced the 9-month delay. Osaka has not given us the requirements of what that will mean to them and our submissions. I think that’ll be coming out within the next several weeks, I think you’ll see a requirement of us to submit an RFP with our partner Orix sometime this summer. It’s yet to be ultimately determined. And we’re ready to go.

I mean, we’ve been in that marketplace a long time. We’re a believer in Asia. We’re a believer in Japan. We’ve spent a lot of time and energy, becoming the soul of – one standing at the gate, if you will, on Osaka. And so, how long this all takes? Obviously, COVID has hit there as equally as hard, and there’s a great deal of sensitivities around it, in that market.

We haven’t had our people on the ground there for better part of 9 months. So it’s going to take some time to rebound. But we have the intent. And as well, I believe that the government still has the same intent of moving forward.

[Chad Beynon, Macquarie Group Limited]

Thank you very much.

[Operator]

The next question will be from Shaun Kelley with Bank of America. Please go ahead.

[Shaun Kelley, Bank of America Merrill Lynch]

Hi, good afternoon. Thank you for taking my question and, Jonathan, welcome. I just wanted to start, Bill, you gave some really interesting disclosures on what you’re up to in the sports betting and iGaming front, and specifically, some great data around Michigan. And I just wanted to get maybe a sense, in particular, the iGaming numbers look really stellar to launch off. I mean, already being at a pace that’s ahead of New Jersey, it is pretty significant given I think the population is about the same size.

So could you maybe unpack that for us a little bit? What do you think is driving the depths of that market? What do you think is driving MGM’s success there as it relates to maybe some of your cross-sell opportunities and customer acquisition?

[William Hornbuckle, Chief Executive Officer and President]

I’ll kick it off. I’d love you to hear from Adam here, because he’s obviously doing this every day up there. But we got going early, we were ready for it. We pre-registered folks. We had a campaign. Obviously, we’ve got huge brand presence there. We have a deep and rich database there.

And ultimately, I think with our product, it resonated. But, Adam, why don’t you provide some color?

[Adam Greenblatt, Chief Executive Officer, BetMGM]

Yeah, absolutely, Bill. Thanks, Shaun, for the question. Well, firstly, I’m delighted to be here. And it’s a testament to the work of the BetMGM team, the success we’re seeing. And Michigan is a great example of our strategy, BetMGM strategy coming to life. Bill’s already touched on the power of the brand. We’ve got BetMGM Detroit, branded BetMGM – sorry – MGM branded Detroit branded, such the power of omnichannel, we’ve got both sports and gaming.

And that really plays into our hand. The technology that we use from Entain was built in a way that gives us tremendous amount of flexibility in driving cross-product play. And we’re really seeing this come to life in Michigan.

And I think the key step that perhaps when you’re looking for is multiproduct play. Recognizing that we’re in the early days of the market, we are seeing well over 30% of our customers playing both casino and sports. And so, we’re really excited about it. There is so much potential. iGaming has started more strongly than our sports business.

The Super Bowl was very good for our sports business. So, yeah, we look to the future of that state, very, very encouraging.

[Shaun Kelley, Bank of America Merrill Lynch]

Thank you, Adam. And then, maybe as my follow-up, you guys did allude to your customer acquisition cost being, I think, lower than some of the market standards that we’ve seen in other markets. I’m kind of curious on your thought of – is that type of rate sustainable when you have this type of presence in kind of first day at launch? Or do you expect to begin to reinvest some of that lower customer acquisition cost, both as the market matures, and also maybe to possibly further boost your market share presence?

[William Hornbuckle, Chief Executive Officer and President]

Adam, again, why don’t you…?

[Adam Greenblatt, Chief Executive Officer, BetMGM]

Yeah, for sure. Bill already touched on our ability to get live on day one of the market and your question is relevant to that. What we are seeing, having launched 5 states in 87 days, a very, very busy first quarter and beginning of 2021. What we’ve seen is that in the first few days, the early weeks of a market CPAs are very low. Then we see as competition, other operators join us in those markets. We see CPA rates rise.

We expect then the guidance that you’ve had from us and others to sustain for a period. What we do expect though is that, as the market rationalizes, as the market matures, the leaders cement their position in those leadership positions, that we will see those CPAs come down in due course, that’s kind of the profile.

[Shaun Kelley, Bank of America Merrill Lynch]

Great, thank you very much.

[Operator]

The next question will be from Thomas Allen with Morgan Stanley. Please go ahead.

[Thomas Allen, Morgan Stanley]

Thanks. Just some more BetMGM questions. I think the key message is that you’ve gotten really strong share in date and you see room to continue to ramp. And looking at your disclosures quarter over quarter, it seemed like you ramped New Jersey iGaming share from 20% to 25%, in Colorado online sports betting share from 12% to 31%, despite I believe you launched on May 1 in Colorado along with the rest of the market.

So what’s driving this really strong ramp? And what gives you confidence to continue to go? Thank you.

[William Hornbuckle, Chief Executive Officer and President]

Go ahead, Adam. And you can’t say brilliant management, but go ahead.

[Adam Greenblatt, Chief Executive Officer, BetMGM]

Well, obviously, that’s where I was going to go. Our business is a detailed business. Our business that is the orchestration of all of the tools, from the top of the acquisition funnel to how we look after players, to how they experience our product to our real-time CRM tools, to their brand to the work that we’re doing with MGM Resorts to really bring to life that M life database, to the fact that our players, that BetMGM players earn loyalty points that are redeemable for real life experiences within properties.

All of these factors play a part into differentiating what BetMGM represents to our customers. And so, to pull out one or other elements of that, I think it doesn’t really reflect how important it is to line up all of those factors in order for the whole thing to come together. And that I believe is what is driving the momentum that we’re seeing in our business.

And it is sustainable, because of it is difficult to do. And the business is – our BetMGM business is now really hitting stride. We’ve got the right team. The tools are working. And we’re seeing the fruits of that in the numbers.

[Thomas Allen, Morgan Stanley]

Adam, I guess, as a follow up, you hit number one share in Tennessee. There are fewer competitors in that market, but you still have the main competitors in that market. What do you think is driving your leading position there? And then, you also highlight in the slide deck $13 million of deposits in January. Can you just talk a little bit about why that’s relevant? Thank you.

[Adam Greenblatt, Chief Executive Officer, BetMGM]

Yeah. I’m personally delighted about Tennessee, because some have suggested that we would excel at iGaming, but perhaps not be as strong in sports. And for me, Tennessee is the poster child of our ability to compete against the early leaders in a sports market only.

Now, why are we seeing such success? We were there on day one. All of the components of our operating model were in place right from the start. We have the right partners, and we are partners with the Titans. So put all those things together, obviously, combined with product, CRM, all of the acquisition machine working. And we’re demonstrating that that we can fight and win toe-to-toe with the best.

In relation to your second question which is around deposits, that’s important, because that’s the fuel. No deposits, no ability to wager, no ability to play. And the other point is – let me rephrase. The moment of truth is our players actually putting hard earned money into an account to play with us, rather than it being purely bonus money, incentive money. And so, the importance of that $13 million is it demonstrates the scale of fuel to drive [MGO] [ph]. I hope that’s helpful.

[Thomas Allen, Morgan Stanley]

No, it’s very helpful. Thank you.

[Operator]

And the next question will be from Carlo Santarelli with Deutsche Bank. Please go ahead.

[Carlo Santarelli, Deutsche Bank AG]

Hey, guys, good afternoon. Bill, if you could just – as you guys think about the book of business on the group side for 2022 and 2023, and you kind of look at where occupancy levels were and where rates were in 2019, obviously, the group side is pretty encouraging. So when you think about the ability to backfill and drive pricing and stuff, assuming the base case scenario, vaccinations, everything plays out, we flip the calendar next year, and all of this is behind us. How do you guys kind of think about a return from a hotel revenue, REVPAR, profitability perspective over the 2022-2023 period for the strip?

[William Hornbuckle, Chief Executive Officer and President]

Yeah, I would hope by the fourth quarter of 2022. We’re at about a 90% pace of where we were in 2019. I think the question really becomes what are the first and second quarters look like, and that’s obviously dependent on the balance of this year, and how quickly that ramps. But I hope to be every bit of the way there and maybe even the third quarter. It just again depends how quickly it comes back. It depends on how much rebound, enthusiasm we have from customers just wanting down the house. So – well, I think, again, the group business may be slower. We certainly have the business on the books. I think there’s going to be massive pent-up demand in terms of leisure business wanting to come.

And then, we really haven’t thought about or talked about the funnel for international. I mean, I think you all know this historically that Bellagio summer. So we get into summer of next year with a clean slate internationally, 40% of our guests are truly, not only gaming, I mean, our guests are international. And so we have a large segment of that business, I think that will play into this, if it’s allowed to come back the way we hope and believe it will. And so that’s my thinking or sentiment. Corey, I don’t know if you want to agree.

[Corey Sanders, Chief Operating Officer]

I completely agree, Bill. The only other dependent is really air traffic, and how much – how fast they can build their capacity back, because I think the demand for our business will be there.

[Jonathan Halkyard, Chief Financial Officer]

Hey, Carlo. It’s…

[Carlo Santarelli, Deutsche Bank AG]

Yeah, go ahead.

[Jonathan Halkyard, Chief Financial Officer]

Yes, Carlo. It’s Jonathan. And I – the only thing I would add is that I think this could be particularly interesting with these revenue gains against a cost structure that’s been resized as a result of a number of the initiatives this company has taken on over the past 18 months, and is now being tested in certain pockets of growth that we’ve seen, whether it be weekends or on the regions and has really resulted in margin expansion in those periods. So I think that, the top-line certainly is an important part of the question. But the way in which we flow that through down to EBITDAR is going to be probably even more exciting.

[William Hornbuckle, Chief Executive Officer and President]

Yeah, we had in the fourth quarter, I think the point that – the occupancy in the fourth quarter at Bellagio, Corey, was 34%, something like that?

[Corey Sanders, Chief Operating Officer]

They were a little higher.

[William Hornbuckle, Chief Executive Officer and President]

A little higher.

[Corey Sanders, Chief Operating Officer]

Yeah. Yeah.

[William Hornbuckle, Chief Executive Officer and President]

But the margins were up into the 40s. So, I mean, we had – yeah, so it’s not even in that small amount of volume, we can see the margin, we can clearly see in the regional businesses. But as Las Vegas returns, we’ll see, I think here first and foremost in ARIA, hopefully, and then it will flow through the balance of the business.

[Carlo Santarelli, Deutsche Bank AG]

And Bill, just to clarify, I think you said 4Q 2022. Did you mean 4Q 2021 with that 90% number?

[William Hornbuckle, Chief Executive Officer and President]

No, I meant – no, no, you asked the question on 2022. That’s what I said. I’m sticking…

[Carlo Santarelli, Deutsche Bank AG]

Okay. Okay. I just wanted to make sure. Okay, thank you. And then, just 1 follow-up. As you guys – obviously, you guys talked a lot about the sports piece and off to the – it’s been off to the races and are really strong. So how should we think about, and I know this is going to be kind of a moving target, because, unfortunately, as new states come online, clearly, you’re going to be spending and investing in those states. And that’s going to take kind of the profitability window longer, which is ultimately obviously a good thing.

But if you think about the states, where you’re live now with what you were saying, the volumes you’re achieving and think you will be able to subsequently achieve. When would you say kind of breakeven from an EBITDA perspective on the sports side could comment, if we were to just assume status quo and no new state launches?

[William Hornbuckle, Chief Executive Officer and President]

Look, Adam, I don’t know if we broken out exactly that way. I think we’re in the second half of 2023 and beyond before we start to come down, if you will, off of peak investments. And obviously, it depends on how states roll out in when, obviously, by 2024 and 2025, we have models that are throwing off substantive EBITDA. Adam, I don’t know if you want to add to that.

[Adam Greenblatt, Chief Executive Officer, BetMGM]

Yeah, that’s absolutely, right, Bill. It’s – on a state basis, we’ve indicated that our expectation is, it takes about 3 years to get to breakeven. So the critical piece here is the timing of state rollout, particularly the big states.

[Carlo Santarelli, Deutsche Bank AG]

Great. Okay. Thank you guys very much.

[William Hornbuckle, Chief Executive Officer and President]

Thanks, Carlo.

[Operator]

And the next question will come from John DeCree with Union Gaming. Please go ahead.

[John DeCree, Union Gaming Securities, LLC]

Good afternoon, everyone. Thanks for taking my question. Just one for me to continue the discussion on BetMGM. One of the statistics you’ve provided was about 17% of BetMGM signups have come from Mlife, and I’m not sure if you have any real data. But I’m curious if you could talk about where the other customers are coming from. You’ve got a number of partnerships that you put together Yahoo! Sports teams and such. And I’m curious if you have a sense of where the other 80% or so of customers are coming from and if that’s not really available kind of where are you spending your efforts in customer acquisition away from Mlife in direct marketing, anything like that, that you could kind of give us a little bit of color on how you’re acquiring those other customers right now?

[William Hornbuckle, Chief Executive Officer and President]

Adam, are you?

[Adam Greenblatt, Chief Executive Officer, BetMGM]

Yeah, absolutely. By far, MGM is number one through Mlife and omni, MGM is number one. We’ve said that, and that remains the case. And frankly, I think that’s only going to get bigger. Clearly, we’re at limited not reduced occupancy in the properties. And we’re seeing great conversion rates in the properties, both conversion rates and also CPA, so very excited about a post-COVID world. After that you correctly referenced Yahoo. Yahoo is our next largest partner source of traffic. They just actually been licensed in Michigan, and we’ve already seen the positive impact on player recruitment from that.

Behind that, there is a range of sources. We’re investing in brands. We’re investing in outdoor, TV, digital. So the biggest single source rather than being attributed to one partner, our biggest source of traffic is organic. So it’s the combination of all the work we’re doing on brand and TV and outdoor. So people actually typing into their browser BetMGM. That’s the next biggest one. But otherwise, it’s a range of origins.

[William Hornbuckle, Chief Executive Officer and President]

And then, John, frankly for us in the brick and mortar side, it’s the inverse, because that number is almost double in terms of people that we’ve been able to reactivate to the brand bring in. I think, I mentioned in the last call some of success we had at Borgata bringing back 165,000 folks – reigniting 165,000 folks from Mlife, who hadn’t been in a while. And so, it’s a 2-way street. Obviously, for acquisition for Adam’s team, this is the cheapest. For us, it’s the opportunity to reactivate and reengage, in fact, we stay engaged 365. Vegas, they come 1.5 times a year if we’re lucky, regionals or more. But the idea that we could have connectivity for that extended period of time is pretty exciting.

[John DeCree, Union Gaming Securities, LLC]

Thanks, Bill. I agree. I’ll let you get a couple more quarters of casinos reopening. And then I’ll ask you for some stats on how those new BetMGM customers and the Mlife are doing at the casino looking forward to that. Thanks a lot, everyone, and congratulations on the solid results.

[William Hornbuckle, Chief Executive Officer and President]

Thanks.

[Operator]

Thank you. The next question will be from David Katz with Jefferies. Please go ahead.

[David Katz, Jefferies Group LLC]

Good afternoon, everyone. 2 questions. And if we can – this may be a chance to get Jonathan in the game. As we look at the recovery, specifically in Vegas, we’ve all talked about how the regionals expect to retain a healthy amount of the margin increases. But I’m wondering how complex it is, opening large scale integrated resorts and the degree to which you can sort of hang on to margins. I’m wondering what comment you can make about profitability levels as we rollout to a more normalized level, and whatever that is 2022, 2023. And how that margin percentage compares to 2019?

[Jonathan Halkyard, Chief Financial Officer]

Yeah. Thanks for getting me in the game. I’ll offer a couple of thoughts. There is – as I’ve done some forensics on the performance of the business last year and in 2019, looked at the projects, which Corey has led through operations to really reconsider the operating model, and not just in the past 12 months, but even before the company entered 2020. I’m convinced that this business with the return of the volumes as complex as it is, as you noted, can secure the gains in the cost structure that they have seen so far.

It was a long time ago – it feels like a long time ago. But it’s important to note that this time last year, in January and February of 2020, MGM’s property level margins had increased almost 500 basis points over the prior year. And that was a benefit of the cost moves, and some restructurings that occurred during 2019, and we were already seeing in the numbers a year ago. And that that program – those series of programs were augmented further, of course, during 2020.

And beyond that, and this has been a bit of a surprise for me coming to MGM for sure. The company really has a very effective operating model with centers of excellence in the areas you would expect hospitality, gaming, finance, entertainment that cut across the entire enterprise, and are effective and efficient delivering, I think, a better outcome at lower cost. And that kind of organization is absolutely critical when we talk about things like the reopening of these properties.

So I certainly anticipate EBITDAR margins solidly above 30% across the enterprise as we recover, we would have seen that in the regions in the fourth quarter of 2020 had we not had the closures. And I’m confident that we can get there in Las Vegas as well as we reopen.

[William Hornbuckle, Chief Executive Officer and President]

And David, I just might add a thought. Look, we are open. We open and close some of them every week and that’s a complex process. But – and so we’ve proven to ourselves that the restructure, our ability to spread management across multiple properties in terms of senior leadership, not only is going to work, has worked. And so it’s not overly complicated. I think the trick for us will be make sure that we’re tight and we’re disciplined on yielding volumes and making sure that we do labor, the way we forecasted it and the way we’ve presumed that we’ve done historically in the last couple of months, as Jonathan mentioned before the pandemic. That’ll be our test, if you will. It’s not overly complicated at this point, if kind of being here in the middle of the ship is probably the most complicated.

[David Katz, Jefferies Group LLC]

Understood. And thank you for that. My follow-up is probably not for Jonathan. I wanted to ask about the digital gaming, and the degree to which and the importance of which, owning your own technologies and owning your own capabilities, becomes increasingly important as you scale. Candidly, it was one of the first thoughts I had around just before the Super Bowl, when they’re started to be some news about volumes becoming an issue. If you could just talk about that importance going forward, that would be helpful economically and strategically?

[William Hornbuckle, Chief Executive Officer and President]

Yeah. Look, I will kick it off. And then, I think, Adam can speak to the Super Bowl, be happy to handle that one. The good thing with our partnership is it’s that. We gave our retail business, they gave their technology. And so by not owning our technology in most circumstances, there’s a percentage that comes with that. We’re not burdened with that, if you will. We’re not paying a percentage of GGR or NGR – GGR on someone else’s technology. So that’s the first affirmative thing.

When it comes to this initiative with Entain, obviously, America is the biggest thing in the world right now. And so we’re all highly focused on it. And so our ability – and as you know, it was rough out of the gate, but our ability over the last year, particularly led by Adam now to get the teams engaged, to get the technology, to get the development effort, to get the product that we need and want for America of note, because obviously, we’re desiring to speak to Premier League and other things has been meaningful. Sure, ultimately, at some point, it could come into play. But for today, we don’t pay the premium that others do. As it relates to Super Bowl, it wasn’t necessarily a volume thing. But Adam, why don’t you just comment on it for a moment?

[Adam Greenblatt, Chief Executive Officer, BetMGM]

Yeah, of course. But if you’ll indulge me just before I get onto that, just to – David, to build on what Bill has said. With the owning your own technology piece is important for – on 4 pillars. The first, obviously is cost. We’re not paying away to a third party, the cost of it. But importantly, by owning our product, we can get to market quickly, we can be there on day one, as we’ve demonstrated 5 times over in 87 days, I don’t think anybody else has done that.

So speed to market, so that we can capitalize on that pent-up demand that low CPA period that is vital and valuable. We can also staying with product, we can also respond quickly. And I believe more quickly than anybody else to what customers are telling us, and we have a research group now and a research process so that the process of ongoing improvements to product can be translated into what customers experience as quickly as possible. So that’s a further benefit.

Content is the other. We have in-house with – in our partnership within Entain. We have in-house studios, which allow us to bring unique content to market which is both cheaper than buying. Obviously, we’re not paying away a REV share. But it’s the only place in town that you can play certain games, our most popular iGaming product in New Jersey and now in Michigan is our in-house developed game. So and – playing that forward, why is that relevant? Because, we think that we can continue to develop, innovate and differentiate.

And the last is the tools that are unique to our platform. The player management tools, the customer communication tools, all of those come together in a way that we think is strategically valuable. Now, getting onto – that’s all the good stuff.

As regards the Super Bowl, Bill already mentioned, the Super Bowl was a record breaking day for BetMGM. Online bets 11 times last year, online handled 17 times last year. And our digital performance was robust throughout the U.S., which as you’ve probably read wasn’t the case for all operators, and actually enhanced our competitive position. But, Nevada was different. And in Nevada only, we did have an outage, which resulted in the system being down during the game. But the system was restored shortly after and has been working as normal ever since. Now, just in the important parts, the issue that caused the outage was specific and was the unfortunate result of a human error and has been addressed.

We know that the software works, which makes the downtime on Sunday, all the more disappointing, particularly given all the tremendous work that was done by our MGM colleagues in preparation for the event, which was just enormous. And it goes without saying that we sincerely apologize for the inconvenience caused to our customers, who I hope are looking forward to March Madness as much as we are.

And I’ll give it back to you, Bill.

[David Katz, Jefferies Group LLC]

Thank you very much.

[Operator]

And our next question will come from Robin Farley with UBS. Please go ahead.

[Robin Farley, UBS Group AG]

Great. Thank you. All of my BetMGM questions have been answered already. Just one on Macau, obviously, your cash flow positive in the fourth quarter, but I know from your comments and comments that others have made, it sounds like a lot of that was really in the month of October. So just wondering with the sort of dampened levels that you’ve talked about, it has – is the property cash flow positive now here in Q1 so far?

[William Hornbuckle, Chief Executive Officer and President]

Hubert, you’ve stayed up all night for this. This is all yours.

[Hubert Wang]

Thank you, Robin, to make my early rise in Macau worthwhile. Actually, I think, I want to correct one thing you’ve stated. In Macau, actually, the cash flow has been – was positive each month in the fourth quarter, actually, December had the best financial results. And also in terms of business recovery, December was the strongest. And, of course, going to first quarter, we saw some of the momentum carried over in the first week of January. But after that, because of the COVID cases in China increased, so there was some travel advisory put in place by the Chinese authorities at all different levels. We do anticipate that hotel occupancy will reach a level similar to October Golden Week last year for Chinese New Year period.

And this will be a period for us that to remain positive for quarter-to-date period. And visitation to Macau is a function of COVID cases in Macau, COVID cases in China, and also the availability of vaccination. I think that when you look at these variables, there’s no reason to believe that the travel advisory will stay in place for a long period of time, because I think Macau has been almost 250 days without any local cases.

In China, the burst that we saw in December or early January has quickly diminished to about low-double-digits, in the teens. And vaccination in Macau and also in China has been pushed out to more and more people. So I do believe that we have reason to be optimistic in the first quarter. Back to you, Bill.

[William Hornbuckle, Chief Executive Officer and President]

That’s great, Hubert. Thank you.

[Robin Farley, UBS Group AG]

Great. Thanks very much.

[Unidentified Company Representative]

Can we get the last question, please, Chad.

[Operator]

The next question will come from Stephen Grambling with Goldman Sachs. Please go ahead.

[Stephen Grambling, Goldman Sachs]

Thanks for sneaking me in. Changing gears a little bit, what are your latest thoughts and the different paths to think through MGP and potentially deconsolidating that asset?

[William Hornbuckle, Chief Executive Officer and President]

Look, I’ll kick it off. And we’ll let Jonathan in since I spoke way too much here. Obviously, we have an opportunity with some more high-basis units that we can go after. It’s still our long-term intent to potentially sell some of this down, if not, over time, all of it. So we’re an asset-light company. But there’s a lot involved between now and then.

And so, Jonathan, why don’t you pick it up from there?

[Jonathan Halkyard, Chief Financial Officer]

I mean, I’d only offer a couple of thoughts, Stephen. As Bill said, it certainly is our goal over time to reduce our ownership stake in MGP. I think it would in some ways simplify our story and our corporate structure. We do have some opportunities to do tax-efficient sales of OP units. But it is also a – it’s a high yield on the investment that we have in MGP right now, so relatively high yield. So we certainly need to balance our moves with that, which is right now an appealing return on that investment. But the direction is certainly over time to reduce that.

[Stephen Grambling, Goldman Sachs]

Makes sense. And then, if I can sneak a follow-up in on BetMGM and iGaming, are the customer acquisition costs for all iGaming and sports betting players including the M life customers? And if it is, what do you think the customer acquisition costs are for non M life customers? And perhaps another way of coming at it, can you identify how many of the M life signups of that 39% that were attributed to BetMGM? What does that equate to in terms of just number of people?

[William Hornbuckle, Chief Executive Officer and President]

Stephen, can we hook you and connect you with Adam for some of that offline?

[Stephen Grambling, Goldman Sachs]

Yeah, that sounds good.

[William Hornbuckle, Chief Executive Officer and President]

That we could go on for a while on that one. We’ve obviously suggested that M life customers are a whole lot less expensive to get. There’s obviously more expense tied to brand new customers that, over time, we think will become profitable for all of us. iGaming actually costs a little bit more, but they’re much bigger wallet. And they last a lot longer, which is the value set there really.

And sports betting is so new, we don’t know what 3 years into sports betting looks like, because no one’s ever done it before. And so – but I’d love you to spend some time with Adam. And if I could offer you up, Adam, that’d be great.

[Adam Greenblatt, Chief Executive Officer, BetMGM]

Cool, cool, delighted. I like talking about our business.

[Stephen Grambling, Goldman Sachs]

That’s great. Well, that’s helpful color there to start it off. And I look forward to following up. Thank you.

[William Hornbuckle, Chief Executive Officer and President]

Thank you, Stephen.

[Operator]

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Bill Hornbuckle for any closing remarks.

[William Hornbuckle, Chief Executive Officer and President]

Thank you, operator. And thank you all for joining us today. Obviously, we’re excited about our sports betting business. You can tell and I could sense everyone’s excitement. It’s obviously the conversation and the value driver of present. And we think ultimately, in the long term, for long-term for the company. You’ve heard us talk about diversification.

We are hell bent on that. Whether it’s into this space or other areas, brick and mortar and otherwise, in Asia, that’s something we’re going to continue to be keenly focused on. We’re going to have a very disciplined approach coming out of this emergence, if you will, to make sure that the expenses that we’ve put in play and we’ve all worked so hard for over the last 18 months, and frankly, 2 years, it started a long time ago.

And then, we doubled down during COVID, when we restructured once again at the parent company level. You’ve heard from Jonathan, his view on the outside, our COE and our environment and our operating model is working. So not only is it cost effective, but we think it’s effective in general, and it works.

And ultimately, we’re going to become extremely customer-centric. We want to value up our customers. We want to push them up our chain, our food chain, if you will. We think there’s a lot of retail money still to be had at ARIA and at Bellagio. And we’re excited to get going with platforms here around digital marketing. And some of the things we’ve just put in play with the digital check-in, that gives us access to customers like we’ve never had before, that we’re excited ultimately to deploy, so a lot more to come.

Obviously, we’ve got probably 3 or 4 months of angst. And we’ll see as these states continue to roll out, and most notably here in Southern Nevada what happens. I think starting this week, we’ll hear from the Governor. And then over the next couple of weeks and months it’ll be important to stay in touch.

And obviously, any or all of us are available right after the call or until tomorrow morning. So I thank you all.

[Operator]

And thank you, sir. The conference has now concluded.

[William Hornbuckle, Chief Executive Officer and President]

Thanks. Bye-bye.

[Operator]

Thank you for attending today’s presentation. You may now disconnect.