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MGM: LET’S PLAY HIDE THE FEES

The brand management story of a few years ago hasn’t materialized.

Was anyone wondering where those supposedly lucrative resort division and the CityCenter management fees were hiding?  We were and we’ve discovered they reside in the $102.3 million revenue line item Management Operations.  Not bad until you look at the profit, or should I say loss contribution of the division.  Management Operations lost $3.7 million in the quarter.  And we thought development fees and management contracts brought fat margins.

That is why we had a chuckle when one analyst suggested that MGM should look at spinning off that part of the business to get a Four Seasons multiple.  Oh yeah?  I don’t recall Four Seasons generating negative margins on their fee business.  To be fair, no MGM branded hotels have opened yet so there is potential.  However, MGM has a long way to go before their brand moves into the same category as Four Seasons.  On second thought, MGM isn’t even known for non-gaming hotels so Sheraton would even be a stretch at this point.