MGM China’s USD1.1 billion quarter masks margin squeeze from higher branding fee

MGM China posted broadly flat second-quarter revenue, but profit fell as a higher branding license fee charged by parent MGM Resorts weighed on earnings, even as the operator said it continued to gain share in Macau.

The casino operator reported total revenue of HKD8.63 billion (USD1.10 billion) for the three months to June 30, down 0.5% from a year earlier and 1.7% from the previous quarter.

Adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) fell 7.4% year on year to HKD2.33 billion, while margins narrowed to 23.3% from 27.1% a year earlier. This decline was driven largely by a $21 million increase in intercompany branding license fee expense after MGM Resorts doubled the fee for use of the MGM name last year.

The company said market share in Macau rose to 16.4% from 15.4% a year earlier, underscoring continued resilience in a competitive market that has been buffeted by weak VIP turnover and softer mass-market demand in parts of the quarter.

On an earnings call, management said volumes and earnings were strong in April and May, then softened in June and early July when the FIFA World Cup diverted attention and spending, before rebounding in recent weeks.

Bill Hornbuckle, chief executive officer of MGM Resorts, said, “At MGM China, we continued to outperform the market in the second quarter while maintaining solid market share of 16.4%,” adding, “While the World Cup temporarily impacted June volumes in Macau, this was a transitory event rather than a secular shift.”

MGM China operates two integrated resorts in Macau: MGM Cotai and MGM Macau on the peninsula.

At MGM Cotai, revenue was broadly flat at HKD5.28 billion, while adjusted EBITDA slipped 2.3% to HKD1.50 billion. Mass table games drop held steady at HKD17.1 billion and slot handle rose 15.3% to HKD10.2 billion. VIP turnover, however, fell 29.8% YoY to HKD23.0 billion, with VIP table win rates declining to 2.8% from 3.5% a year earlier.

MGM Macau recorded revenue of HKD3.35 billion, down 1.0% from a year earlier, while adjusted EBITDA declined 15.4% to HKD826 million. VIP turnover at the property jumped 51.9% to HKD8.20 billion, but mass table drop fell 14.0% to HKD12.8 billion. Slot handle increased 7.9% YoY to HKD7.96 billion.

Kenneth Feng, chief executive of MGM China, said the company is not simply trying to spend more on promotions, but is instead combining products, service, innovation and reinvestment. “What we are competing is a package,” he said. “It’s our products, our services, our innovation, and then our promotion.”

MGM China is focused on “optimizing the yield of every table, every slot, every square foot of the casino floor,” Feng said, adding the company believes its mid-20s to high-20s operating margin range remains sustainable.

“You can look at for the past three, since pandemic, every quarter, we have always in the guided range of our operating margins at MGM China level, mid-20s to high-20s. We are confident, we feel comfortable that we can sustain such margin going forward. This level is sustainable,” Feng said.

Management was also more upbeat about the current quarter in Macau. Feng said gaming volumes had already recovered after the World Cup-related slowdown and that the city was benefiting from event-driven demand.

The company said recent capital spending is supporting its premium positioning. MGM recently debuted the ultra-luxury Alpha Villas at MGM Macau, expanded premium mass gaming space by 50,000 square feet and unveiled renovated suites at MGM Cotai in April.

“During the quarter, we have completed some meaningful CapEx projects, including our suites conversions as well as our premium gaming space at MGM Cotai […] Moving on, we will continue to renovate nearly 100 suites at MGM Macau,” Feng said.

On competitiveness in Macau, Feng said the market remains intensely competitive, but he believes MGM’s customer focus and product refreshes are helping it stay ahead.

“MGM, like past five, six years, has demonstrated a consistent and a deep understanding of all customers,” he said. He added that the suite conversions and premium gaming investments had been well received by high-value players, while concerts and events should support a busy summer in Macau.

“The weekly performance has improved week over week. We believe Macau gaming revenue last week, the entire market had recovered nearly to Q1 levels. At MGM, both property visitations and the normalized GGR have already exceeded Q1 levels,” Feng said.

Looking forward, Hornbuckle said, “Macau has bounced back nicely in July while maintaining mid-teen share throughout the temporary disruption caused by the World Cup […] Digital continues to grow […] MGM Osaka forges ahead with its 2030 opening, which has me, despite my many years in this company and this industry, pleased to say our future has never looked brighter.”

Adding, “We remain on time and on budget as the only licensee in Japan for what we consider the greatest greenfield opportunity in the world.”

MGM Resorts reported consolidated revenue of $4.5 billion, up 1% from a year earlier, and net income attributable to the company of $292 million, compared with $49 million in the same period last year. Adjusted EBITDA at the parent level was $610 million, down from $648 million.

On the call, Jonathan Halkyard, chief financial officer, said the company’s Japan investment remains on track. “In Japan, we’re expecting our funding commitment for the second half of the year to be approximately $125 million-$175 million. To date, we have spent approximately $600 million, we remain on track to deploy approximately $1 billion in each of 2027 and 2028, which we’ll then have fully completed our capital commitments. The project remains on time and on budget for a fall 2030 opening,” he said.