The casinos are now a big cash flow business.

The casino business has long been a high-risk industry because of the huge debts that companies take on to build new resorts. But that has changed with the rise of RETs in the gambling space.

MGM Resorts International (MGM 2.07%) has become an ATM as a result of the change in capital expenditures and the recovery of resort operations. Here’s a look at how much money the company generates and where it goes.

ATM
Billions of dollars are being invested up front to build properties that MGM hopes will generate revenue for decades to come.

An analysis of MGM’s current operations shows only $2.66 billion in net debt after selling some of its assets to Vici Properties earlier this year. Operating cash flow was $1.87 billion. Notably, MGM China, which includes two resorts in Macau, accounts for $3.9 billion of this debt and has a negative impact on operations. Macau’s restrictions on human trafficking have resulted in more than three-quarters of the pre-pandemic revenues being cut. So Las Vegas is back in full force, but Macau was a liability. If Macau ever returns to its former form, the cash flow could easily double based on previous performance.

What MGM does with its money
MGM generates significant cash flow from both RE-E real estate sales and operations. So, where does this money go? MGM bought back $2.1 billion in stock in the first half of the year, which is an incredible amount for a company with a market capitalization of $13.9 billion. The company also pays a small dividend, but now MGM is quickly buying back stock with its excess cash.

Why not spend it on growth? There’s nowhere to grow right now, and that’s good for the casino business. rovs in Las Vegas and Macau
The fact that there aren’t many buildings in Las Vegas and Macau right now is a moat for MGM Resorts. Las Vegas has little desire to increase supply after bankruptcies and abandoned projects during the financial crisis. Macau is strictly regulated and will not increase supply even if the region recovers.

The cash that continues to flow into MGM has only two places to go. The company can reinvest in existing properties, which it does to a small extent, or it can return the cash to shareholders. Here’s what we’re seeing right now.

Casino big business cash flow.
MGM Resorts has a corporate value (net debt plus cash) of $16.6 billion and operating cash flow of $1.87 billion on annualized business with no real contribution from Macau. Investors get the enterprise value to operating cash flow multiple of 8.9 times with Macau for free. This is a great investment and should reward shareholders in the long run.

MGM generates significant cash flow from both RE-E real estate sales and operations. So, where does this money go? MGM bought back $2.1 billion in stock in the first half of the year, an incredible amount for a company with a market capitalization of $13.9 billion. The company also pays a small dividend, but now MGM is quickly buying back stock with its excess cash.

Why not spend it on growth? There’s nowhere to grow right now, and that’s good for the casino business. rovs in Las Vegas and Macau
The fact that there aren’t many buildings in Las Vegas and Macau right now is a moat for MGM Resorts. Las Vegas has little desire to increase supply after bankruptcies and abandoned projects during the financial crisis. Macau is strictly regulated and will not increase supply even if the region recovers.

The cash that continues to flow into MGM has only two places to go. The company can reinvest in existing properties, which it does to a small extent, or it can return the cash to shareholders. Here’s what we’re seeing right now.

Casino big business cash flow.
MGM Resorts has a corporate value (net debt plus cash) of $16.6 billion and operating cash flow of $1.87 billion on annualized business with no real contribution from Macau. Investors get the enterprise value to operating cash flow multiple of 8.9 times with Macau for free. This is a great investment and should reward shareholders in the long run.