In the second quarter, VICI Properties, a real estate investment trust, reported revenues reaching $1.1 billion, marking a 5% growth from the previous year. However, a significant highlight emerged during the analyst call when COO John Payne revealed that VICI is collaborating with Caesars Entertainment on a potential NBA arena project in Las Vegas.
When questioned about the relationships between VICI, Caesars, and MGM, particularly as Caesars prepares to go private and MGM contemplates a takeover bid, VICI CEO Ed Pitoniak remarked that these discussions have remained stable. He mentioned ongoing talks about an exciting opportunity in Las Vegas before handing the call over to Payne. VICI, established in 2017 as a spinoff during Caesars' bankruptcy proceedings, currently boasts total assets of $48.3 billion and owns 50 acres adjacent to three Caesars properties: Paris, Horseshoe, and Planet Hollywood.
Payne indicated that they are developing a plan for an arena to accommodate a new NBA team, emphasizing his partnership with Caesars COO Sean McBurney. "That’s just an example of us working with one of our partners," he stated.
In March, NBA owners voted to consider Las Vegas for future expansion, and during a series of meetings this month coinciding with the league's annual Summer League tournament, no decisive vote was taken. NBA Commissioner Adam Silver expressed positive sentiments regarding interest in an expansion team, describing it as "music to my ears."
Although VICI and Caesars have not responded to requests for comment, information regarding the land discussed by Payne indicates roughly 40 acres spread over several plots, with additional buildable land next to existing casinos. This land is also utilized annually for the Formula One Las Vegas Grand Prix and had previously been proposed for an MLB stadium about two decades ago.
Caesars and VICI share a close relationship on the Strip, where Caesars manages eight properties, all leased from VICI, which also encompasses a total of 18 casinos nationwide. Despite facing challenges, such as a decline in revenue and earnings in the second quarter, with net income plunging 26%, Caesars remains optimistic about the Las Vegas market.
The NBA's potential move to the city has long been perceived as imminent, although confirmation remains pending. Early estimates suggest a Las Vegas franchise could command between $7 billion and $10 billion, nearing the reported $10 billion valuation for the Los Angeles Lakers last year.
Payne conveyed excitement about Las Vegas, highlighting VICI's appreciation for the operational creativity exhibited by their tenants. Interest in an NBA franchise from various investment groups is notable, with public bids announced by prominent figures, including Golden Knights owner Bill Foley, former Phoenix Suns owner Jerry Colangelo, and NBA legend Earvin "Magic" Johnson.
However, constructing a new arena on the Strip presents distinct challenges. Numerous proposed projects have stumbled due to budgetary constraints and zoning issues. For context, the last two casinos constructed there, Fontainebleau and Resorts World, each faced significant cost overruns, with budgets inflating to $3.7 billion and $4.3 billion, respectively. The Oakland Athletics’ proposed MLB stadium project has also seen its estimated costs rise from $1.5 billion to over $2 billion, despite securing $380 million in public financing.
Currently, the T-Mobile Arena is the only venue on the Strip capable of hosting NBA games. Co-owned by Foley, MGM Resorts, and Barry Diller, MGM’s largest shareholder, this arena has come under scrutiny following Diller's recent $18 billion takeover offer. MGM has since created an independent committee to evaluate this proposal. In previous earnings calls, CEO Bill Hornbuckle indicated the company's engagement in arena discussions, though no inquiries regarding the arena were addressed in this quarter’s call. MGM chose not to comment on this issue.
