Borgata parents could benefit if New Jersey legalizes Net bets

It hasn't been the best of times for Atlantic City.

The question now is whether intrastate online gaming is the panacea that revives the Boardwalk.

Union Gaming Group managing director Bill Lerner believes the state's Internet gambling bill sitting on Gov. Chris Christie's desk could benefit the two Las Vegas gaming companies that own Atlantic City's largest resort.

But the bill, which would allow Atlantic City casinos to operate a full catalog of online games -not just poker - would have different results for Boyd Gaming Corporation and MGM Resorts International.

The Borgata Hotel Casino and Spa, which is now 50-50 owned by Boyd and MGM Resorts, is the market leader in Atlantic City - collecting roughly 20 percent of Atlantic City's $3.05 billion in gaming revenues in 2012 - and figures to hold the same role in a potential Atlantic City Internet gambling space.

"Borgata remains [Atlantic City's] best-in-class asset," Lerner said in a report to investors. "We think the passage of online gaming could provide another avenue of upside to Boyd shares."

As for MGM Resorts, which has been trying to sell its stake in Borgata since 2011, Lerner thought online gaming approval would increase the sales price.

"The passage of online gaming in New Jersey would notably add to its value," Lerner said.

The legislation, which passed by a wide margin through both chambers of the New Jersey state legislature, differs from Nevada's online poker regulations because it allows all casino games, including roulette, blackjack and craps.

As in Nevada, wagers can be accepted only from players gambling on computers or mobile devices within New Jersey's borders. The tax rate would be set at 10 percent of the revenues.

Christie has a 45-day clock that expires Feb. 3 to veto the legislation, sign the bill or do nothing, in which case the bill will become law. As of last week, the governor had not signaled a move in any direction.

Boyd and MGM Resorts aren't the only Las Vegas-based gaming companies that would benefit from the New Jersey bill.

Caesars Entertainment Corp. owns four of Atlantic City's 12 casinos. The company, which plans to launch a poker-only website in Nevada under its World Series of Poker brand, would love to establish a similar venture in New Jersey.

Gaming leaders in New Jersey are looking for any means to boost gaming revenues, which have suffered through six straight annual declines since the market's 2006 all-time high of $5.2 billion.

Borgata generated $612.7 million in gaming revenues in 2012, a 6 percent drop compared with a year earlier. Atlantic City continues to be challenged by gaming markets in neighboring states and the impact at the end of October from Superstorm Sandy, which caused a four-day closure of the market.

Lerner said Boyd Gaming is banking on a recovery of the company's locals gaming business in Las Vegas. However, legal online gaming in New Jersey could boost the company's price per share by 25 percent.

"The passage of online gaming could be a notable near-term positive catalyst for share appreciation," Lerner said. "We don't believe passage is discounted in Boyd shares at present suggesting such a binary event shouldn't create event-based downside risk."

The New Jersey Division of Gaming Enforcement mandated that MGM Resorts sell its stake in Borgata by 2014 as part of a settlement over the dispute arising from the company's business partnership with Hong Kong businesswoman Pansy Ho.

MGM Resorts' interest in the Borgata is now in trust. Boyd Gaming has managed the casino since it opened in 2003.

Lerner estimated legal online gaming in New Jersey could increase the value of MGM Resorts' stake in the Borgata to $265 million.

"While there may be some revenue cannibalization from online gaming in the state, we believe it will be marginal," Lerner said. "We do not believe a sale is discounted in the MGM Resorts shares at present."