Payne: VICI, Caesars working on Las Vegas NBA arena project

Real estate investment trust VICI Properties reported total revenue of $1.1 billion in Q2, a 5% increase year-over-year, but the most noteworthy announcement came during the company’s call with analysts, when COO John Payne announced that VICI is working on a potential Las Vegas NBA arena project with its biggest tenant, Caesars Entertainment.

When asked about VICI’s relationships with Caesars and MGM, now that the former will be taken private and the latter is weighing a takeover offer, VICI CEO Ed Pitoniak said that conversations “haven’t fundamentally changed” with either.

Pitoniak added that in fact, VICI was in the midst of discussions for an exciting opportunity in Las Vegas, to which Payne then explained:

“We own, in conjunction with our partner Caesars, and we’re working with them, 50 acres of land behind Paris, Horseshoe, Planet Hollywood, and we are developing a plan with Caesars, Sean McBurney in particular, who runs Las Vegas, to house the arena that could be built for the new NBA team. That’s just an example of us working with one of our partners.”

NBA owners voted in March to explore Las Vegas as a potential expansion site. This month, owners convened for another round of meetings in Las Vegas amid the league’s annual Summer League tournament there, but no vote on finalising the expansion was held. NBA Commissioner Adam Silver did say, however, that the interest in an expansion team was “music to my ears”.

Caesars declined to comment and VICI did not respond to a request for comment.

Caesars, VICI closely connected

The land that Payne alluded to encompasses about 40 acres across multiple distinct plots, but the three casinos also have buildable land adjacent to their parcels, according to the Las Vegas Review-Journal. Some of the land is used each year to stage the Formula One Las Vegas Grand Prix race, and it was once pitched as a possible site for an MLB stadium some 20 years ago, per the Review-Journal.

Caesars and VICI are two of the most intertwined entities on the Strip. VICI itself was created as a spin-off from Caesars in 2017 as part of the operator’s bankruptcy reorganisation. Caesars operates eight Strip properties, including the three highlighted for the arena project, and all of them are leased from VICI. Nationwide, Caesars leases a total of 18 casinos from the REIT.

It’s been a tough year in Las Vegas for Caesars — its second-quarter results showed year-over-year declines for revenue, adjusted EBITDA and net income, both for the quarter and the half-year. Its net income in particular fell 26% in Q2 and 15% in H1.

Optimism in Las Vegas

Despite Caesars’ struggles, optimism for the market overall remains high. NBA expansion to Las Vegas has been viewed as an inevitability for several years, but a confirmation has proved elusive. Initial reports suggest the league is expecting a Las Vegas franchise to fetch between $7 billion and $10 billion, which is right at the top of the market — the Los Angeles Lakers sold for a $10 billion valuation last year, an NBA record.

“We continue to be really excited (about Las Vegas), and we continue to like how our tenants are operating their businesses and being creative,” Payne said on VICI’s call.

Multiple investment groups have expressed interest in a Las Vegas NBA franchise, and Silver said this month that the majority of interested parties “have not been public”. Public bids have been announced by Golden Knights owner Bill Foley, former Phoenix Suns owner Jerry Colangelo, NBA Hall of Famer Earvin “Magic” Johnson and others.

Difficulties of Strip construction

Building a new arena, however, will prove to be a separate challenge. Several proposed arena projects on the Strip have failed to gain traction over the years, primarily due to costs and zoning hurdles. The last two casinos built on the Strip, Fontainebleau and Resorts World, cost $3.7 billion and $4.3 billion, respectively, and both were beset by constriction delays and ballooning budgets.

The Athletics’ MLB stadium project on the Strip has seen costs grow from $1.5 billion to over $2 billion, and the Athletics secured $380 million in public financing, which is no guarantee for an NBA arena. Hard Rock Las Vegas is also progressing on schedule, but that project is utilising some of the existing infrastructure from the former Mirage as opposed to a true ground-up build.

As of now, the only venue on the Strip that can host NBA games is T-Mobile Arena. The venue is co-owned by Foley, MGM Resorts and Barry Diller, MGM’s largest shareholder. Diller submitted a takeover offer with an $18 billion valuation 1 June, and MGM has appointed an independent committee to review the offer. MGM CEO Bill Hornbuckle said on the company’s Q1 call in April that they were “intimately involved” in arena discussions. No questions about the arena were asked this quarter.

MGM declined to comment for this story.