Analysts at Morgan Stanley say that MGM China’s recent royalty payment deal with its parent company MGM Resorts could reduce the Macau operator’s EBITDA by up to 7 percent compared to its previous estimates.
On December 23rd, MGM China agreed to a third renewed branding agreement that increased its monthly license fee from 1.75 percent of adjusted consolidated net monthly revenues to 3.5 percent, as well as prolonging the period of agreement from the previous three years to 20 years (contingent on receiving an extension or new gaming license when its current one expires in 2032).
In a research update, Morgan Stanley analysts Praveen Choudhary, Anson Lee and Stephen W Grambling highlighted that the shift means that ‘MGM China could see EBITDA decline 5 percent year-on-year’ as well as a margin compress of 250 basis points yearly.
The report, entitled ‘Royalty Leakage: A Concern’, also highlights how, since listing MGM China has paid 1.75 percent of net revenue, with Wynn Macau paying 3 percent of gross revenue and Sands China paying 1.5 percent of net revenue to their respective parent companies.
‘We do not see a reason for any company to raise payouts’, opine the analysts.
Looking to 2026, the analysts warn that MGM China, Wynn Macau and Melco ‘could see much lower corporate EBITDA margins’ if they were to pay a 3 percent or higher levy on net revenue for the licenses, ‘or roughly 12-15 percent of property EBITDA’. They highlight that ‘this leakage is much less’ for Galaxy and SJM – which both aren’t required licensing fees given that they don’t need to pay homage to parent companies, and Sands China – which pays out 5 percent of EBITDA. Melco started paying a fee of roughly 0.8 percent of revenue (2 percent of EBITDA) to parent Melco International in 4Q24.
The analysts estimate that corporate EBITDA for MGM China would equate to nearly $8.74 billion in 2025, falling to $8.31 billion in 2026. Given that the royalty payment increase comes into effect on January 1st, the royalty’s percentage of corporate EBITDA for MGM China rises from 6.9 percent in 2025 to 15.2 percent in 2026, up by 119.1 percent yearly.
The effect on Wynn Macau is significantly lower, with the 14.3 percent royalty percentage dropping to 14.1 percent, a reduction of 1.1 percent – based on corporate EBITDA of $7.17 billion in 2025 and $7.67 billion in 2026.
For Sands China, the comparison is even more apparent, with a 7.7 percent yearly reduction in the royalty’s percentage of corporate EBITDA between FY25 and FY26 – at 5.5 percent and 5 percent, respectively – based on corporate EBITDA of $2.16 billion in 2025 and and $2.37 billion in 2026.
Comparative disadvantage
While MGM China has placed an annual cap on the royalty payment, the 2026 figure has been set at $188.3 million, a stark increase from the $70.39 million paid for FY24 and the $56.46 paid in the first three quarters of 2025. And the annual caps are set to be adjusted yearly after 2026 based upon the ‘anticipated increase of the business volume of the Company’.
When justifying the increase, and the 20-year period of the agreement, MGM China noted that ‘the proposed increase in license fees is in line with market comparables’ and that it is ‘in the ordinary and usual course of business of the MGM China Group and on normal commercial terms, and that the terms are fair and reasonable and in the interests of the Company and the Shareholders as a whole’.
MGM Resorts itself is set to receive some 66.6 percent of the license fee directly.
But aside from MGM China’s current two properties in Macau, the agreement also covers ‘the marketing and operation of the MGM China Group’s casino, resort, and hospitality businesses at any legally permissible location within the Territory’. According to the December 23rd filing, the ‘Territory’ encompasses all of mainland China, Macau, Hong Kong and Taiwan, meaning that any MGM-branded property, regardless of whether it has a gaming aspect, would be covered by the new agreement.
The royalty payment change has caused the Morgan Stanley analysts to downgrade MGM China to Equal Weight (EW), due to estimated declines in EBITDA and margin, noting that ‘relative to this, other players should see EBITDA growth in 2026’. They further that ‘MGM China has gained market share consistently in the past three years, but may have peaked’.
Comparatively, Galaxy was upgraded to Over Weight (OW), given zero royalty payments required, it being ‘the only company in Macau with a net cash position’, and ‘significant upcoming capacity additions’- namely Phase 4 which adds 1,500 suites.
Overall, the analysts indicate that they ‘remain constructive on Macau, driven by double-digit GGR growth’. But they warn that ‘stocks are driven by market share trends, and we may be different from consensus on some’.
Preferences are for Galaxy and Sands China ‘over MGM and Wynn’, while SJM remains Under Weight (UW).
