The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Katrina Hamlin

HONG KONG, June 2 (Reuters Breakingviews) - Barry Diller is wagering he can win on a weak hand. The media mogul's People IAC.O group, which houses its eponymous magazine and other titles, wants to buy MGM Resorts MGM.N in a deal valuing the casino empire at $18 billion. He's betting that live entertainment will thrive in the AI age. But a purchase could leave the buyer heavily exposed to Chinese demand.

Diller says the casino can't realise its full value under its current form as a public company. To buy the 73.9% People doesn't already own, he's paying a valuation of nearly 8 times forecast EBITDA for 2026, roughly the same multiple entertainment mogul Tilman Fertitta last week agreed to pay for rival Las ​Vegas casino empire, Caesars Entertainment CZR.O, in another $18 ​billion deal. But MGM offers a very different set of cards.

U.S. operations are sluggish. MGM’s Las Vegas and regional properties account for some 70% of sales, and their combined revenue was flat in the first quarter compared with a year earlier. The digital gaming arm, a big draw for Diller when he first invested in MGM in 2020, citing its Disney-esque ability to combine a physical brand with online sales, remains loss-making. For now, valuations for Flutter Entertainment FLTRF.L and other ​owners of sports-betting apps have ​tanked, and predictions markets are a threat too.

In contrast, MGM China 2282.HK, which houses the Macau operations, is both profitable and growing the top line, contributing a quarter of the parent’s sales in January to March. But that is also a risk: Chinese mainlanders comprised 70% of visits to Macau last year but Beijing views gambling as a social problem and has imposed tighter controls on casinos in recent years. Resort operators are under pressure to give up on lucrative high-rollers and to invest heavily in family-friendly tourism instead.

Casinos in Macau rarely change hands. Even if Diller can convince local regulators, and mainland authorities, he's a suitable owner, the Hong Kong listing may have to stay. He's intending to keep it, according to a person familiar with the situation, but that undercuts the plan to revitalise the group in private; prior to Diller's approach, MGM China's enterprise was valued on a lower multiple of its EBITDA than Sands China 1928.HK, Wynn Macau 1128.HK, Galaxy Entertainment 0027.HK and SJM 0880.HK.

Diller is no stranger to bold bets, but MGM’s enterprise value is around five times bigger than People’s - and any successful deal will require sharing the burden with co-investors and keeping them happy through the turnaround. That offers rather long odds.

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CONTEXT NEWS

Barry Diller’s People on June 1 made a non-binding all-cash bid to buy the rest of MGM Resorts that it doesn’t already own.

The proposed deal at $48.3 per share would value the U.S. casino operator’s equity at $12 billion, a 10.6% premium to the close on May 29.

People, which owns a 26.1% stake in MGM, expects to hold just over 50.1% of the company’s stock, with other investors holding minority interests, the company said.

“We began investing in MGM nearly six years ago because we believed it represented a rare kind of business: one with real world assets that AI cannot easily replicate or disintermediate and exceptional digital growth opportunities,” Diller said in his company's offer statement.

MGM’s stock closed 16% higher at $50.69. The Hong Kong shares of MGM China rose 7% on June 2.