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July 28, 2014

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And now let’s play The Price is Right!

Does CityCenter, which for a long time was given a $7 billion price tag, actually cost $8.1 billion, $8.4 billion, $8.5 billion, $9.2 billion or $11.2 billion? Each of those figures has been reported by the company in recent weeks.

And unless you’re an accountant or financier, does it really matter?

MGM Mirage now says CityCenter will cost a total of $11.2 billion, including $9.2 billion for construction, $100 million in “intangible assets” and $200 million for “preopening expenses.”

The $9.2 billion figure receiving the most attention includes capitalized interest, which is an accounting figure used for tax purposes including interest on debt used to finance a project that can be expensed.

Add to that $1.7 billion in land costs – a somewhat artificial figure used for accounting and financing purposes. It doesn’t mean MGM Mirage shelled out $1.7 billion for the dirt. That's the amount MGM Mirage would hope to fetch were the land sold on the open market.

MGM Mirage contributed the land as equity into the CityCenter joint venture, which is half owned by business partner Dubai World. Not including the cost of land in a joint venture is something like not including the value of the land underneath a house in a home appraisal.

Intangible assets aren’t physical assets and can include the value of a company’s mangement team, research and development, copyrights and brands. And preopening expenses – another estimate that’s calculated differently depending on the company – includes money used to prepare a property for its grand opening, which can include marketing and employee training.

Subtracting expected condo sales proceeds of $2.7 billion from the total cost of $11.2 billion, the net budget for City Center comes to $8.5 billion – close to the range of $8.1 billion to $8.4 billion the company reported earlier. Subtracting ethereal-sounding land costs and intangibles gets you $6.7 billion, which is still a whole bunch of dough.

Just for fun, let’s subtract those preopening expenses. The remaining $6.5 billion is still enough to induce dizzy spells among those who can remember the good old days, when you could build a resort complex for less than a billion bucks.

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