Inside Asian Gaming

INSIDE ASIAN GAMING | September 2011 32 15 (22) Jim Murren Chairman and CEO MGM Resorts International While no one is mistaking June’s US$1.5 billion listing of MGM China Holdings as an outpouring of confidence in the parent company’s ability to right its debt-laden balance sheet any time soon, it may well prove instrumental propelling that effort forward. Jim Murren didn’t attend the listing ceremony at the Hong Kong Stock Exchange, but his hand was evident in ensuring the IPO would be priced at the top of its prospective range. His influence could also be detected in the share restructuring that attended the birth of the new Macau-focused public company. MGM Resorts now has 51% of MGM China and operational control of its prime asset, the casino at MGM Macau and its 430 or so table games and 1,000 electronic gaming machines. MGM China has also prepared plans for a second Macau resort on Cotai, said Grant Bowie, the unit’s Chief Executive, in July. In the same month, MGM China’s Chairman Pansy Ho said the company was also interested in investing in Taiwan’s hospitality and tourism sectors, though didn’t specifically mention the Taiwan government’s plan for a casino resort on one of several outlying islands. Under the restructuring of the Macau business that accompanied the June IPO, Mr Murren was able to secure a non-compete agreement with MGM’s original 50% Macau joint venture partner Ms Ho. In other words, Ms Ho will continue to lend her political and business clout to MGM’s Macau story, but won’t step on the Las Vegas giant’s toes by competing with it in Asia via her other business interests at STDM (the tourism investment company founded by her father) and Shun Tak, a shipping and property conglomerate also started by Dr Ho and run by Ms Ho as managing director since 1999. In the meantime, MGM Resorts International gets to continue leveraging its still-stressed domestic balance sheet against earnings from Macau—the largest and fastest-growing gambling market by gross gaming revenue in the world. It’s an indication that despite what some in the industry regard as his mistake in pressing ahead with spending US$9.2 billion on Las Vegas real estate in a weak US market, Mr Murren has at least grasped the big picture on Asia. His strong suit is finance. He was the executive who engineered the multi- billion-dollar mergers that made MGM the dominant operator on the Las Vegas Strip. That strategy also tied MGM’s fortunes strongly to the US economy. The company is now more dependent on the sometimes precarious health of US economic recovery and growth than some investors are comfortable about. His limited experience on the operations side explains in part why one of the industry’s largest multi-property companies was slow in creating a comprehensive marketing network along the lines of Harrah’s/Caesars Entertainment’s Total Rewards. But there are positive global implications to the rollout of the M Life rewards program over the last year, and these will become more apparent when it’s time to cross-sell MGM Macau with the Ho Tram beachfront gaming resort complex under construction on Vietnam’s southern coast. A joint venture between MGM’s leisure development subsidiary, MGM Hospitality, which has branding rights and management control, and Vancouver-based Asian Coast Development, which is funding and building the project, Ho Tram is pretty much pure upside for MGM. It represents one of the more potent examples of Mr Murren’s strengths as a strategic thinker. Taking a majority stake in MGM’s Macau operation via MGM China is likely to prove to be another astute move. The casino generatedUS$309millioninEBITDAthrough the first half—US$170 million of it in the second quarter. To put that in perspective, the company’s CityCenter project in Las Vegas earned US$64 million. As a single property, MGM Macau consistently trails the competition in GGR, but efforts to get its VIP segment on track appear to be bearing fruit. Casino revenue nearly doubled in the first half to approximately US$1.2 billion thanks in large part to a 125% increase in VIP win. A number of high—end villas on the top floors of the hotel tower have been converted into VIP rooms, and more high-roller tables will be deployed on the casino’s second level in the months ahead, together with the second of two lounges on the main floor targeting what the property calls the “premier mass market”. The fourth quarter will see another piece of the Asian strategy fall into place with the opening of MGM Hospitality’s MGM Grand Sanya, a 675-room non-gaming luxury hotel on China’s Hainan Island in the South China Sea. But the parent company remains very much a US-focused concern. The challenges it faces in reducing its US$12.6 billion debt load—including the need to ramp up performance at CityCenter and to resolve a number of thorny post-construction issues there—will consume much of Mr Murren’s energy into the foreseeable future. His Wall Street background (he was director of research and managing director for Deutsche Bank prior to joining MGM in 1998 as chief financial officer) has served him well to date, bolstering his ability to keep lenders onside and thus buy time for Las Vegas to wait out persistent weakness in the national economy. But‘too big to fail’has its limits as a concept, as Mr Murren is well aware and the former investment bank Lehman Brothers found out. In Asia, Mr Murren is building solid financial foundations to ensure that the MGM Resorts International corporate edifice—unlike the unfortunate Lehman Brothers bank—can withstand any further global financial earthquakes.