Inside Asian Gaming

The Asian Gaming 50 – 2013 MGM Macau is by far the biggest revenue generator in MGM Resorts International’s bulging portfolio of gaming, hospitality and entertainment assets, which also boasts 16 US casinos, including the flagship MGM Grand on the Las Vegas Strip and signature Strip resorts Bellagio, Mandalay Bay and The Mirage. In the first half of 2013, MGM China Holdings, the owner and operator of MGM Macau, in which Las Vegas-based MGM Resorts holds a 51% stake, recorded US$1.6 billion in net revenue, well more than double the $604 million taken in at the company’s second-biggest earner, Bellagio. Of course, without the steady stream of Chinese high- rollers being fed Bellagio and MGM’s other US properties by the Macau operation, the difference might have been even greater. Prior to the $1.5 billion MGM China IPO on the Hong Kong Stock Exchange in May 2011, MGM had held a 50% stake in the Macau operation. Pansy Ho, daughter of erstwhile Macau casino monopolist Stanley Ho, held the other 50%. Ms Ho pocketed the proceeds of the 20% public offering and privately sold an additional 1% to MGM at the IPO price so it could assume a controlling interest. Ms Ho’s stake was diluted to 29%. Given the property’s critical importance to the parent company’s earnings, engineering that buyout may be one of the smartest investments James Murren has made since becoming chairman and CEO of MGM Resorts in December 2008. He had joined the company as CFO in 1998, prior to which he had pursued a career onWall Street 9 James Murren Chairman and CEO MGM Resorts International that saw him lead a pivotal recapitalization of the company’s predecessor, MGM Grand Inc., in 1996 and culminated in a managing director’s position at Deutsche Bank. Mr Murren is credited as the architect of the key acquisitions—Primadonna Resort & Casino in 1998, Mirage Resorts in 2000 and Mandalay Resort Group in 2005—that transformed MGM into one of the world’s largest gaming companies. They also loaded it with debt. Since 2008, he has led an extensive corporate reorganization and cost-cutting which together with a $3.8 billion refinancing kept the business afloat during the financial crisis and has helped it weather a challenging Las Vegas market since. The major drag on the company’s balance sheet when the financial crisis hit was CityCenter, the $8.5 billion resort and retail mega-complex that was under construction at the time in partnership with Dubai World. Getting CityCenter open in December 2009 has to rank as another of his great achievements, but the resort has struggled to produce the earnings that were anticipated for it, and the cash flow contributed by MGM China has been crucial to Mr Murren’s ongoing efforts to manage the company’s US$13 billion-plus of long-term debt. MGM China generated $387 million in adjusted EBITDA in the first half of 2013, up 9.9% year on year. It also declared a special dividend of $113 million, of which MGM Resorts collects $57 million through its 51% share. MGM China has returned $312 million to the parent company so far this year. While the herculean task of debt reduction has consumed the better part of Mr Murren’s five years at the helm—and to his credit he’s displayed some financial wizardry over this time—his strength as a strategic thinker has worked to keep the company as innovative and opportunistic as it is big. Its MGM Hospitality arm has progressed from vision to reality, opening a luxury resort in Sanya on China’s Hainan Island in February 2012. MGM Grand, Bellagio and SkyLofts hotels are planned or in various stages of development in North Africa, in Dubai and Abu Dhabi and in India, and a number of five-star properties are being mapped for cities across China in partnership with renowned Diaoyutai State Guesthouse. Investment firm Union Gaming Research Macau considers the tie-up with Diaoyutai to be “an underappreciated driver of VIP business to MGM Macau”. MGMChina, meanwhile, continues to hold its own as a single-property operation in an increasingly competitive, increasingly multi- store marketplace. Support is anticipated to arrive bymid-2016 with the opening of a Cotai resort, the official groundbreaking for which was held in February. Described by Mr Murren as “our most stunning resort and casino yet,” the property will have 1,600 hotel rooms, 2,500 slots and up to 500 gaming tables. The construction budget is set currently at HK$20 billion (US$2.6 billion). Ed Tracy may not have brought to Macau the flashiest of CVs, but here he’s been for three solid years, two of them as CEO, the pilot in the engine room of the Las Vegas Sands money machine, where he’s currently directing capital expenditure commitments of more than US$3 billion. Since formally taking the helm in July 2011 he’s 10 Edward Tracy President and CEO Sands China Ltd overseen a period of growth and prosperity at Sands China that is remarkable in every respect, not least for its success in re-establishing key relationships with the junket industry and for advancing the development of the brand through a series of significant non-gaming attractions. He’s been a pivotal figure as well for thewelcome level of comfort he’s provided the investment community and the political and regulatory establishment. He’s provided something else in the process, rather more rare in the often tumultuous world of upper management under Sheldon Adelson, and 20 INSIDE ASIAN GAMING | September 2013