Inside Asian Gaming

September 2014 inside asian gaming 21 >> hospitality and entertainment assets, which also boasts 16 US casinos, including signature Las Vegas Strip resorts Bellagio, MGM Grand, Mandalay Bay and The Mirage. The company also owns 50% of the sprawling CityCenter hotel complex on the Strip, featuring ARIA Resort & Casino. In the first half of 2014, MGM China Holdings, in which MGM Resorts holds a 51% stake, recorded US$1.8 billion in net revenue, almost triple the $652 million taken in at the company’s second- biggest earner, Bellagio—and 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. “Well, there’s no doubt that we’re getting more high-end business here in Las Vegas as a result of our increased visibility in Macau,” acknowledged Mr Murren during the earnings call. “And the combined efforts of the US operators that are in Macau, bringing customers to Las Vegas, benefits all of us here. So we get a good share of that play regardless of who brings them over here. And our competitors get a good share of our customers’ play when we bring them over. It’s the nature of this business.” 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 Mr 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 on Wall Street 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 recapitalization and cost- cutting which together 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 Mr Murren’s 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$12.9 billion in debt. MGM China generated $451 million in adjusted EBITDA in the first half of 2014 and has been supplying its parent with a steady stream of dividend checks. While the herculean task of debt reduction has consumed the better part of Mr Murren’s six years at the helm, 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 two luxury resorts in Sanya on China’s Hainan island over the past two years. 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. All these are expected to drive visitation to MGM Resorts’ gaming properties in Macau and the US. “It’s still early days on hospitality,” said Mr Murren during the earnings call. “Once we open a hotel in a major market like Beijing or Shanghai, the two projects that are under development right now, that will have a bigger impact [on the company’s US operations]. But as we stand right now, our two hotels are in Sanya, which is in Hainan Island, which really more benefits MGM Macau.” His friendship with Steve Wynn is in ruins. He’s been unceremoniously tossed out of the giant resort company they founded together, whose public listing he helped bankroll. He’s been rejected in South Korea. Any chance he might be licensed for a casino in his home country of Japan is likely doomed. In the Philippines, where his problems began, he’s been under a criminal investigation for nearly two years. Kazuo Okada Chairman Universal Entertainment