Inside Asian Gaming

inside asian gaming September 2015 20 James Murren Chairman and CEO MGM Resorts International  MGM Macau is the biggest revenue generator in Las Vegas- based MGM Resorts International’s bulging portfolio of gaming, hospitality and entertainment assets, which also boasts 16 US casinos, including signature Las Vegas Strip resorts Bellagio, MGM Grand, Mandalay Bay and The Mirage. But the revenue and EBITDA contribution from MGM Macau, operated by MGM China Holdings in which MGM Resorts International holds a 51% stake, has been declining in line with Macau’s current travails. In the second quarter of 2015, MGM Macau generated US$557 million in revenue, down 33%from$828million in the year-agoquarter, while adjusted property EBITDA fell 37% to $132 million. The property’s share of total revenue generated by all resorts owned or managed by MGM Resorts International declined from 32% in the second quarter of 2014 to 23% in Q2 2015. The group’s wholly owned US properties, however, generally saw improved performances, with total revenue up 4% to $1.7 billion. The notable exception was the company’s second biggest earner, Bellagio, where revenues, which rely heavily on Chinese high-rollers, were down 4% in the quarter. During its second quarter earnings announcement, MGM China reiterated that the $3 billion, 1,500-room MGM Cotai was on budget and schedule to open in the fourth quarter of 2016. Ahead of MGM Cotai coming online the company is short of hotel rooms, with a mere 582 at MGM Macau, which opened in 2007 on the city’s peninsula. “We have been tremendously capacity- constrained on hotel rooms in Macau,” noted James Murren, chairman and CEO of MGM Resorts International. MGM China also needs more tables—of the 5,814 gaming tables in Macau as of the end of June 2015, it operated just 427, by far the lowest count in town. The additional capacity at MGMCotai will be crucial to supporting the company’s steady shift in focus away from the VIP segment towards the high-margin main floor business. A record high of 80% of MGM China’s profit derived from the mass segment in the second quarter, with an additional 49 gaming tables being shifted from VIP to mass, which now represents close to 60% of the previously VIP- centric MGM Macau’s table allocation. In addition to MGM China’s contribution to MGM Resorts International’s bottom line via dividends and license fees, the Macau operation also drives business to the company’s US properties. “The combined efforts of the US operators that are in Macau, bringing customers to Las Vegas, benefits all of us here,” acknowledged Mr Murren. 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 theproperty’s importance to theparent company’searnings, 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 megacomplex 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$12.5 billion in debt. While the herculean task of debt reduction has consumed the better part of Mr Murren’s seven 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. 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. “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.”