President of MGM Mirage says profit suffering from growth of tribal casinos

By Liz Benston

Thursday, Sept. 30, 2004 | 10:51 a.m.

Competition from tribal casinos has likely cut revenue at MGM Mirage casinos by about 3 percent to 4 percent a year over the past several years as Indian-owned properties have grown in scope, according to a top MGM Mirage executive.

In an interview with In Business Las Vegas, a sister publication of the Las Vegas Sun, MGM Mirage President and Chief Financial Officer Jim Murren said the company's revenue continues to grow but that the growth rate has been slowed by the proliferation of tribal casinos.

"If you told me Native American gaming would flatten out right now I'd say we've weathered the blow," Murren said. "But that's not what's happening."

Profit growth also has suffered, though it has been most pronounced at the company's three casinos in Primm near the California border, he said.

The company's Whiskey Pete's, Buffalo Bill's and Primm Valley casinos now make about $35 million in profit compared with $75 million in prior years, he said.

"We still have the same hard-working men and women there, we still put money into the properties," Murren said. "We're still trying to create business and build back business that we've lost to the Native American casinos."

For years MGM Mirage and other properties have said that Las Vegas is well-positioned to withstand the growth of Indian casinos. In recent months, MGM Mirage -- which operates the largest number of major Strip properties in Las Vegas -- has offered a more pessimistic outlook for the future. A key reason for its pending merger with Mandalay Resort Group is to strengthen the company against stiffening competition from tribal casinos, executives say.

Murren said the company is adapting to a market that is changing rapidly.

"We're running on this treadmill and someone keeps jacking up the speed on us and we have to keep running faster and faster," he said. Tribal casinos "are growing far more rapidly than we are and they're borrowing at cheaper rates than we do. They're building not $100 million casinos, they're building half a billion-dollar casinos and on their way to building billion-dollar casinos and going into more and more areas."

With the merger, MGM Mirage would own 11 megaresorts and control the majority of rooms and casino space on the Strip. The Federal Trade Commission is scrutinizing the deal to determine whether it would end up hurting consumers.

Keith Schwer, executive director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, said companies across many industries often complain about intensified competition whenever they are scrutinized by the government for tax or regulatory purposes.

The true effect of California's tribal casinos on the Las Vegas economy hasn't been effectively studied and is largely speculative because much tribal data is private, he said.

Tribal casinos' market share is growing but the market for gamblers is growing as well, Schwer said.

There's also no great incentive to study the subject because the casino industry remains divided. While some companies are enthusiastic about Indian casinos and are striking deals with tribes, others are refraining from development deals or looking elsewhere for growth, he said.

It would have been difficult in recent months to see a negative effect from tribal casinos because overall economic activity on the Strip has rebounded in the latter part of 2003 and so far this year, Schwer added.

Unlike some of its Las Vegas competitors, MGM Mirage probably won't pursue contracts to manage and develop casinos for tribes because it has "better opportunities" tied up in large tracts of land it owns in Las Vegas and Atlantic City, Murren said.

The company has struck casino deals in the United Kingdom and Macau, China and is considering others in Singapore and Thailand, where it believes potential profit is greater than emerging casino markets in the United States, he said.