Layoffs not driven by downturn, casino says

By Liz Benston

Wednesday, April 16, 2008 | 2 a.m.

MGM Mirage sought to quell fears Tuesday that it is slumping badly in the economic downturn, saying the layoffs it announced this week had little to do with declining business.

The vast majority of the roughly 400 manager positions cut companywide would have occurred even if the economy were booming, MGM Mirage President and Chief Operating Officer Jim Murren said. The economic downturn did increase the number of layoffs, however, Murren said.

“I don’t want to minimize the fact that the economy has affected MGM,” he said. “We’d prefer to have the economy we had in ’07 and ’05.”

The company’s swift move to clarify its layoff announcement indicates the level of concern among investors and the casino industry and its workers about Las Vegas during the downturn. Business is off on the Strip, although so far the declines have been relatively small.

MGM Mirage is Nevada’s largest casino company. Murren said its cost-cutting initiative began shortly after he was promoted to chief operating officer — a move that triggered a top-down reorganization of a company that had previously been run as two separate entities, MGM Grand Resorts and Mirage Resorts.

MGM Mirage was formed from MGM Grand’s acquisition of Steve Wynn’s Mirage Resorts in 2000. In 2005, MGM Mirage swallowed Mandalay Resort Group by divvying up Mandalay properties between the two operating units.

“We found many redundancies that were a hangover from the Mirage and Mandalay acquisitions,” Murren said. “We extracted a lot of value from these deals ... but there was a substantial amount of further benefit that we couldn’t have accomplished under the old corporate structure.”

Besides the layoffs, the company has streamlined its interactions with vendors and has reorganized several departments, including technology, purchasing, design and construction, which are like “major companies in themselves,” Murren said. “This is one chapter in a very long process that will be happening as long as I’m here.”

The layoffs, identified after months of analysis, affect about 50 corporate-level managers, with the remainder working at individual properties. About 5,000 of MGM Mirage’s roughly 67,000 employees are management level.

The company hopes to generate more than $200 million in savings and additional revenue each year from the initiative, Murren said.

However, some Las Vegas veterans say the damage from layoffs isn’t worth the benefits. In an interview Tuesday, Steve Wynn said he has no plans to lay off workers and has never done so, preferring more gradual moves such as cutting payroll through attrition, reducing hours of workers and seeking volunteers for days off when business is slow.

“It’s a bad idea, in my opinion, because the people who don’t get laid off think, ‘Who’s next?’ It frightens the workforce,” Wynn said.

Business is slower at Wynn’s high-end property because even the wealthiest customers are being more cautious with their money. But layoffs aren’t necessary because the company has cut its workforce by 300 through attrition, Wynn said.

At Harrah’s Entertainment, about 100 workers lost their jobs when Bally’s closed its buffet recently because business was slow. Harrah’s had laid off as many as 500 corporate-level managers as part of its own efficiency effort, which occurred over many months ending in mid-2007. The cutbacks, like those at MGM Mirage, were controversial.

Harrah’s employees thought the layoffs stemmed from the company’s desire to be more attractive to investors, but executives vehemently denied any connection to the coming acquisition by private equity companies. Executives said the cuts were intended to reduce a bloated workforce and had been in the works before acquisition talks began.

MGM Mirage says business volume has improved incrementally since January. Harrah’s also suggests that volumes appear to be improving rather than declining.

The dominant locals casino operators Station Casinos and Boyd Gaming Corp. have laid off workers because of the economic slowdown. Neither company has quantified the layoffs, though analysts say they were expected because the mortgage crisis has disproportionately hurt the Las Vegas economy.

How the economy is affecting rank-and-file workers on the Strip is less clear.

The Culinary Union, which represents more than 50,000 workers on the Strip, said layoffs and reduced hours through January and February were largely typical for the time of year.

The effect of the economic slowdown on workers will become more clear in coming weeks because workers who were let go during slower months would expect to be rehired now, when business typically picks up again, Culinary Union Political Director Pilar Weiss said.