Despite slowdown, casino giant spending big

MGM Mirage is investing beyond the $8 billion it’s paying to build CityCenter

Monday, May 12, 2008 | 2 a.m.

Even as gamblers, shoppers and diners are clutching to their dollars and Las Vegas reels from the worst economic slowdown since Sept. 11, MGM Mirage is spending billions of dollars on itself.

The spree includes more than $1 billion to buy back company stock, plus another billion on new projects and upgrades.

This comes as MGM Mirage is building its $8 billion-plus CityCenter.

Despite its aggressive spending, MGM Mirage is a Wall Street favorite. Its financial position is strong, with at least $7 billion sitting in the bank — bonds the company raised years ago, before the economy went south, at mostly fixed rates.

Rather than draw upon those funds, MGM Mirage — which has sold $1.7 billion in condos at CityCenter — expects to raise the remaining $3.5 billion it needs to finance the megaproject from major banks that are supposedly eager to work with the company, even as smaller, more leveraged companies can’t get appropriately priced loans at all.

In part because of its relationship with Dubai World, MGM Mirage can assemble financing more easily than other companies.

In the meantime, MGM Mirage has accelerated plans to upgrade rooms at several of its hotels — a seemingly counterintuitive strategy during a business slowdown. The company sees it as akin to a pit stop during a yellow flag in a car race: When the economy returns to full speed, it will be better positioned to make money.

“We see this as an opportunity for us, not only to streamline our business and be more efficient but to spend more money than the competition,” Chief Financial Officer Dan D’Arrigo said Tuesday, the same day MGM Mirage reported a 30 percent dip in first quarter profit.

Even before the slowdown, the company started a cost-cutting campaign, which includes selling more rooms through company-owned Web sites versus sharing revenue with online booking companies and more efficiently managing room inventory.

MGM Mirage has automated some back-office functions, including installing equipment that automatically dispenses uniforms to workers, and is implementing software to rate table game players — technology that can cut costs by reducing freebies for unprofitable players while increasing comps for valuable ones. The company is dropping consulting contracts, trimming travel and advertising budgets and reducing the amount of supplies it has to store in warehouses.

MGM Mirage is “expecting that this is going to be a short and shallow recession,” said Dennis Farrell, a bond analyst with Wachovia Securities, and doesn’t want to lose momentum in maintaining its market position.

The company’s primary competitor, Harrah’s Entertainment, can less afford to reinvest in its properties since the company’s buyout by private equity firms. That deal cost Harrah’s $31 billion, including the purchase of Harrah’s stock, refinancing the company’s debt and other fees related to the transaction.

Harrah’s isn’t being stingy with cash during the slowdown, either. The company is spending more than $1 billion on a new hotel tower at its Caesars Palace flagship and $1.8 billion on three major projects outside of Las Vegas: a Margaritaville-branded resort in Biloxi and expansions at its Harrah’s Atlantic City and Horseshoe Hammond casinos. But these long-planned projects don’t leave much flexibility for the company to spend additional money in Vegas, analysts say.

MGM Mirage “generates free cash flow and has a low cost of debt,” Jefferies & Co. stock analyst Larry Klatzkin said. “That’s a big difference” from Harrah’s, which has a “sizable debt burden at much higher cost.”

There’s another quality to MGM Mirage that’s attractive to Wall Street, even as investors are nervous about Las Vegas’ ability to attract legions of new visitors to help fill more than 30,000 new hotel rooms over the next couple of years.

The company’s decision to buy back stock is a sign that executives are banking on growth potential beyond the gaming assets it owns today, Farrell said.

Through its recently-created hotel management subsidiary, MGM Mirage hopes to accumulate management contracts and license its brand to hotels built by partners. These would include nongaming luxury hotels in places such as Abu Dhabi, Dubai and China, with more to come.

Licensing and management deals can be a lot more profitable than casinos, which cost a great deal of cash to build and maintain, Farrell said.

Last week, MGM Mirage President and Chief Operating Officer Jim Murren predicted the company’s hotel division will “grow into a large company” that will generate significant income with little risk or debt — a characteristic of hotel companies whose shares trade much higher than their casino counterparts, relative to profit.

“We are a capital-intensive business but we think we can outthink our competitors,” he said. “This will be a complement to what we’re doing and will improve and diversify our earnings.”

Discussion: 5 comments so far…

By SPFPAUNIONYES

5/12/08 at 1:18 p.m.

Suggest removal

Instead of MGM MIRAGE investing in their properties and Dubai, they should start investing in giving their Casino Security Officers a RAISE and RETIREMENT Benefits!

The fact of the matter is that when a MGM MIRAGE Casino Security Officer retires he will have NOTHING in his Retirement Fund if he himself has contributed to it.

Presently the International Union, Security, Police, and Fire Professionals of America,(SPFPA) is conducting a city wide campaign to bring awareness to the Poverty area standard wages and benefits casinos like MGM MIRAGE are paying their casino security officers in Las Vegas.

Some of the things the casino security officers are fighting for are as follows:

Guaranteed Job Security

Across the Board Wage Parity within MGM Mirage Casinos

MGM Mirage Company Paid Retirement Benefits

Guaranteed Seniority Rights

Yearly Wage Increases that reflect the cost of living

100% Family Medical Benefits Paid for by MGM Mirage

Grievance and Arbitration Procedure

Better Training for all MGM Mirage Casino officers

Increased Staffing Levels and Less Turnover

Protection Against Sub-Contracting our Jobs to an Outside Company

A Written SPFPA Union Contract Protecting our Rights and Jobs

Uniting and Achieving Collective Bargaining Rights for all 7777 Casino Security Professionals

Casino Security Professionals working for MGM Mirage and all other Las Vegas Casinos. One Citywide Master Union Contract!

MGM Mirage Recognizing Our RIGHT to Unionize with SPFPA Without any Fear, Retaliation or Union - Busting Scare Tactics!

A Real Voice on the Job!

RESPECT!
By SPFPAUNIONYES

5/12/08 at 1:19 p.m.

Suggest removal

MGM Who Refuses to RECOGNIZE The Casino Security Officers RIGHT to Unionize have intern decided to fight by hiring MILLION - DOLLAR UNION - BUSTERS who's sole job is to put FEAR into their employees with daily mandatory Union-Busting meetings.

Martin Jay Levitt, 1993, Confessions of a Union Buster said it best when he stated:

“Union busting is a field populated by bullies and built on deceit. A campaign against a union is an assault on individuals and a war on truth. As such, it is a war without honor. The only way to bust a union is to lie, distort, manipulate, threaten, and always, always attack.”

The irony of union busters is that management is extremely fearful of “losing control” of the workplace and sharing power with its workforce in the form of a union. Yet they happily hand over control of the workplace to the union busters they hire who do exactly that—directing the entire campaign and in effect taking control of the workplace by telling management and supervisors what to say, what to do and how to act. The money that management squanders on these union busters would be much better spent on dealing with the real workplace issues.

In closing I would like to state that as MGM Mirage continues to accelerated plans to upgrade rooms at several of its hotels it won't really matter since the SPFPA and several other unions are Planning daily Informational Picketing at six of their 10 casinos: Mandalay Bay, Luxor, Excalibur, New York New York, Monte Carlo and MGM Grand to EXPLOIT Their Union - Busting Tactics and how they rather pay Union-Busters Millions of Dollars just to walk through the door, rather then give their Casino Security Professionals a Company Paid Retirement Plan and/or decent Benefits and a Living Wage.

To remind Terry Lanni of his words he once spoken..

"The last thing you want is for people who are coming to enjoy themselves to see pickets and unhappy workers blocking driveways,"

Mr. Lanni said. "I swore then that we would Never have Such Problems Again."

Well Mr. Lanni when we invite WORKERS FROM ALL AFL-CIO UNIONS, UNITE TO WIN COLLATION, JOBS FOR JUSTICE, TWU DEALERS LOCAL 721 Las Vegas, SPFPA Members, Your employees, Friends and Family Members, and a few other Surprises to Help Picket Your Casinos we will see if you will then RECOGNIZE YOUR CASINO SECURITY OFFICERS RIGHT TO UNIONIZE!

http://www.SPFPALOCAL7777.ORG

STEVE MARITAS
SPFPA ORGANIZING DIRECTOR

PS: Imagine if you Added 300 Homeless People to the MIX on Memorial Day Weeke
By eccitante

5/12/08 at 2:31 p.m.

Suggest removal

Find another job with better benefits. Make yourself more valuable and find a job with a better company. Competition works both ways... Start your own company, be an entrepreneur and create jobs instead of acting like you are entitled to one....
Or better yet take your sense of entitlement with you and move to a socialist country.
By vegaslee

5/13/08 at 10:58 a.m.

Suggest removal

A union spammer that took the job knowing what it paid and what the benefits were now he wants to complain about what he agreed to.

Very typical of people that want a union to protect them from having to do their job.

You don't like the job you have, get off your butt and get another one. It really is very simple.
By revbobdobbs

5/13/08 at 7:17 p.m.

Suggest removal

Given my experience with casino security (and your feeble grasp of the written English language), you get no sympathy from me. What's wrong, couldn't cut it at Metro's police academy?