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StumbleLawsuit clouds future of CityCenter; MGM responds
Dubai World files suit against partner, MGM Mirage over $8.7 billion project
Pedestrians pass by MGM Mirage’s CityCenter project under construction on the Las Vegas Strip on March 6.
Published Monday, March 23, 2009 | 8:14 a.m.
Updated Tuesday, March 24, 2009 | 12:28 a.m.
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- Moody’s downgrades MGM Mirage, again (3-19-2009)
- MGM Mirage gets debt waiver, swings to quarterly loss (3-17-2009)
- MGM Mirage's cash crunch (3-3-2009)
- The state of our engine (3-1-2000)
- MGM Mirage wants to tap $4.5 billion credit (2-27-2009)
- MGM, Dubai World said in talks with Deutsche Bank (2-23-2009)
CityCenter's joint venture partner Dubai World is suing MGM Mirage, claiming MGM Mirage breached terms of the joint venture agreement to develop the $8.7 billion project, forcing Dubai World to fork over more money than expected for CityCenter while MGM Mirage's financial future is in doubt.
In a press release, Dubai World today said that its subsidiary, Infinity World, filed a lawsuit in Delaware Chancery Court to seek a "declaratory judgment and other measures that would relieve Infinity World of its obligations under the joint venture resulting from MGM's breach."
Because of MGM Mirage's financial troubles "the current path of the project is simply unsustainable," Dubai World said. Dubai World also alleges that MGM Mirage mismanaged CityCenter, going over budget and requiring higher-than-anticipated contributions from Dubai World.
Dubai World, which has invested billions into CityCenter, owns half of the project and controls about 9.5 percent of MGM Mirage stock.
The lawsuit further clouds the future of CityCenter, which is scheduled to open in phases beginning in late 2009.
CityCenter managing partner MGM Mirage is one of several casino giants suffering from the dual pressures of a consumer downturn and credit crunch as it continues building its largest-ever resort. The company is struggling to raise more than $1 billion needed to finish the project at a time when banks are reluctant to lend to risky ventures.
Planned before the recession, CityCenter is soaking up needed cash at a time when MGM Mirage's earnings are plummeting.
In MGM Mirage's annual report, filed March 17 with the Securities and Exchange Commission, the company said it could give no assurance, in this economy, that it would be to meet its financial obligations, including funding CityCenter. The company also said there is "substantial doubt about our ability to continue as a going concern". Such disclosures typically precede a Chapter 11 bankruptcy filing, though MGM Mirage has indicated a desire to negotiate with banks outside of bankruptcy court and look for other ways of slashing debt.
MGM Mirage also said it had received a waiver from bank lenders on certain financial requirements until May 15, after which MGM Mirage could default on loan terms or renegotiate terms. A default could force the company into bankruptcy court by triggering immediate repayment of the company's debts.
Some analysts believe MGM Mirage will seek bankruptcy protection as a way of reducing debt to a more manageable level. Filing for Chapter 11 bankruptcy might put CityCenter, and the billions of dollars Dubai World has invested in the project so far, at risk.
Dubai World said it had "no other option" but to file a lawsuit to protect its investment after MGM Mirage's March 17 disclosure.
"Essentially it is being asked to pay significantly more and getting less, with only uncertainty about MGM's future," Dubai World said in the press release.
According to the lawsuit, the joint venture agreement between MGM Mirage and Infinity World states that written admission of MGM Mirage's "inability to pay its debts" constitutes an "event of default". MGM Mirage also defaulted based on a "material breach of a representation and warranty" outlined in the joint venture agreement, the lawsuit continues.
"What we are attempting to do is complete this project," George Dalton, group general counsel for Dubai World, said in an interview with the Associated Press.
"We're anxious to work with them, but we need to see them come out of their financial problems," Dalton said.
Dalton also questioned the validity of MGM Mirage's May 15 target date, telling the Associated Press there is "no certainty" the casino operator can continue to operate that long.
"Our concern is for the long term health of the project," Dalton said. "We want to see some certainty (from MGM) before we continue with our obligations."
MGM Mirage issued a statement early Tuesday calling the lawsuit "completely without merit.''
"Dubai World is well aware of our written commitment to meet our funding obligations and that MGM Mirage has available cash to satisfy those obligations. MGM Mirage is ready, willing and able to fund its share of the costs to complete CityCenter, including a required payment this week,'' said the statement from Alan Feldman, MGM Mirage senior vice president of public affairs.
"We look forward to working with Dubai World to resolve any outstanding issues and complete this landmark project,'' he said.
The company said on March 17 it lost $1.1 billion, or $4.15 a share, for the fourth quarter of 2008, compared to a profit of $872.2 million, or $2.85 a share, during the same period a year earlier. Revenue fell 15 percent to $1.8 billion over that period.
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Before anyone gets in here celebrating a gloom-and-doom I-told-you-so philosophy, this is simply businesses jockeying for position.
Yea thats it James, sounds like everyone is very happy in the gaming world
A massive undertaking even by Las Vegas standards in good times and in bad. Perhaps they should have developed it in pieces rather then as a whole...finish one part..if the economy fails as it did...it amounts only to undeveloped land and not skyscrapers sitting there looking 1/2 completed
Hindsight being 20/20, this is a posture more than a tangible shift in the CityCenter development.
How many jobs will be "laid off" while this simple business jockeying takes place. If you don't think the completion of City Center is in danger, you don't realize how serious the lack of visitors to a city doubling it's casino hotel space is.
People in this town better realize that if they are "cheering" for MGM and/or City Center's demise, if this comes to be, unemployment throughout the town and foreclosures are going to go through the roof...
If you think things are difficult now, everybody better get behind this project and hope for the best, because things could've "just gotten worse"...
...for all of us...
I agree with Ninjazxz7r... This is going to put our local economy even further down the drain. I have been laid off from MGM for six months and City Center was supposed to be the saving grace for over twelve thousand people who are looking to work there. Not to mention the jobs at the other casinos which would need to be filled by the employees that are moving to City Center.
The Treasure Island employees are the luckiest people in the city if you ask me. They got bought out just in time. Congrats TI staff!!
It sure would be too bad to see Bugsey s desert oasis turn back into just that, all because of greed.The corporations had the blue prints laid out for them on how to take people s money for almost nothing,and instead of just takeing part,they had to have it all baby! Me thinks its ripe pickings for the mob to buy back there way to THERE TOWN! Wanna be gangs, watch out!!!
I was wondering who are all these uninformed investors funding these projects at this time.
This is part of the recovery process. The sooner the better. Perhaps they could sell off each of the towers individually to someone with the cash to complete them and run them properly.
I understand that MGM is a great place to work. Perhaps they can restructure and trim down to a size that is manageable.
Las Vegas will soon look like it did in Resident Evil: Extinction. I had no idea that film was a documentary. I thought it was a poor sci-fi actioner with a couple of cute girls who can not act.
I miss the El Rancho and the Last Frontier...;-)
I don't believe anyone wants MGM to fail. But some of you folks need to get a grip.
Reza "jockeying for position."? you mean get in line, as a shareholder, I'm at the end of the line.
MGM shot for the moon. Real Estate will never go down, the economy can only get better, Terry Lanni as CEO forced to resign because he lied about his credentials, countless building blunders, condos scratched from plans, credit rating reduced to just above default.
Apparently you haven't read their most recent SEC filing. I have, it's bad. I've watched my investment in city center crash tenfold.
Should I hang on to this boondoggle till it get's to be worth pennies, then goes poof?
Sure things will get better, eventually...
This is really bad news for everyone involved.
If this project gets put on hold it may never get going again.
Maybe when the dust settles, and Dubai World-Infinity World ends up owning 100% of CityCenter, MGM can bid on the casino management contract. I don't know if Dubai World was technically the silent partner before but they sure are making noise now.
LV still has almost 3,000,000 flights here a month and an estimated 2,000,000 who drive here a month. Extinction is when nobody is coming, I find it hard to justify predicting that when this is STILL the #1 tourist destination in the US. This place compares to Mecca, literally in annual tourists
Buyers Remorse
Is this Dubai World's scapegoat? I'll be the first to admit I really don't understand business, but as a mgm mirage employee.. even when the economy was looking good i thought this was a massive undertaking. Mgm mirage seemed to become very greedy and trying to expand in an unsustainable way. As an employee, I'd have to guess we should prepare for massive layoffs or properties going' up for sale like Ti recently?
Things are really bad in Dubai; they recently got a bailout from Abu Dhabi. Dubai went nuts building a vacation paradise, complete with the tallest building in the world, and man-made islands with huge hotels. It's been estimated that they will run out of oil and especially natural gas, by 2015. Stories tell of hundreds of cars being left at the airport by ex-pat workers who are fleeing the country in droves. So it's natural that a country that is going down in flames is suing MGM, whose pie-in-the-sky project without financing in hand may bring them into BK. It's kinda' like when you wake up in the morning, and wonder how you ever decided to "partner" with that lump beside you. Too late, kids, you're both to blame.
Just accept the fact that MGM was too, to greedy. They wanted to expend to much and did not really know the market. Blinded by free money. As some one mentioned it should have been done in phases. It is not "doom or gloom" happening in Vegas but just a readjustment to the realities (as harsh as it is) of the market. Bring back the "Rat Packs" Vegas.
Maybe the President will diss us in tonight's ADDRESS TO THE NATION. If he wasn't so phobic about FOX networks he could just ask to guest judge on American Idol instead of always preempting it.
Neiman1 would you stop bringing your comments about Obama into articles about Business and Gambling. HE HAS NOTHING TO DO WITH IT!!!!!!!!!!!!!!!!!!!!!. Take your political views to the "politics" section.
Yeah, Neiman1......Obama does not have the skills to help the economy.
So far that $13 a week tax credit is working wonders.
So quit picking on the poor dude.
I enjoyed the comment from goingbust about "Resident Evil: Extinction". I love it when Ali Larter declares to her people "We're going to Las Vegas!" So even in the bombed-out future, Las Vegas is still the #1 tourist destination. One year ago I saw "Hans Klok, Magician" at Planet Hollywood. "Resident Evil: Extinction" was having its premiere at the casino. I could have caught a glimpse of Milla Jovovich but the Hans Klok show was starting. It's amazing how prophetic the movie has become for the city. When I went to Vegas last November to see "Scarlet Princess of Magic" it really did look like Resident Evil: Extinction--I mean the sidewalks were empty. It was scary. The problem with the world is not that there isn't enough money--it's that the money gets WASTED on stuff like artificial islands in Dubai, half-built City Center in Las Vegas, a war in Iraq, etc. Here in Los Angeles the monument to waste is Walt Disney Hall--a cramped and uncomfortable symphony hall that cost $300 million and it looks like something out of "Resident Evil". lol I definitely have to rent the DVD of "Resident Evil: Extinction" and see it again.
City Center was just another bad choice in the old economy.
There is no way that would have been green lit if there was any hint of how the economy was to become.
I feel for Mr. K. having to deal with this at his age.
A very distasteful situation all around.
It'll be interesting to see how it all plays out.
This lawsuit is just a game of chess, and smart on the part of Dubai. Dubai is in trouble, and now MGM is as well. Instead of Dubai taking only part of City Center they will use this lawsuit as leverage to get a piece of MGM as a whole. Its a shady business practice, but happens all the time. Dubai knows MGM is vulnerable, and instead of dealing with the lawsuit, MGM will settle offering Dubai part of MGM itself so they can make more money - now just not with City Center itself, but all of MGM properties. Dubai is simply forcing a full partnership with MGM.
Kerkorian might end up putting some of his estimated $5,000,000,000 outside of MGM stock into the pile like Aldeson did.
i don't think anyone "celebrates" gloom and doom, but most of the "news" we get is "cut and paste" journalism where they take a press release that has been cleansed and massaged and spun so much that most of the "news" we get is just commercials.
mgm got greedy. period. the business model that has been proven to work is build things in parts. bellagio, mandalay bay, the palms, etc. all started with ONE building that was used to generate revenue to pay for the other buildings.
now they're stuck with this stillborn project and from what this story tells me is that "big daddy" has cut up their credit card.
it's both sad and good at the same time. sad, because it's pretty obvious there are no jobs coming online at this place any time soon. good, because mgm will probably have to sell some casinos. the minute there were only 3 or 4 companies running everything on the strip is the minute vegas started to suck. the resorts didn't have to compete with the guy next door because they were owned by the same company.
now the mirage has to compete with treasure island so the mirage BETTER have a damn good buffet, and for $1,000 for a bottle of grey goose at jet, i better have a hot asian girl in 6 inch heels making my drinks.
And the meek shall inherit the earth...
"Yeah, Neiman1......Obama does not have the skills to help the economy. So far that $13 a week tax credit is working wonders. So quit picking on the poor dude."
The tax credit hasn't even gone into effect yet, but that won't stop jfNance32 from blaming Obama! He just can't exhaust his irrational hatred of our President.
And, huh, the last time I checked, the S&P was up over 7% today, thanks to the Administration's plan.
This Dubai World lawsuit does seem like more of a power play. Give a year or two for recovery, and CityCenter could thrive.
Dubai is suing because Dubai is going broke. It is in much worse shape than Las Vegas and would be an 11 on the speculation scale while Las Vegas would be a 5.
Read this if you want a glimpse into the future of Dubai". -> ://www.nytimes.com/2009/02/12/world/middleeast/12dubai.html?_r=1&em
In Dubai people aren't paying their mortgages or car payments (sound familiar?). The airport parking lot is filled with cars purchased by people who bought one way tickets out of Dubai".
Give it up all you people in Vegas. You are not the media darling you once were. You are just the now the ideal example of the problems with this economy.
Hey Sabibaby - don't make an argument out of situation that doesn't exist. Yes Dubai is hurting big time - we all know the story, the luxury cars left at Dubai International, bla, bla, bla. The lawsuit is what it states: MGM broke the contract! MGM Cost overuns and mismanagement!If I put 50% into that disaster, I would sue to protect my investment too!
Stop saying Vegas is still a "tourist mecca" when the hard core numbers say likewise.
I said it once and I'll say it again. It's very hard for us regular folk to sympathize with an industry whose motivation (especially in recent years) was to separate the customer from his money as fast and I mean as fast as possible! They didn't have to get so greedy, but they thought they were the new masters of the universe. In retrospect, MGM people and the rest were the dumbest execs in recent history!
By aiming for a "breach" in the Partnership agreement, Dubai World seeks to position itself for "damages" , which could, if awarded, place Dubai World in the position of a creditor. The theory of contract breach, according to Dubai World, arises from two causes. First, MGM Mirage's announcement of its "inablity to pay its debts"( which technically speaking they may not have done at this point) and a "material
breach" of a "representation and warranty".
Declaratory judgements" are judgements that are handed down by the court that indicate how the court would likely rule in the event that the case actually were tried. No damages are actually awarded under a declaratory judgement. In the instant case it appears that this is a long shot attempt by Dubai World to protect itself by positioning around conditions in the partnership agreement.
In the real world, courts do not often issue
"delaratory judgements". If I had to make an estimate on the merits of this case, I would state it is a long shot at best. Depending on the terms of the partnership agreement MGM Mirage as "managing partner" quite possibly could have recourse against Dubai World for additional financial support needed to complete Dubai World's share of the CityCenter's projected costs. I note that Dubai World did not specifically mention the construction defects in 15 floors at the Harmon building and the decision by MGM Mirage to cut that building almost in half. Without a full copy of the partership magreement it isn't possible to ascertain the rights, obligations and remedies of the parties. In any event, Dubai World is running out of time based on the financial prognosis for MGM MIRAGE.
vegas is not a "mecca".
that's the same arrogant thinking like "vegas is recession proof" that is part of the reason we are at 10% unemployment.
nobody thought we'd see 7%, or 8% or 9%, now we're at 10% with 11% coming soon.
This fiasco reminds me of not only "Resident Evil: Extinction" but also "Robocop 2". In that 1991 film the city of Detroit is facing bankruptcy (sort of like the state of Calif. now) and a drug dealer offers the mayor $50 million to save the city, in exchange for the legalization of Nuke, a new drug hitting the streets. In the meantime, the evil OCP corporation (Omni Consumer Products) reveals a new development for the city that is supposed to be a spectacular vision of the future (sort of like CityCenter). CityCenter was supposed to be some kind of futuristic vision of city living--but instead it's turned into the biggest construction disaster ever.
...as far as leaving cars at the airport in Dubai..they are only partly paid off in most cases and jail is the result of defaulting on a loan...as far as this lawsuit...OMG
Don't worry, our ethical Sen. harry Reid has called banks to get MGM the money. What a web we weave when government takes over our banks and controls the taxes too.
It's an Obamanation.
Neiman1
So did our ethical Sen. John Ensign.
neiman1 must be a total loser. he posts at least 3 times on EVERY story, EVERY day.
Back when gas was at over $4 a gallon major companies in Dubai, Suadi Arabia thought that this price would stay forever. They started taking loans and spending money to purchase businesses, make exspansions on businesses as if the flow of money was neverending. Well as we know gas prices did drop back down to a reasonable price leaving these corporations overextended. I believe this may be the reason Dubai World wants to back out. A contract was signed between Dubai World and the MGM. Its time for their lawers to battle it out.
GREED GREED GREED brought down everything! How fast can i get rich! And that go s to everybody that boworred more than they could pay back! As for vegas, until people hear and see people winning as they walk by, it will continue to falter!!! Word of mouth has caught up on this town,and its time they relize that a good vibe to the people that go home,becomes word of mouth! Not only do they have to worry about the bottom line,but who s gonna be left to take care of the people if,and when they do return???
Houstonjac: You say "By aiming for a "breach" in the Partnership agreement, Dubai World seeks to position itself for "damages" , which could, if awarded, place Dubai World in the position of a creditor."
I did a lot of partnership litigation in my time, and the rule is that one partner cannot get a judgment for damages against another partner. The only remedies are (1) a court supervised accounting for all money going in and out of the partnership, including any ripped off by either partner and (2) dissolution of the partnership.
I agree with the commenters who have said that Dubai World filed this lawsuit to provide cover for its decision not to put any more money in the project. The lawsuit will become entirely irrelevant when somebody decides to put the 50/50 City Center joint venture into a Chapter 11 bankruptcy. The case will automatically move into the bankruptcy court's jurisdiction, and he or she will react to it the way bankruptcy judges commonly do with respect to "partnership litigation"...by treating the plaintiff as a cry baby.
A few things for all of you to consider:
1.)MGM had appropirate funding set aside before this project had the slightest amount of dirt removed from it's building site.
2.) The CityCenter has employed such a significant number of people during the construction phase in the Las Vegas area that many of the nay-sayers to the project itself or it's future success need to look at who has been supporting their paychecks from casino jobs to material suppliers. Think about where your cash to pay living expenses has come from...an immense number of jobs were created and extensive training was undergone by the people who have struggled to build one of the most structurally intricate and hand-down the most note-worthy privately funded project as of today.
3.) As a side note, Obama cannot find a way to keep our money and paychecks in U.S. circulation...Does anyone out there realize that we are funding training for Mexico's military which cannot control their own cartels that are infiltrating Phoenix...? Mexican gangs are moving our way and Obama is assisting in their progression into the United States.
4.) DuBai has had United States bail-outs...MGM has not, nor have any of their contractors. DuBai is whining over their own problems, although we will certainly see many people visiting CityCenter from their conuntry once the project is complete.
Bottom line: the money is allocated and will be paid for. It will make it's return on investment. City Center is one of the world's greatest construction feats. Smaller projects get into deep trouble and even deeper, with more valid legal situations. Stop complaining and give it a chance to make up for Obama's errors to support your community. Las Vegas needs it right now and it will succeed.
There is some Very Interesting Reading at the financial website seekingalpha.com regarding the 4th quarter earnings of MGM. In the Q&A, the situation with City Center is covered at length. It is the transcript of the telephone conference, with all parties participating identified, and can be found at: (Occurred 3/17/09 - Posted 3/21/09)
http://seekingalpha.com/article/127080-m...
Thank you gbossing, felix,jfinance, stevem and Captjack
Neiman1 is a very bitter person. OBAMA WON DUDE!! MOVE ON WITH YOUR LIFE!!! If you don't have a solution or any suggestions....SHUT UP!!
I'll never stop saying it. You can teach an old dog new tricks but you can't teach a dumb dog nothin'
Funny thing is, it's just a few days over two months of Obama being sworn in as president and people like to put the blame on him for everything already. Ridiculous. We all know who messed everything up, we've just begun seeing the effects of it all.
You can pin the blame on Obama all you want... Eight years from now!
the economy was bad in previous administration just like his dad the war story out play the economy story. if the senate doesn't passed the bankruptcy bill. i got news for there will be a major hike in the foreclosure
recruiter007, as I have said before why do you bring Obama into this? HE HAS NOTHING TO DO WITH MGM's ILLS!! And yes you are all rah-rah about CityCenter but look at the situation that MGM is in. Accept the fact that Vegas is overbuilt and the only one to blame are the corporations
Stevem you said it all. The minute three or four companies owned everything on the strip is when everything started to suck!