Two Way Hard Three | Las Vegas Casino & Design Blog

March 17, 2009

MGM Mirage Reports Fourth Quarter 2008 Results

Posted by Hunter

MGM Mirage has posted their late filing of their results from the fourth quarter of 2008.

Summary from the company here:

Unless I'm missing something, seems like they intentionally left out some of the worse looking numbers, leaving analysts and readers to compute them for themselves. Loss per share of $4.15? Not good. Occupancy hovering in the 85% range - I was actually expecting a bit worse.

The language in the filing , likely required by auditors, is pretty stark - it spells out the trouble that MGM Mirage is in regarding financing the completion of their projects.

A conference call is scheduled for this evening and this post will be updated once I have time to read the whole filing.

Update: More from the WSJ:


Read archived comments (18 so far)
March 17, 2009 2:44 PM Posted by Brian Fey

Its not as bad as it sounds. They actually only lost about .10 per share, if you take off their one time write down on asset values. They did buy another 60 days with their lenders. The real good stuff should come in the call. We'll see how their tone and Q&A goes. And see if they point to any signs of things improving. I know so many people either in Vegas right now, or going over the next few weeks. I think Vegas is staying pretty busy, but not at the right prices. This comes to show, they can keep it full with major discounts. I still say MGM-Mirage lives past this disaster.

In another note, I'm sure the new Wynn shareholders were happy, as they cleared 10% gains on their first day of ownership. Looks like Wynn Resorts will pocket close to $185 Million due to the addition of even more stock than the original 7 Million shares announced. Looks like it was increased to over 9. A buy at $19 in the morning, that's worth almost $21 at the days' end, isn't a bad purchase.

March 17, 2009 6:54 PM Posted by NavinR

The conference call was realistic but strangely positive. Murren made a lot of sense--they have a good business as it relates to market share, financiers, properties and employees, and they are trying hard to right the ship. It still obviously carries a lot of risk and they realize that.

It sounds as if they did not have to put up properties as collateral while they refinance debt, leaving the option open to selling assets... stay tuned...

March 17, 2009 8:51 PM Posted by Brian Fey

I just listened to the call, and call me an optimist, but I feel more comfortable with Jim at the helm, than Terry. Particularly that question towards the end of the Q&A, I think Jim gave a pretty compelling argument as to why MGM will weather this storm, and made a pretty good case about their position in the industry, and the tools that are available to them. I'll still stand by my stance, that their assets still out way their debt. I think they have buyers, but in the end, MGM does not really want to sell off any assets if it does not have too. The job of a CEO is to build company value, and increase shareholder value. The only two ways you can do this, is by adding assets, and increasing your earnings. Selling your cash registers, decreases both your assets and earnings. Granted they will sell what they have too, should it come down to it, and after listening to this call, I'll also stand by my earlier prediction, that I believe Bellagio is the last property MGM would consider selling. This property is clearly their flagship property in every single respect. It has the best name recognition, its their best asset, and makes the most money. If you own 13 properties, you're not going to sell off your single best one. I see countless possibilities to which MGM can find their way out of this jungle. I would not be surprised to see MGM sell off a component of City Center. I'm not sure how this could effectively be done at this late stage of the game, but I think there some things that could be looked at from that scenario. If the Monte Carlo rumor that was floated around was true, that would help them also. MC should be worth about the same as TI. So say $750-800 Million. It might bring a bit more money, due to its arguably better location. This is a pretty insignificant property in the scheme of their total portfolio, but a property that standing alone, for a much smaller company, could be a fantastic purchase. As I type this, I'm remembering, that MC cost about $125 million less to build that TI, but I still think MC, should be worth roughly the same as its the same size, and level of hotel. We will see, but if there is a company out there who's taken risk, and delivered on the promise, of operating great hotels, day after day, and year after year, and keeping them in tip top shape, when compared to the other giants, its MGM-Mirage. But there is no question....They do indeed, have their work cut out for them!

March 18, 2009 2:55 AM Posted by mike_ch

To the contrary, I feel this company is crushed if they do sell their regional properties, especially Detroit (the Beau is a little more understandable.) It's not selling your cash registers that's the problem, it's having so many cash registers slammed together as to seem redundant.

Gaming is popular, Las Vegas isn't. That they're constantly betting on Vegas again and again and again means they live or die on this market, and traveling to a city in the middle of nowhere to do things they could do at home or eat at restaurants and see shows they can see in New York or elsewhere is a harder and harder sell right now. I seriously have doubts about whether it will ever be again for a decade or more.

They seriously need to diversify (not the same thing as reduce) their holdings or they will break their backs under the weight of trying to keep up a dominant status in an unpopular market. Not to mention so many large hotels like Excalibur and MGM Grand are going to need heavy duty renovations throughout the entire facility (some may say Excalibur needs a wrecking ball, but...) that will cost quite a bit.

MGM is structured in a way that I'm confident it will survive at the resort level in however many pieces, but they need a shift of direction from the past five years. The past era has been like eagerly volunteering to be the captain of the Titanic. Yeah, you got a cruise ship, but...

Finally, anyone who thinks they can rely on Dubai as a cushion is fooling themselves at this point. That state has so many problems on it's hands right now that they can't afford to invest more.

I hope Murren is open-minded to new ideas. Their talk of getting into the business of casino management as an alternative to ownership certainly seemed like a step in the right direction to me. Calling a suspension on major new construction for a good while seemed like right step #2. The most critical step is to not hang your hat on one town.

As for Bellagio, I think they can charge whatever they want to for that place and people will pay it, but politics and finances will catch up with it sooner or later. I would have expected them to charge whatever the market will bear and then sell it off at the peak of that, but if current pricing is to be believed they almost seem to be experimenting with my 4.5-star resort idea. They obviously have a lot of things they'd prefer to sell first, but it's a buyer's market and they'll get a good deal for it and won't let it go cheap, just because in this atmosphere buyers aren't going to show up for anything else.

March 18, 2009 4:39 AM Posted by socalduck

I have to agree with mike_ch that selling MGM Detroit, arguably their best gaming property, makes no sense at all. This property continues to perform well despite being in a truly depressed market. For sake of diversification, I also think it makes sense to retain Beau Rivage, as it is far and away the best property along the Gulf. If they have to sell something, I think it would be much easier (and make more strategic sense) to jettison one of their more generic Vegas properties: MC fits the bill perfectly, although Luxor and Excalibur could also be sold without diminishing the MGM brand. MC's location adjacent to City Center made it a strategic asset in 2007, but does anyone really envision MGM expanding City Center in the next ten or 15 years?

March 18, 2009 10:14 AM Posted by Jeff in OKC

I don't understand this love for Detroit. The regional economy is worse than Las Vegas, and doesn't look like it's going to ever be like it was. Neither is it seen as a leisure destination. I think MGM has maximized their property there, and selling if the money is strong is a good idea.
I am a firm believer that Las Vegas will rebound. It always has, and it traditionally rewards those who ride out the storms with it.

March 18, 2009 10:55 AM Posted by detroit1051

Jeff, only three casinos are allowed by law in Detroit. MGM has owned the market since it opened and currently has about a 43% market share. It is primarily a locals market. The city of Detroit is a disaster, but the metropolitan Detroit area is home to 4.5 million people. Add Ann Arbor, Flint and areas outside the metro area, and you've got an additional million people. Then, remember that Ohio does not have casinos. Toledo is about an hour's drive from Detroit and has 1 million people in the metro area. Finally, add Cleveland to the mix. The metro area has 2.5 million residents and is only a three hour drive from Detroit. When I lived in Detroit, I was amazed at the number of one-day charter bus trips from Cleveland to MGM Grand Detroit. Anyway, the limited number of casinos and approximately 8 million people within easy driving distance make Detroit an ideal casino location. MGM has been the most successful because it was the first to open after legislation permitted the three operators about ten years ago. MGM has always been the best run of the three.
Caesars Windsor, across the river in Canada, is a beautiful property, but ever since 9/11, border crossing delays have deterred Americans from making the two mile trip from downtown Detroit to downtown Windsor.
Even with the poor economy, MGM Mirage has a gold mine in Detroit. which will always control 40-50% of the market.
It's probably a good thing I don't live there any more. I'd be too much of a regular at MGM Grand Detroit.

March 18, 2009 11:16 AM Posted by Mike_ch

Jeff, here's my thoughts, but I warn you that I'm as long-winded and negative as I was replying to Brian, so get some coffee and Prozac. :D

While Detroit isn't the prettiest city in the world, it's got a pretty good amount of play. It has no interest among whales, surely, but this is about trying to be something other than high-end Vegas resorts.

If they're going to axe anything out of Vegas, I could see Macao sold off to the Ho family with MGM as management, since Ho is griping about imported casinos and there's only so few parties you can sell to in that space.

Why scrap China and keep a locals market? Picking your battles. Making a company of all high end resorts has you butting heads with Wynn for every single customer. While I've been a Citycenter believer for the most part, it seems most on this board and most Wall St types think Wynn will work harder to lead that narrow audience.

With an economy built on unsustainable growth and resource use and inefficient sprawl, Vegas is going to resemble Detroit in some ways eventually. I'm sure the Strip will see a rebound soon. Just not at 2007 levels.

The strip and those invested in it shall see the rewards, so invest for the long haul, but do it in the right players who aren't completely reliant on one town's fortunes. But since I tend to look at things from a residential perspective, pardon me if I yell to run for the hills.

March 18, 2009 3:41 PM Posted by Jeff in OKC

Based on what you're telling me, guys, here's what I'd be afraid of in Detroit. Much hIgher Casino tax than Nevada, and they will only go up. Stagnant population in the region, with no new reason to go to Detroit and gamble. And more Casinos being added. Those Great Lakes area governments are always looking for new tax sources, and gaming is easy.

March 18, 2009 6:21 PM Posted by detroit1051

Detroit's tax rate was 24%, but when the three casinos opened their hotels (which was an original requirement for getting licensed), the rate dropped to 19%. Nevada's tax rate is unusually low, and if things don't get better in Nevada, I'm sure some bright(?) legislators will look to increase it. It is still possible to operate profitably at a rate in the 20's.
I believe Louisiana's rate is 21.5%, and Illinois, thanks to ousted Gov. Blago, has a graduated tax which goes much higher.
Jeff, there may not be a reason for people to go to Detroit to gamble, but millions are already there. The market is designed for them.
Detroit looks positively progressive compared to Florida which could be a very popular regional gaming market if the legislature wasn't so anti-casino. Four racinos were approved in Boward County (Fort Lauderdale area) with an unbelievable 50% tax rate. Isle of Capri operates Pompano Park, a harness track and Magna, which just went bankrupt, operates Gulfstream Park. The racinos are only permitted slots, no tables. Locals were so desperate for casinos that the racinos might have made it if the Seminole tribe didn't put in Class III slots and table games at their Hard Rocks in Hollywood and Tampa. They are hugely successful. They don't release revenues, but estimates put both properties as two of the most profitable casinos in the country. Boyd Gaming was also given a license for one of the racinos at Dania Jai Alai which they own. BYD was smart enough to cancel all development until Florida gets its act together over tax rates and what to do about the Seminoles.

March 18, 2009 7:37 PM Posted by Anthony

Sorry folks for getting off topic, just wanted to mention Vdara now has video and floorplans of their suites.

March 18, 2009 8:26 PM Posted by Tom M.

I believe the overall economic news will get so much worse in the next two years that all of this discussion is moot. The reality is that Las Vegas is significantly overbuilt and very few of the large casino companies will survive intact. I believe that occupancy rates will continue to drop and many of the marginal casinos will close or be sold at fire sale prices. MGM would be wise to sell whatever it can to build up the cash to weather the real storm, we are only on the outer edges of it now.

March 19, 2009 5:26 AM Posted by detroit1051

The RJ asks whether the 60 days MGM got from its lenders is enougfh time:

March 19, 2009 10:30 AM Posted by David McKee

Detroit and its 19% tax rate is an outright bargain when one considers the 55% levy in Pennsylvania and the -- if memory serves -- 67% rate facing Maryland slot parlors. In the second instance, the stratospheric tax rate probably explains the dearth of applicants for casino licenses. Also, MGM Grand Detroit has a sufficient variety of amenities that gambling is just one of several draws on property and much more of an entertainment 'destination,' whereas pre-expansion Greektown was pure grind joint.

March 19, 2009 4:52 PM Posted by Anthony

Phil Ruffin gets Treasure Island this Friday.

March 20, 2009 9:49 AM Posted by Detroit1051

David McKee, Greektown still has the feel of a pure grind joint. The hotel and parking structure are almost a block away, connected by an overhead walkway to the casino. The property doesn't have the cohesive feel that MGM Grand Detroit has. MGM started from scratch and built an integrated locals resort with excellent self-parking and separate Valet parking entrances for both the casino and hotel.
Even though MotorCity added on to the existing casinos when it expanded, they succeeded in making it an integrated property. MGM is my favorite, but I also enjoy some things at MotorCity. However, I see no reason to return to Greektown for any reason.

March 23, 2009 4:24 AM Posted by detroit1051

The LV Sun describes the dilemma operators are faced with when they lower room rates to increase occupancy:
"In an interview last week, MGM Mirage CEO Jim Murren said about 70 percent of the company’s decline in year-over-year earnings in the fourth quarter resulted from lower room revenue and profit."
Murren's comment in the last sentence sums it up:
“We’re trying to (lower rates) without degrading the brand,” he said."

March 23, 2009 8:12 AM Posted by Mark D

Dubai is suing MGM and is trying to get out of the CityCenter deal.