MGM Resorts Can Weather Repeat of 2008 Crisis: CEO
MGM Resorts International is in far better shape than it was four years ago and should be able to weather another economic storm should there be a repeat of the 2008 financial crisis, says CEO Jim Murren.
The U.S. gaming firm, which took a $1.1 billion charge for a development in Las Vegas during the housing bust in 2009, is "more nimble" today after cutting costs substantially, Murren told CNBC Asia's "Squawk Box" on Thursday.
"Our cost structure is lower than it has ever been as a percentage of revenue in the last 20 years," he said. "So we are able to hunker down in slower environments, much more so than we were able to do back in 2008 and 2009."
"So if the economy were to slow down, we will be prepared," he added. “We are going to have a strong year here in 2012 and it looks like 2013 will be even better.”
The world's third largest casino operator by revenue, which derives 70 percent of its operating income from its casino interests in Las Vegas, took a pummeling when the city’s real estate and gambling markets collapsed at the height of the financial crisis.
The company has made a comeback since; its shares have rebounded 32 percent since the start of the year as investors count on better prospects for Las Vegas and MGM’s expansion in fast-growing Asia, where it is planning a large resort on Macau's Cotai Strip.
"The super majority of MGM's assets are in Las Vegas, therefore, when Las Vegas recovers it will significantly benefit MGM," said Jonathan Galaviz, managing director of Galaviz and Company, a research firm based in the city that focuses on the entertainment industry.
Casino gaming revenue in Las Vegas could increase around 15 percent over the next year and non-gaming revenue -- derived from hotels, food and beverage, retail and entertainment -- is expected to rise around 20 percent, Galaviz estimates. At this rate, Las Vegas should be able to post pre-crisis revenue figures in the first half of 2013, Galaviz said.
At the same time, MGM and its competitors such as Las Vegas Sands are expanding in Macau, where gaming revenue increased 42 percent last year to $33.5 billion, or 5.5 times that of the Las Vegas Strip. Investment group CLSA Asia-Pacific Markets forecasts that casinos in Macau could bring in total revenue of $65 billion by 2015 and $108 billion by 2020.
This should help MGM post better revenues for the year, Galaviz said. MGM is due to report first-quarter earnings on May 3.
"MGM is absolutely in a much better financial position and getting even better by the day," Grant Govertsen, Principal Analyst at research and advisory firm Union Gaming Group said. "MGM has cut enough costs so that they will be able to reach their former peak cash flow without needing the same amount of revenue."
Govertsen says MGM will be in a good position to expand in Macau as well as the rest of Asia, and can leverage on its strength in entertainment and hospitality.
"We like that the company is expanding its non-gaming presence throughout Asia via its MGM Hospitality division, garnering increased brand recognition and building its database," Govertsen said. The opportunity set is "likely to be quite large," he added.