MGM Resorts International ( MGM) is a Fortune 500 company traded on the NYSE in the complex and unpredictable industry of gaming and hospitality. MGM is one of the leading global hospitality companies with a portfolio of 15 wholly owned resorts and gaming properties located in Nevada, Mississippi, and Michigan and 50 percent stakes in four additional properties in the US and China ( Exhibit 1). With approximately 45,000 full time employees, the company has an enterprise value of $ 18.09 billion and 2010 revenues of more than $ 6 billion ( Exhibit 2). It is the third largest revenue generating company in its industry. MGM believes its success is due to its reputation for delivering high quality gaming and luxury services and believes its hospitality and entertainment venues are the best in the business. 1 Previously thought to be a recession- proof industry, gaming was not only hit harder than expected by the most recent economic recession, but is on a slower than predicted road to recovery. Nevertheless, many leading analysts view MGM as a worthwhile long- term investment. In fact, within the MGM conglomerate, Mandalay Bay, Bellagio, and MGM Las Vegas experienced double- digit EBITDA growth in 2010 and were projected to grow even more in 2011.2 Yet, despite its isolated wins and the subtle optimism in the financial community toward the gaming industry as a whole, MGM faces significant concerns. At $ 12.1 billion, MGM carries one of the heaviest debt burdens and shows the largest net operating losses in the industry year over year since 2007— posting losses in excess of $ 1 billion for both 2009 and 20103 ( Exhibit 3). Domestically, MGM has debt obligations maturing in 2013 and 2014. Internationally, MGM is working to offset a weak dollar with new growth ventures in China and Vietnam and has experienced higher than anticipated returns from its Macau ( China) property. While its competitors are experiencing similar difficulties and achievements domestically and abroad, MGM also faces market share erosion as its competitors put capital toward enhancing their images against the MGM brand with more frequency and ease. Adding to its challenges and central to its recent lack of flexibility is MGM’s ill- timed massive undertaking— CityCenter. Construction began on this 68- acre, $ 9 billion joint venture on the Las Vegas Strip ( The Strip) in 2006 when American businesses could still reasonably turn a blind eye to the brewing implosion of the banking and credit markets and the subsequent withdrawal of the common consumer from the gaming and hospitality markets. While MGM cannot be blamed for the timing of this bit of bad luck, it had to weather the storm and now must deal with the damage rendered. In a nutshell, MGM is at a crossroads that could provide the opportunity for a timely strategic evaluation; it needs to reevaluate its identity within the industry and seek opportunities that enable long- term sustainability. The company and its directors must analyze its tangible and intangible assets and determine if and where they fit within the vision for the company. Most pressing however is whether MGM should downsize to cut its losses and how to stop the flow of market share to its competitors.
Firm History Part 1: The Beginning The group of properties that comprise what is now known as MGM Resorts International began in the 60s under the leadership of Kirk Kerkorian. Kerkorian, a pilot and the owner of a small charter airline that ferried gamblers from Los Angeles to Las Vegas, began to purchase, lease, sell, and build properties, such as The Flamingo and The International, through his Leisure International Company. In 1971, and soon after opening the world’s largest hotel at the time, Paradise Road, Kerkorian sold Leisure International to Hilton Hotels. The following year, Kerkorian began to build another hotel- casino on The Strip that would open in 1973 as the MGM Grand Las Vegas. With 2,100 rooms, the MGM...
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