MGM Mirage In Bad Shape

Published on: May 7, 2008 

According to MGM Mirage’s CEO Terry Lanni, the second largest casino operator may have to split their company in two in order to weather the economic crisis occurring across the United States.  If the company decides to go forward with this plan, the hotel and casino operations will become independent of one another.  He went on to say that the companies executive branch was becoming ‘frustrated with the favorable multiples that pure hotel companies enjoyed compared with gaming companies.’

Last year the company created the MGM Mirage Hospitality division which was designed to promote the hotel brand further and develop luxury hotel products.  The joint venture partner’s in this endeavor are Mubadala Development Company of Abu Dhabi and Diaoyutai State Guesthouse of Beijing.  Lanni stated that if the current trend continues, they will most assuredly split the company.

The current economic crisis in the United States has been affecting the gambling industry, which has in recent years been considered recession proof.  MGM Mirage’s quarterly profit has fallen 30% while their shares surprisingly enough where up more than 6% as the company battled to find ways to enhance their flagging revenue.  Lanni is hoping that the second quarter profits are better than the first.

MGM, however, is the fourth casino company that reported losses during the last quarter.  Las Vegas Sands Corporation, Wynn Resorts Ltd., and Boyd Gaming Corporation have also seen losses and the privately owned Tropicana Entertainment LLC filed for bankruptcy protection earlier in the week.  The Bellagio, Circus Circus and Mandalay Bay resorts in Las Vegas, all owned by MGM, saw their first-quarter net income fall $118.3 million.

Spending by tourists and locals alike in Las Vegas is linked to the economy and the entire city has become more expensive over the last few years because of the amount of new properties that have been developed.  In addition to the cost of staying at one of the resort casinos, most people do not have the extra disposable income they usually do.  Gas and food prices are rising at a tremendous rate and most people are not taking the vacations they used to.

MGM is currently in the development stage of numerous casinos around the United States, including the highly anticipated CityCenter project that was due to open by 2010.  In an effort to reduce costs, the sold half of the CityCenter development rights to joint venture partner Dubai World who are planning on acquiring at least 20% of the MGM company itself.

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