MGM Mirage Profit Falls as Vegas Gamblers Spend Less
08.5.2008 
-MGM Mirage, the world's second- largest casino company, said second-quarter profit fell 69 percent as cash-strapped U.S. gamblers spent less at its Las Vegas casinos.
Net income dropped to $113.1 million, or 40 cents a share, from $360.2 million, or $1.22, a year earlier, the Las Vegas- based company said today in a statement. Net revenue slid 2.1 percent to $1.9 billion from $1.94 billion.
MGM Mirage owns 10 casinos on the Las Vegas Strip, where casino revenue slumped 16 percent in May, the fifth straight monthly decline. The sluggish U.S. economy, exacerbated by the worst housing slump since the Great Depression and soaring food and fuel costs, has hurt the biggest U.S. casino market.
``MGM is half of the Las Vegas Strip, so it's hard to avoid,'' Dennis Forst, an analyst with KeyBanc Capital Markets in El Segundo, California, said in an interview July 28. He recommends holding the shares. ``Although the main Vegas numbers were dreadful, MGM is probably the barometer that everyone should be using.''
MGM, which owns The Strip's Bellagio and Luxor, said revenue per available room, a measure of rates and occupancy known as Revpar, fell 5 percent on the Strip as occupancy dropped to 97 percent from 98 percent a year ago, and it charged less for rooms.
Lower Room Rates
The casino company majority-owned by billionaire Kirk Kerkorian said property earnings before interest, taxes, depreciation and amortization, an indicator of cash flow, declined 18 percent to $564 million in the quarter.
``Guests continued to visit the company's resorts in high numbers, but at lower room rates, and current economic conditions led to lower visitor spending,'' MGM said. ``Gaming revenues were impacted slightly more than non-gaming revenues.''
MGM Mirage, which trails only privately held Harrah's Entertainment Inc. in size, rose $2.10, or 6.8 percent, to $33.10 at 10:34 a.m. in New York Stock Exchange trading. Before today, the shares fell 63 percent this year.
Gambling revenue declined 4 percent across all of MGM's properties, mainly because of a 7 percent slump in overall table game betting and a 10 percent slide in slot-machine takings at its Strip casinos. Food and beverage sales rose 2 percent and entertainment revenue fell 4 percent.
Meanwhile, Bellagio reported record quarterly hotel revenue and Mandalay Bay delivered record second-quarter Ebitda.
High-End Records
``The high end has been so far less affected by the economy,'' said Forst. ``It's the lower-end properties -- Circus, Excalibur -- that have been facing more difficult times than Bellagio and Mandalay Bay.''
MGM Mirage opened its MGM Grand Macau in December 2007, a joint venture with Pansy Ho, daughter of gambling magnate Stanley Ho. In the second quarter the Macau property's Ebitda was $23 million, delivering an operating loss of $5 million.
``We are still in the early stages of realizing the potential of this resort,'' Chief Executive Officer Terry Lanni said in today's statement. ``We have taken several steps to improve our operating performance over the past several months.''
MGM and Pansy Ho are planning a second Macau development site, they said earlier.
Kerkorian, Dubai World
Kerkorian and Dubai World, the government-owned investment group, have been buying MGM shares, boosting their stakes to 53 percent and 9.3 percent, respectively, according to regulatory filings.
The two are spending about $11.2 billion to develop the CityCenter complex of hotels, casinos and condominiums on the Las Vegas Strip. The investors spent $600 million financing CityCenter construction in the quarter, unable to raise a $3.5 billion loan MGM had expected before the end of June.
Banks including Bank of America Corp., Royal Bank of Scotland Group Plc, UBS AG, BNP Paribas, and Sumitomo Mitsui Banking Corp. have agreed to lend CityCenter $1.65 billion, MGM said today. Deutsche Bank AG, Morgan Stanley, and the Bank of Nova Scotia have also made lending commitments, the casino company said.
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Reader Comments (3)
If F&B revenue is up 2%, and Lani and Murren believe that the restaurants and nightclubs "Continue to attract guests looking for the highest quality experience." Then why are they cutting staffing at the restaurants at the MGM Grand and Mandalay Bay? If guest visiting for the "highest quality experience" is what is truly driving people into ther resorts, shouldn't the restaurants be properly staffed to offer the "highest quality experience" that they are looking for??? Very tuff to do with a skeleton crew!
Maybe the suckers are finally getting it. With ripoffs like 6 to 5 blackjack, sportsbooks refusing to take bets of more than chump change, short-pay video poker and many similar insults to our city’s visitors, most people can find better quality gaming elsewhere. It appears the other overpriced local “amenities” are among the first things people cut out when times get tougher. Casino greed is killing the golden goose. The Las Vegas casino bosses’ business model, which seems to rely on the theory that there’ll always be more suckers to plunder, may finally be coming to a screeching halt.
Las Vegas once was a worthwhile destination, not only for a person of average means, but for skilled patrons, too. The average person has been priced out of the market by the greedy corporate barons now running the joints, and the skilled patron has been effectively stifled by the preponderance of garbage games. But usually what is good for the skilled patron is also good for the casino. Better games will attract more skilled patrons, but will also let the suckers hold onto their money a little longer. So they come back more often and lose more, though not quite as quickly. With the “let’s bankrupt them all as quickly as we can” attitude so prevalent now, led by the despicable Harrah’s, no wonder tourism is taking such a hit.
My personal wish list:
1. Harrah’s to go into bankruptcy and be forced to divest itself of most of its properties, which could then be acquired by individual entrepreneurs willing to offer the suckers reasonably fair treatment.
2. Some imaginative and competent owners and managers to take over the failing dumps downtown. The only thing downtown has to offer is better games. But the current bunch of failures running the downtown dumps can’t seem to get that through their thick skulls, as their games mimic the Strip, getting worse and worse. No reason to go downtown anymore.
3. Wynn to go bankrupt. The loathsome Mr. Wynn, who knowingly hired an individual who falsely testified in a legal case involving patrons, presides over a sportsbook that is among the worst-run with the rudest management anywhere, and tolerates unparalleled intrusion into the privacy of patrons via Social Security number harassment of all but the lowest-level players, deserves to be put out of business.
4. The remaining operators to see this economic downturn as an opportunity to return to giving the patrons some value, instead of just ripping off our visitors with bloated prices on rooms and shows, poor service, bad attitudes, and lousy games.
Las Vegas has plundered the suckers for a long time. The motto for the Convention and Visitors Authority ought to be, “Las Vegas – a great place to live, but I wouldn’t want to visit.” It’s time to get back to the basics of offering value to the average visitor. “Value” and “service” appear to be words most of the present crop of casino managers are not familiar with – short-term results and today’s stock prices seem to be their only concern. Right now, they are getting what they deserve.
Well said LVBear.
Lack of competition, with Harrahs and MGM owning the strip, and a major reduction in the odds for the players has hurt the state of Nevada.
They've raised the cost of blackjack by 2.5 times as compared to a poor blackjack game. I wonder what would happen if Blockbuster more than doubled the cost of its entertainment?
From blackjackinfo.com:
Consider this example from the Flamingo on the Las Vegas Strip:
They offer a single deck 6:5 game, where the house edge for a basic strategy player is 1.45%. (Like most of these 6:5 games, they allow double after split, which doesn't nearly compensate for the poor 6:5 rule.) They also offer an 8-deck game where the house edge for a basic strategy player is 0.56%. So, a player who chooses their single-deck offering has almost triple the expected loss of a player at their 8-deck game.
What's the difference in actual dollars? For a $25 player, assuming 80 hands per hour, the expected loss at the Flamingo's 8-deck is $11.20 per hour. The expected loss for the same player at the 6:5 single deck game is $29.00 instead. And, remember, this is compared to the game that was previously the worst blackjack in the house!