Murren with Pansy Ho and Grant Bowie at the Topping Off ceremony at MGM Cotai, last week
Jim Murren, 53, believes whatever works for Macau works for MGM, paraphrasing his mentor and long time boss Kirk Kerkorian who passed away this year. “Mr Kerkorian told me once ‘what’s good for Vegas is good for us.’ I feel that way about Macau, too.” This policy of accommodation contrasts with recent criticism by other casino bosses mainly concerning table allocations for Cotai 2.0.
MGM Cotai is built to accommodate 500 tables, but “if we were hypothetically permitted 250 tables we’d have to move tables from here [the peninsula] to there. We wouldn’t have enough tables to do everything we would like to do in Cotai, but we would adjust to that. We would make the best of the situation. The focus on tables is, I know, very high but misses the broader point.”
The “broader point” for the Chairman and CEO of MGM Resorts is the maturation and growth of the Chinese tourist and the need to respond to this change.
“Are you delivering incremental gaming activity, and therefore revenue to the government? That’s what the tables and the slot machines are intended to do. And how do you drive traffic into your resort?! If you deliver on the entertainment, on the room product, on the food and beverage offerings, then you will get higher productivity on the tables and therefore more gaming revenue.”
Mr Murren visited Macau last week to meet with partner Pansy Ho, Grant Bowie and team, and preside over the topping-off ceremony at the new property in Cotai due to open in a year.
In an interview with Macau Daily Times and Ou-Mun Daily, Murren revealed the Cotai property “will have a unique resident show,” and a decision was being made last week between “three options which made the final cut.”
MGM Cotai will have a versatile theater, The Spectacle, that can be converted quickly into a nightclub, concert or ballroom space, and a mall lined with restaurants, landscaping and video effects, Murren said. “It will be an indoor space that will feel very outdoors.”
A confessed James Bond fan, he and Ms Ho were last week treated to a private viewing of the latest 007, “Spectre.” “My all-time favorite is Sean Connery, but Daniel Craig is quite a Bond.”
From movies to politics, being a Republican – like many Nevada top gaming executives – Murren says “no Republican candidate stands a chance against Hillary Clinton.” Donald Trump has done more with “what he’s got than anyone I know, but I have a few standards which I’d like to find in an elected official…”
Mr Murren has been with MGM for 17 years, first as CFO and COO and, since 2009, as CEO. Under his guidance the company has grown to be the biggest player in the US casino industry and the latest results show the company is turning a profit despite Macau’s steep decline. In Macau, he concedes, “we’re not ever going to be the biggest, but we could be the best.”
MDT – MGM reported stronger than expected Q3 results including a USD66.4 million profit. What happened in Vegas to turn it around from a loss a year ago?
Jim Murren (JM) – Well, Las Vegas as a market has been growing for the past five years. MGM is the dominant operator in Las Vegas; we’re bigger [there] than the other two concessionaires that are here. We’re bigger than both of them combined. We have invested more in Las Vegas than our competitors over the past several years and as a result of an improving market, combined with some very important entertainment and food and beverage capital expenditures that we’ve made, we’ve been able to vastly outgrow the market itself and we reported the best quarter that we’ve had since 2007 and the best growth quarter that we’ve had in over ten years. Our profits in our wholly owned properties in the United States were up over 25%.
MDT – Was there a general improvement in the market in Vegas?
JM – Yes, the market in Las Vegas in general is improving. The tide has been rising, but not all boats have been able to rise with the tide and we certainly did far better than our competitors in Las Vegas in the quarter.
MDT – At the same time, the company announced a plan to create a controlled Real Estate Investment Trust – REIT (MGM Growth Properties). So, you’re going to shift casino assets and debt to the new property company, and lease the properties back from the trust. You told investors this isn’t just a “spin-off”. How’s this beneficial to the company?
JM – A good question, thank you. So in the United States, for many, many years, there has been a recognition that the actual assets that casino companies own have not been properly valued in the marketplace and there has been a disconnect between the actual assets held by companies and the valuations that they have been able to achieve in the public marketplace. MGM owns more assets in Las Vegas than anyone. We own over 700 acres of land on the prized Las Vegas Boulevard and it has been a really rewarding but complicated exercise to conclude how best to allow investors to realise the value of this untapped, unlocked potential. We decided early on that a spin-off is not a good idea. A spin-off would be if we had taken our resorts and spun them or gave them to shareholders or sold them to another entity that we did not control and in some cases, would not even manage. So instead, we came up with the structure of a company that simply moves many of our resorts into a subsidiary of MGM.
MDT – Ten, right?
JM – Ten resorts, into a new company that would be listed on the New York Stock Exchange, that MGM Resorts will hold a controlling economic interest in. So MGM Resorts will own about 70% of this new company and the public shareholders will own the balance of the shares. MGM Resorts will continue to manage all those resorts, all the employees will remain MGM Resorts employees, which is very important to the employees because they like being employees of MGM.
Jim Murren, CEO MGM Resorts
MDT – Will this in any way affect properties and operations in Macau?
JM – Not at all. MGM Resorts will remain the owner of 51% of MGM China. MGM Resorts will also own 50% of City Centre, the major new project we built in Las Vegas. The properties that are being moved into MGM Growth Properties are wholly-owned properties. So therefore, there will be absolutely no impact whatsoever here.
MGM – In Macau, MGM China dropped around 33% during the third quarter, which is more or less in line with general industry results. However, there was a slight improvement from quarter to quarter. Do you see any sign of stabilisation in these numbers?
JM – Yes, there was a slight improvement quarter to quarter and I have to emphasise how proud I am of Grant Bowie who runs this property. I do see many signs that the market is beginning to stabilise. I see it in various dimensions of the mass-market business. I even see parts of our VIP business improving. I see a tremendous level of interest when we have great non-gaming events and I’ve got to say, the must-see event of the year here in Macau is Oktoberfest right here. It’s like everyone’s got to go and it was more popular this year than last year and more popular last year than the year before and it really speaks to MGM that we’re the entertainment company and every time we can deliver on entertainment we see a really nice jump in visitation to this property. Our greatest frustration has been the fact that we have not had a large enough pallet in order to paint upon. We have always had the smallest footprint here in Macau. It’s very atypical for us, we’re the dominant player everywhere else we are. We’re the profit leader in every market that we’re in but for here, because we haven’t had yet the opportunity to have enough property to build out as much as we would like.
MDT – Why was that?
JM – There are several reasons. One is we were not an original concessionaire; two, I don’t think we were aggressive enough early on when land was perhaps more accessible. We were delayed in opening this property; the neighbourhood here was not ready; we had a road that wasn’t finished. We had a park that wasn’t finished – One Central had not yet been completed – and so we started late relative to the other concessions and we started off poorly and slowly and we’ve been playing catch-up. So I blame no one, it’s just the fact of what happened here. But if you were to be in Las Vegas where we compete against the same people, we dominate in Las Vegas and 70% of our revenues in Las Vegas are non-casino revenues. There is no one that’s better than we are in entertainment, in retail, in MICE or convention business, in non-gaming entertainment.
MDT – Will art be the general topic for the new property?
JM – Art and entertainment. So just today [Wednesday, Nov 4] – tomorrow I’ll be looking at different elements – but today we greenlight the retail components and how retail is going to be more unique, it’s not just the same old stores. It will be more couture, more boutiques, more localized in a really fun, non-traditional retail environment. So it’s not going to look like every other mall in Hong Kong, it’s going to have a different feel to it.
The Spectacle that you’ve heard about isn’t possible to articulate until you see it. It’s over a football field long of this undulating glass, it will have 26 different LED walls that will be constantly animated. The theatre is completely erected and now we’re putting in the mechanicals right now. It’s the first of its kind in the world and if we get this right, and I hope we do, we’re going to use it in other parts of the world too, from the standpoint of the functionality of the theatre and how adaptable it can be to dozens of different types of events. So, we can have a boxing event one night and a blowout concert the next night and nightclub environment and an art show another time and a ballroom for luxurious weddings, to a theatre style for a traditional performance or a lecture or other educational shows…
MDT – Are you going to have resident shows of any kind?
JM – I think we will. Tomorrow [Thursday, Nov 5] we have a board meeting. We are looking at three shows that have made the final cut and I’m sure there’s going to be more to talk about.
MDT – Which are?
JM – Good try [laughs]. I’d be fired from my own board if I told you before, that would be a bad start… I can tell you the philosophy again – goes back to our heritage – which is MGM is the only US concessionaire here that has a local partner. MGM is the only concessionaire who has a joint venture with China. MGM is a global company with a very local emphasis, whether that means how active we’re getting with SMEs, how active we are in the community in general, how engaged Pansy – my partner and co-chair, Pansy Ho – is in the design, development, entertainment, retail. I will tell you that what we would not do is just airlift a show from someplace else and think that it’s good enough … To bring a show from Europe or the United States and just repackage it here, would be insulting, I think, and would not work. So what I can tell you, is that we’re working on a show that will be a production uniquely Macanese, unique to this region and complement the programming that we’ll have throughout the year. We feel it’s very important for us to make the effort to deliver something innovative and unique.
MDT – There’s been a lot of talk and criticism about the balance of non-gaming and gaming. The government has put forward a plan that it clearly wants to have more non-gaming, diversification they call it: from Lawrence Ho who says there’s no money in non-gaming to Steve Wynn who blasted the government for not allocating the number of tables they needed to make that property work. What’s your comment regarding this situation?
JM – First, both of those individuals are incredibly creative and very, very talented and both way wealthier than I am so, they must be doing something right. I‘m an employee of this company and I understand my role and my role is to lead a group of men and women in different jurisdictions where holding a license is a privilege, not a right. The hallmark of MGM from its founder, Mr Kerkorian…Mr Kerkorian always taught me, for the 18 years that I knew him before he passed away this year, is what’s good for Las Vegas is good for MGM. I feel that way about Macau, too. I feel that, yes, we were late to this market, but I think we’re small but mighty. We’ve done, I think, a really great job with the tools that we’ve had, size, scale and we’re going to have an opportunity to show more of what we can do when we build a much larger property in Cotai. I’m not focused on tables at all, table caps, table limits…
MDT – There is no cap on tables in Vegas…
JM – I’m not concerned about caps on tables or table allocations. I’ve more confidence when I’m seeing Studio City more recently and phase 2 in Galaxy. We’ll see what Wynn gets next year and we’ll open up next year … I think from what I can see the market’s evolving that way where you’re going to find more and more opportunities to continue to develop non-gaming profitably.
MDT – So you believe non-gaming in the future can be profitable here as well?
JM – Yes, not only can non-gaming be profitable in the future, I don’t care if it’s not that profitable now. It’s part of the bargain with the government, it’s part of the contract. It’s part of being in a privileged market.
MDT – You see it as a cost.
JM – As a cost to doing business, absolutely, in the sense that the local and central government could not be more clear and we’ve taken the words in the last 10 years to heart. The message and vision of Macau, diversifying as a hospitality and entertainment capital of Asia not to turn its back on gaming but to use gaming as an economic engine to develop other non-gaming forms of entertainment. As trips to Macau become more varied, and as people come more often for different reasons, and just because a few early efforts didn’t succeed and there has been some hits and misses early on in non-gaming in this market, doesn’t mean that they won’t over time. I’m a huge believer of that trend of diversification and that revenues will continue to grow on the non-gaming side.
The challenge Macau has is land. The challenge that Macau has that we do not have in Las Vegas is we have a much different land dynamic in Las Vegas. The private developers own the land, and if you want more land you can buy it, buy it from somebody else and that’s what I did. In 2000, I bought Mirage Resorts from Steve Wynn. Five years later I bought Mandalay Resorts. Now we have, as I say, over 700 acres of land. No one gave me that land, we bought it.
MDT – There is no such opportunity here?
JM – Not that I see. If we could find opportunity to acquire more land through more land concessions we would build on it tomorrow.
MDT – Do you feel that the general expectation among the current operators is that you will all stay in business after current licenses expire?
JM – I think, as driving around Cotai and being here on the peninsula, I’m just really very, very impressed. I’m going to Studio City tonight. It looks gorgeous from the outside. I really feel like everyone is making a great effort. None of us is perfect. I’ve made so many mistakes I can even fill up a magazine full of them, but I’ve not seen any rationale for any of the concessions here not being rewarded for the efforts that they’ve made in this marketplace. I think there’s a great diversity of ideas, of perspectives, of nationalities. I don’t see any rationale for more or less concessionaires than there are right now. I can only say that from our perspective, we don’t take this lightly.
diaoyutai deal: a relationship with china
MGM Resorts formed a joint-venture in 2007 with Diaoyutai Guest Houses “to build bridges with China, particularly in hospitality, knowing that as a casino hotel company we were never going to be able to develop casinos in China. We wanted to develop a relationship with the Chinese people and we found a partnership with Diaoyutai,” Jim Murren explained to MDT.
Since then, two properties have been opened: the MGM Grand in Sanya and the Diaoyutai Art Hotel in Chengdu. And more to come: “We’re opening a Bellagio in Shanghai next year. And we have hotels under development: in Hangzhou, in Beijing (two). We have a total of 12 of them under development.”
The idea was to continue “to build these relationships and, for me and my company, to show that we can contribute to China’s vision, and we can contribute with our intellectual property, our knowledge, and maybe along the way build stronger friendships and relationships – business and personal relationships – in China.”
Besides visiting the mainland often, “I’ve been honoured to be at the Whitehouse a couple of weeks ago when the Chinese President was there,” Mr Murren stated.
“We’re in a privileged business and we’ve known this for a long time,” he said, adding that “we want to prove to China and Macau that we are the kind of corporate citizens that’s contributed to this community.”
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