Sunday, March 8, 2009

Some Sunday Media Musings

(UPDATE: It was brought to my attention that Jon Ralston actually broke the payments-to-witnesses story on the Feb. 13 episode of his LV1 program, Face To Face.)

There wasn't a whole lot of interest to out-of-towners in the Sunday newspapers, although the piece by the Review-Journal's Carri Geer Thevenot on prosecutors paying crack-addled defendants for their questionable testimony was so surprising that I may be able to build upon it for a piece of my own.

That is, after all, how my piece in today's New York Times on the national debate over shifting from a gas tax to a road-usage tax came about, because I'd caught a small piece in the Las Vegas Sun in January about a study planned for Reno. A little scratching into the matter made me realize that this was actually a massive potential story and, as luck would have it, President Obama even weighed in while I worked on it.

I really enjoyed Jennifer Robison's Nevadan At Work Q-and-A with the chief pilot of the M Resort blimp. Often these Q-and-As are dry, but this fellow, Terry Dillard, played along and provided some really fun insight into what it's like to fly one of these things. A good read. (Also a good read is Norm Clarke's excerpting of this blog regarding Montecore and the 20/20 special. Thanks!)

More puzzling from the same business page as Robison's piece was Howard Stutz's summary of what's happening at MGM Mirage. I don't pretend to be an expert on this, but this is the second or third time where I've wondered if he -- or I -- misunderstand the term "a going concern."

Stutz wrote today: "Last week, MGM Mirage told investors it might be labeled a 'going concern' by auditors and could default on $13.5 billion in debt."

My understanding of a "going concern" was that it was a phrase that is meant to say that a company is still perfectly functional. In fact, Stutz's boss, Sherm Frederick, used the phrase recently in an interview with the media trade publication Editor & Publisher. To wit, the passage went:
Frederick, meanwhile, says that the R-J is doing fine financially even though he wouldn't put a number to it, citing that the company is private. "Let me put it this way, we are still a going concern," he laughs.

From what I can see from other clips in the financial press, MGM Mirage said it may have its auditors indicate that it might cease to be a going concern. That is, if it IS a going concern, it continues to operate normally. If not, the whole house of cards collapses. That's what's freaking out investors.

The website InvestorWords.Com seems to back that up with this definition for the term: "The idea that a company will continue to operate indefinitely, and will not go out of business and liquidate its assets. For this to happen, the company must be able to generate and/or raise enough resources to stay operational." Now, I'd love nothing more than to discover Frederick didn't know what the term meant and was actually admitting he'd run the business into the ground. But I doubt that.

One last thing I just noticed. Someone named Hunter (Hillegas from RateVegas.Com, perhaps?) tried to correct Stutz on this point in the comments section of a March 6th piece. Hunter wrote on 3/6 at about 9 a.m.:

The term 'going concern' means that they believe they will remain functioning as a normal business entity. The filing indicated there was a possibility they may *NOT* be a 'going concern', which means the auditors made them put in language indicating they might have to go bankrupt. The article gets it backwards above.

Anyone out there who knows more about these things care to weigh in?


Anonymous said...

Going concern does mean the business is still operating in a sustainable way. But I think the unusual thing is when an auditor of a major company has to affirmatively state it remains a going concern. Kind of like the pilot of a jet having to remind passengers the engines are still running, he wouldn't do it unless something dramatic enough to raise doubt had occurred.

Ricky in Reno said...

ok, but mgm mirage's auditors were saying they may NOT be a going concern for long. So Stutz does have it backwards unless i'm also missing something.

Anonymous said...

Yes, it was I who commented on the RJ site about the 'going concern' thing.

If I only remember one thing from my Econ BA in college, it is the definition of that term.

He actually did it twice - today in his IG column and earlier in the week in a piece about MGM Mirage.

- Hunter

martyseattle said...

Well it is shorthand in the industry ... people say things like 'we are worried about a going concern issue.' What that means of course is 'we are worried our auditors will say they they are doubtful we can continue as a going concern.' My guess is he got some shorthand but didn't truly understand it, just my two cents.

Anonymous said...

Thanks for clarifying that. I always understood the term "going concern" as you've outlined it here, and when Stutz (repeatedly) wrote it that way, I was confused. Glad to know I'm not going crazy.

It's odd, too, since Stutz is actually the best business writer the R-J has. (That's not saying much, I know, but still.)

Anonymous said...

Thanks for clarifying that. I always understood the term "going concern" as you've outlined it here, and when Stutz (repeatedly) wrote it that way, I was confused. Glad to know I'm not going crazy.

It's odd, too, since Stutz is actually the best business writer the R-J has. (That's not saying much, I know, but still.)

GregoryZephyr said...

Years ago I was an accountant in the External Reporting department for a major company and worked on audits and SEC filings. Thankfully, there was never a question about "going concern" with that company. But, the general understanding is how defined it. Basically, every company that is currently in operation is a "going concern." The only time it is discussed in an audit is if there is some question as to the ability for the firm to continue to operate. In MGM's case, its auditors apparently feel there is enough of a concern with respect to how MGM is going to rollover its debt payments due and/or complete City Center to warrant the disclaimer. The words in front of 'going concern' are actually the most important. If you see it saying there's "substantial doubt.." that's a lot worse than "might cease to be..."

Anonymous said...

Hillegas: 1
Stutz: 0