Here's this week's Strip Sense column, trying to make sense of last week's MGM-related events. Enjoy, and hat tip to Hunter at RateVegas.Com for letting me poach this headline.
When The Fun Stops
Is MGM Mirage Nevada's AIG or GM?
By STEVE FRIESS
“Pardon me for asking, but if a company is too big to fail, maybe—just maybe—it’s too big, period.” –Former Labor Secretary Robert Reich
Having evidently learned a little something from the hundreds of acrobats who perform astonishing death-defying feats nightly in its Vegas resorts, MGM Mirage last week leaped headlong into the open air, held the world in terrified suspense as it twisted and turned to avoid a hail of fiery spears and then, at the last possible moment, grabbed the bar and swung to relative, if momentary, safety.
Yet rather than supplying the raucous applause that greets such moments in the theater, the world just heaved a sigh of relief. Unlike the safe distance we feel watching, say, a Kà aerialist, where we know it’s only his neck that will be broken should he fall, the experience of last week wasn’t a mere spectator sport.
No, that wasn’t just a large casino company flying without a net in the face of oncoming doom, it was each and every Nevadan.
We came to realize with sobering clarity this week, in fact, that MGM Mirage in general and its $8.7 billion CityCenter development in particular are the closest things for this state to entities that are “too big to fail.” Nobody from MGM Mirage would use those four specific words because companies that are TBTF—AIG and GM are usually the ones mentioned—are so important that their significance is what justifies taxpayer-funded bailouts.
But just because a company’s not TBTF on a national level doesn’t mean it’s not TBTF in a local sense. And last week’s events were so frightening precisely because we were told repeatedly that CityCenter’s collapse would reverberate in the worst possible ways throughout the entire Silver State economy.
Read the rest at LasVegasWeekly.Com.
8 comments:
Probably could benefit for things to get worse before they get better, from the perspective you wrote. If we're in a problem because nobody complained about MGM's mergers (well, I did, but I was a tourist at the time) and west-Strip monopoly, then that breaking apart before things get better would, y'know, fix the problem instead of just the symptoms.
The TI sale, and their new interest in opportunities managing resorts owned by other companies, are good steps in this regard.
Also, since I just talked about the long-term benefits of short-term pain, I guess I should address the political issues regarding a gaming tank and MGM breakup and say that taxes really need to be implemented on other businesses. Look at how much mining is profiting while gaming is suffering and ask yourself again why this one is the one paying so the others don't have to.
But of course, this is The Strip blog and not the LV Gleaner (where you can find more about taxes and mining) so that's as political as I'll get.
you raise some excellent, difficult questions. i hope the gaming control people tape this one to their fridges. well done.
I think it's time to lighten up on MGM. I don't think MGM has missed any payments, or defaulted on any notes. I don't think they are offering bond holders 5 or 10 cents on the dollar, and leaving them out to dry on the balance. They didn't go private, and do an equity strip that was more than the entire cost of CityCenter. I've never read that their properties are dirty or have burned out lights (Except for Circuc Circus, and that's part of its charm), or they aren't keeping their rooms clean and remodeled regularly. They didn't do illegal floor renovations on the cheap, and wind up with floor monitors sitting on chairs in the elevator lobbies with walkie-talkies, so they could report fires. They didn't stiff contractors so that Nevada law had to be changed to keep that from ever happening again. They didn't take money from dealers, and make them so afraid they organized with unions. I never read about employee groups complaining about how good it was back at Mirage, or Mandalay, before they got bought out. And I always read that their diversity program is as good as any business in America. In my opinion, they're a very good company whose eyes got bigger than their stomach, and there's probably a story about that in the Old Testament it's been going on so long.
Jeff in OKC
Steve I think you're being sucked in by the drama of the press. Personally I miss the days of objective reporting.
So what was the cause of the threat of bankruptcy for City Center? MGM not have the cash? You of all people should know the answer to that, Ruffin just wired them $600 million. Remember him? The guy that can't get a bank to touch him with 80% down and a $20 mil discount.
So what would have forced the bankruptcy? City Center LENDERS refusing to accept the $200 mil payment if Dubai World didn't pay half. MGM had to negotiate with them to take their money. How stupid is that? I'm sure any mention of bankruptcy by and for MGM itself is part of negotiating pressure to place on the banks for these and other loan covenants. A subtle threat. Work with us now or through the courts when they pitch it in their bankruptcy plan.
Again, look at Ruffin and see how ridiculous these bailed out banks flush with the billions in taxpayer cash, can be.
The press has crucified MGM Mirage, even for the Dubai World claim that they mismanaged City Center. Smoke and Mirrors. DW filed suit the week they had to cough up their $100 mil share. What a coincidence. Has anyone in the press revealed Dubai World's financial mess, and the collapse of Dubai itself? Why they may be trying to cut & run from their debts, leaving MGM on the hook?
One Las Vegas real estate blogger has. She had links to Middle East news with Dubai World's Chairman claiming they had the resources and were unaffected by the global financial crisis, just this past Oct.
http://tinyurl.com/ceqtjt
Odd, because in the next link she had, by Feb. their Nakheel div. shut down 6 of their Dubai projects, part of the $75 BILLION in projects cancelled. 60% of all projects for Dubai. No mismanagement or bad business judgement there.
http://tinyurl.com/bpt3q6
Now if this Las Vegas real estate agent can find that DW has been on the ropes and cancelling their own over zealous projects, why can't this be found by the press. No one bothered to check their motives? No one pissed because their suit threatened the livelihood of Nevadans? No, it's too juicy to write the one sided gloom, the fear mongering of local giant MGM collapsing. Left over from the elections, it's that hatred created of the working man vs. big business. Sad but true, it's the working man that gets hurt the worst when those big business jobs go down the tube.
Were the MGM Mirage and the Harrah's buyouts a big mistake that shouldn't have been allowed by our government watchdogs? You bet. Was MGM stupid for over leveraging? Yes. Could MGM face a breach in May, when the current waivers expire for the amount of cash on hand required by their covenants. Yes. Were they stupid for either not having their financing locked in like Wynn, or building the project in phases? Without a doubt, IDIOTIC business moves, and they weren't alone.
They were all lured with the years of easy credit, just like all the flippers that infested Vegas, Fl, and SoCal and any other 'hot' market. Sticking their neck out way too far, never expecting the party to end. The only difference is MGM hasn't cut and run, they've been working to meet their obligations, but between the legal wrangling and the negative media reporting it sure isn't helping them weather the storm.
While I don't have a problem pointing out any mistakes, you should be hoping and praying they make it, because you'll probably feel some of their pain. Shit rolls downhill.
Lets take a look at what is "failure". In the case of MGM Mirage that would be bankruptcy. Bankruptcy is a tool businesses use to restructure or liquidate themselves when they can no longer operate profitably. In the worst case, liquidation, MGM would be sold off at current market prices. This would be a fire sale, allowing new owners to pick up the assets at prices good enough to make them profitable again. Wouldn't Wynn love to get Bellagio back at a bankruptcy price? In the end, the casino's would still be operating, most if not all of the employees would still be there and the tourists would benefit from lower operating costs after the debt load had been removed. The big losers are the investors. They will end up with nothing. Now I know that bankruptcy is the method of last resort, but in the end it is not the worst thing that could happen to these companies right now. After bankruptcy, the whole industry would be better off.
Anon#5: So "objective reporting" now is to be cheerleaders for MGM. Neat! Isn't that part of how we got into this, because journalists were just taking the word of corporate heads that they knew what they were doing even as the numbers didn't make any logical sense? Oh, boo hoo to "negative media reporting." It's called journalism. We're providing people the news and the facts. And there's been almost nothing that's been reported that's been inaccurate.
It's not the media getting sucked into any drama not created elsewhere; it was MGM that proclaimed that if they can't get $1.2b in loans, THE ENTIRE FUCKING WORLD WOULD END. Bankruptcy is a bit different for a construction project in progress; it likely means work stoppages, people out of work, new jobs delayed, etc. There's this impression out there that bankruptcy is a magic wand; if it were, why hasn't MGM waved it yet?
And Tom M: Therein is the problem. You're making an assumption that there's someone out there to buy these assets and also provide significant cash influx. But as Ruffin proves, nobody will loan even the best-qualified buyers with enormous equity even a small loan. So MGM is cornered in more than one direction.
The more important thing here is that this column didn't do anything more than raise the question: Is it smart to allow a concentration of so much economic power in one group because WHAT IF THEY FAILED? That's not something anyone contemplated when these mergers were being done.
Mostly, though, how tiresome for people to try to pin bad news on the messenger. The media was silent, complicit and short-sighted for most of this decade. If you're a multi-billion dollar company making huge business risks, you had better be able to handle a little scrutiny without crying about it.
Yeah, in the past I've accused Steve of being a little overly sunny toward the Strip and it's bosses, but it's simple economics that the more MGM hangs it's fate on Las Vegas, the more Las Vegas has to hang it's fate on MGM.
I was very much against the Mandalay merger, and I remember when Harrahs/Park Place was announced, the local media spun it as an attempt to block MGM/Mandalay by trying to consolidate too much of the casino industry in the hands of too few people and sending the red flags of monopoly up to various government boards.
I sometimes wonder if Harrah's didn't anticipate how much the agencies held a "business knows best" belief and had the wind knocked out of their sails when they wound up purchasing a very large company for a very large sum of money.
It's hard to blame one agency for rubberstamping this stuff. You certainly couldn't expect George Bush's FTC to stand up against corporate interests, and maybe the NGC can take some blame for not doing their job in looking out for the interest of Nevada's economy but they were hardly the sole gatekeeper.
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