Industry analysts weren’t overly concerned last week about the future of MGM Resorts International after James Murren’s pending departure as chairman and CEO.
Murren, who served 22 years as an executive with the Las Vegas-based casino giant, 12 of those years at the helm, “will certainly be missed,” said Union Gaming’s John DeCree.
“But Mr. Murren does intend to stick around as long as it takes to provide a smooth transition with his successor,” DeCree said in a client note issued last Thursday, the day after the company announced Murren’s resignation. “It also appears that there will be no change in strategic priorities, including the monetization of real estate assets, deleveraging, returning capital to shareholders and pursuing Japan and U.S. sports betting as growth avenues.”
Jefferies’ David Katz credited Murren with achieving “some remarkably positive things” during his long tenure, but said his departure could open up opportunities to split the dual roles of chairman and CEO and the position Murren held simultaneously as chairman of MGM Growth Properties, the company’s affiliated real estate investment trust. That change, Katz said, would be “positively received” by investors.
Sources tell GGB News that Murren was forced out by activist investors who had gathered enough support from institutional investors for his ouster. Murren gave no reason for his departure, which strengthened that narrative.
As a reward for leaving, Murren’s exit package will total around $32 million, including a $2 million salary, a $4 million bonues, a $7 million “equity award” and a $12 million severance payment. He’ll also receive $575,000 a month in 2021 providing consulting services for the company.
A report from CNBC indicated MGM’s shares (NYSE: MGM) initially shot up more than 7 percent in after-hours trading on the news, but then fell 5.8 percent after the company withdrew its earnings guidance for 2020. It cited “several headwinds” it said “are unpredictable within an appropriate range of accuracy,” including “the increased volatility in our business due to coronavirus, as well as the market-wide weakness in Far East baccarat in Las Vegas.”
On February 4, the Macau government ordered all casinos closed for at least 15 days in hopes of riding out the potentially lethal contagion, which has claimed more than 1,100 lives in China. It started in December on the mainland, where most of the more than 60,000 cases confirmed globally as of week have occurred.
MGM owns two casinos in Macau—MGM Macau and MGM Cotai—through its Hong Kong-listed MGM China subsidiary. MGM, however, has not been hit as hard as fellow U.S. participants in Macau, Wynn Resorts and Las Vegas Sands, because MGM’s exposure in Macau is less than those two companies.
But 2019 proved a good year overall for MGM. Company stock has climbed around 17 percent in the last 12 months, as Murren’s management team responded energetically to increasing pressure from activist investors, launching a program of massive corporate-wide cost cuts, which are expected to boost EBITDA by $300 million through 2021. It also sold most of its remaining resorts on the Las Vegas Strip in a series of deals expected to net the company more than $8 billion in cash—funds management will use to continue to buy back stock, pay down some of its $15 billion of debt and pursue a megaresort in Japan.
From an operations perspective, MGM was able to weather what proved to be a challenging year market-wide in Macau, where MGM derives more than 20 percent of net revenues and where VIP play declined by double digits, largely in response to domestic pressures in the Chinese economy, the trade war with Washington and the political unrest in Hong Kong.
Net revenues from the Chinese casino hub were up 19 percent to $2.9 billion.
But the VIP retreat was felt on the Las Vegas Strip, MGM’s principal market. Profit from high-end baccarat was off around $100 million versus 2018, the company said.
In all, though, corporate-wide adjusted EBITDAR was up 6 percent to $3 billion on a 10 percent increase in net revenues to $12.9 billion. and by 10 percent overall to $12.9 billion. Adjusted earnings per share came in at 77 cents, down from 95 cents in 2018.
The year also saw the return of more than $1.3 billion to shareholders in the form of dividends and buy-backs, and plans call for the return of another $3 billion this year, including a $1.25 billion tender offer at $29-$34 per share that commenced last week. The dividend also was raised 15 percent.
“We are proud of the progress we made during 2019 as we took important steps to evolve our organization,” Murren said last week. “I’ve accomplished a lot and I’m proud of the company it’s become. This has been the most rewarding and fulfilling experience in my professional career.”
It all began for Murren in 1998, when he joined Kirk Kerkorian’s company, then known as MGM Grand, as chief financial officer following 14 years on Wall Street as an equities analyst and managing director with Deutsche Bank. He was named president the following year, and helped steer the 2005 acquisition of Mirage Resorts. In 2007, he ascended to the No. 2 spot as chief operating officer under the late Terry Lanni, and was named chairman and CEO the following year when failing health forced Lanni to resign—which led to perhaps his most complex accomplishment, bringing the massive CityCenter resort complex to completion in the teeth of the Great Recession.
CityCenter, and its Aria casino, however, never met expectations and much of the det was written off in subsequent years.
But the highlights don’t stop there.
Murren was instrumental in the establishment of Las Vegas as a sports mecca with the building of the T-Mobile Arena and the creation of a National Hockey League franchise in the city. He led the company’s expansion into resort-scale gaming in Massachusetts and metropolitan Washington, D.C., and brought MGM to the doorstep of one of the most potentially lucrative gaming markets in the country with the purchase of the Empire City racino in Yonkers, N.Y. But the MGM casino in Springfield, Massachusetts, costing over $1 billion, has underperformed since it opened in 2018.
His tenure also saw the company make game-changing investments in Macau, including MGM Cotai, a state-of-the-art integrated resort, and he leaves with MGM positioned as a leading contender for an integrated resort license in Osaka, Japan, which may prove the company’s most profitable venture yet. (See Asian Gaming in this issue.)
“Jim has led the company through growth, transforming it into a global entertainment company with a worldwide footprint and creating value for MGM Resorts shareholders,” said Roland Hernandez, MGM’s lead independent director.
“It has been an honor to work with such a talented group of men and women who provide millions of guests with memorable life experiences every day all over the world,” Murren said. “We have a solid leadership team in place, and I am confident that they will work with my successor to continue the company’s trajectory of growth and expansion.”
But not all decisions have worked out. Oliver Lovat, a gaming observer based in Las Vegas, says Murren’s decision to install paid parking in Las Vegas has backfired.
“I feel sorry for Jim Murren,” he wrote on LinkedIn. “He was a generally a good custodian, however for students of strategy, one huge, howling, tactical mistake, which was counter-intuitive to basic business and compounded by refusing to review it and denying its effect, can be very consequential.
“Jim Murren will be cursing the day he approved car parking fees, that, rather than MGM Growth Properties or saving the company in 2008/9, will be his legacy.”
The process of locating that successor was already under way last week with the formation of an independent search committee of directors.
“Jim Murren has led MGM Resorts through some very challenging times,” said Brendan Bussmann, head of governmental affairs for industry consultants Global Market Advisors. “It will be important to select a leader that understands the changing dynamics of the gaming, entertainment, sports and hospitality sectors to maximize the company’s future potential while best understanding today’s customer.”
A tall order, for sure, yet one that may not prove overly difficult to fill.
As Jefferies’ David Katz put it, “I expect that this is a desirable position, and they can get someone to have a positive impact on the company.”
In news Friday, incidentally, the Osaka Prefectural Government released a press statement on saying only one IR candidate made an acceptable bid, the MGM-Orix consortium. Presumably, this makes it certain that MGM Resorts has now become the “winner” of the once-coveted position as Osaka’s IR operator partner. Certainly, no other operator worked longer and more methodically in building up their Osaka campaign.
At last word, Galaxy Entertainment and Genting Singapore were also in the Osaka race, but it appears that both firms quietly dropped out in recent weeks, reported Asia Gaming Brief.
