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MGM Resorts International is placing its biggest bets in Asia. The company’s Macau joint venture with businesswoman Pansy Ho Chiu King will soon launch its IPO in Hong Kong, while it also eyes developing a hotel-casino resort in Cotai. In this exclusive interview with Macau Business, James Murren, chairman and chief executive officer of MGM Resorts International, talks about the future and the painful obstacles the company must overcome in Macau and the United States in order to achieve their great comeback
Macau’s gaming revenue grew by more than 50 percent in 2010. Every year since market liberalisation, the city has posted a new gaming revenue record. How great would it have been for MGM Resorts International to have invested in more properties in the territory some years back or have already advanced to Cotai?
James Murren - We were not an original concessionaire. We did not have the opportunity to invest earlier than we did. As soon as we did have the opportunity, we invested right away as a joint venture [with businesswoman Pansy Ho Chiu King in MGM Grand Paradise].
We wanted to build something of the highest possible quality and it took some time to do that. The results of the facility speak for themselves. We are clearly one of the highest quality resorts in the city and we want to be much larger in Macau.
Do I wish that we had more resorts or a bigger footprint right now? Of course I do. Looking back to what has happened to the market, we wish we had more investment [in place] already. This is not a sprint; this is a marathon. We are very bullish on Macau for the long term and we intend to be there for decades to come.
Nevertheless, how anxious are you to have a property in Cotai?
We are extremely excited about the prospect of being in Cotai. We think that it is going to be an important element of development there.
It is not for us to decide that however. It is up to the government to decide whether they want to secure more sites for casino developments and, if so, whether MGM [Grand Paradise] would be one of the selected companies.
We think that the prospects for us to be in Cotai are bright. We know that we are moving down the path and we hope that we will be fortunate enough to be there.
However, it is very important that we do not think of this as the only opportunity to grow in Macau. There are more opportunities on the peninsula and throughout the SAR in general. We are keeping our eyes open.
When do you expect an answer from the Macau government?
I do not have any expectations. I have learned in Macau that I cannot speak for the government. We are hopeful that it is a matter of months not years, because we are excited and anxious. We would love to be in Cotai and we will be prepared if we are allowed to be there.
The partner play
MGM Resorts International is heavily targeting the mainland market, with several new hotels. Beijing by August 2011 and then Sanya, Tianjin, Chengdu and Shanghai, just to name a few, all in a four-year period. It shows a lot of confidence in that market.
We do have an awful lot of confidence in the Chinese economy and in the growth of the hospitality business in China. Part of our confidence in the opportunity there is by virtue of our partner, the Diaoyutai State Guesthouse. We formed this partnership three years ago, long before many were contemplating attempting to develop hotels in the mainland.
The partnership has now secured 19 different projects. But there are many others in the pipeline given the robust nature of the Chinese economy and the opportunity for urban development.
By 2020, there will be 220 cities in China with over a million people. The connectivity between those populations through the high-speed train network and the successive hotel developments that are already operating today, with many more underway, gives us great confidence.
Per capita incomes have been soaring, the propensity to spend is rising and the attractiveness for brands is well known. What has become very apparent is that the history of the concept of “made in China” has now become “made for China”. And being “made for China” means that brands and companies need to be sensitive to what works in China.
We believe that, given Diaoyutai’s unparalleled reputation for quality in hospitality and products, and MGM’s unparalleled reputation in entertainment and hospitality, we have a significant advantage over other new entrants into the market.
What is the responsibility of each partner, exactly? MGM will only manage or will it be a 50-50 partnership?
The partnership was formed in 2007. Diaoyutai owns 51 percent of the joint venture, MGM owns 49 percent. There is a board of directors and the chairman of Diaoyutai is the chairman of the joint venture and I am the vice-chair. That board governs the affairs of Diaoyutai/MGM Grand Hotel Management Co. Ltd.
Diaoyutai and MGM jointly, there is no separation of duties, develop the projects for the owners [of the properties] and manage all the hospitality developments.
For example, at the first one, the Diaoyutai Art Hotel in Beijing, MGM is responsible for sourcing a lot of the interior designers, the training of all the personnel and for the marketing plans. We will jointly manage the property [with Diaoyutai] once it opens.
In Sanya, we contributed with our brands at no cost. In this case, MGM does not get a branding fee. In other words, the joint venture has decided through the owner of the hotel to call it MGM Grand. The joint venture Diaoyutai/MGM is responsible as the master developer with the owner.
On the financial side, is MGM bringing 49 percent of the investment needed?
Both partners equally contributed for the seed capital, a few million dollars each into the joint venture to start staffing the people that work for the company. The major construction costs are supported by the owners [of the hotels].
We are not an equity owner in any of these projects. We are the developer and manager.
Five years from now, 50 MGM projects will be underway in the mainland, including meetings, incentives, conferences, and exhibitions, entertainment, offices, residential and retailing in at least 20 cities. Those are impressive numbers. Will it take a lot of effort to run all those properties?
Yes it will. We both understand, Diaoyutai and MGM, that our efforts have to be outstanding. It is vital to the reputation of Diaoyutai and of MGM that, especially the early projects, are developed to the highest possible quality and are operated at the highest possible service standards.
In Chengdu, the owner has very ambitious plans for the region. We are doing what we can to bring those dreams to reality. We have opened up quite large resorts many times, including City Centre [a multibillion dollar mega-complex in Las Vegas] just a year ago. We fully understand the pre-opening process, the interviewing process, the recruiting process, the training once the employment is secure, leading up to the opening and the post-opening, which becomes even more important.
It is also a good marketing strategy. It will be easier to bring Chinese tourists to all the other MGM properties when they are already familiar with the brand.
No doubt there is a cross-marketing opportunity. But we have a rich heritage. Many people still believe we make movies. That is part of our past, not of our present or future.
It is a great corporate opportunity for MGM to be able to plant its flag with the best possible partners in some of the major cities in China and not one that we take very lightly.
Vietnam’s project is still on track?
Yes. It is called Ho Tram resort. I was there recently and all the pilings were done, the tower cranes were being erected. That project slowed down but now has sped up again.
Any other places in Asia you would be interested in investing in?
We have not announced any others [but] we are actively looking at other parts of Asia. I think that on a non-gaming side, we would very much like to be in Japan and in Thailand. We have looked at Taiwan as well [and] we have always aspired to be in Hong Kong. It is a difficult, crowded market to get into but there is a possibility.
We are taking one step at a time but we are really focused on the non-gaming element.
To hope for a gaming jurisdiction to open up, everybody has got their sights set on Japan. We have taken the view that if and when Japan decides to go down this path, it will be extraordinarily transparent. It will be well known to all that there will be no competitor advantage of being early or aligning to a province or location.
Clearly we have an interest in it. But our time is better spent in what is possible. And what is possible is non-gaming.
Listing to fund Cotai
Will the money raised with the estimated listing of 20 to 25 percent of MGM’s Macau joint venture be used to fund these activities?
I think we are well on track to go public with that joint venture. Part of the proceeds, when we do it, will be allocated to developing more in Macau, hopefully in Cotai.
Bringing some super junkets to MGM Macau from Wynn Macau was a good move for the company, even if it irritated Steve Wynn. If you are not raising the commissions paid to those super junkets, as we were told you are not, how did you succeed in having them open VIP rooms there? Exactly what did you offer them?
MGM Macau is a beautiful facility that has been underutilised since its opening. Some of the problems with MGM Macau were self-inflicted and others were beyond our control.
Construction around the site made the access very challenging. One Central was not opened when MGM was inaugurated and that impeded circulation throughout the property. Those were events beyond our control.
What was within our control was marketing, operations and developing broader and deeper relationships with junket operators. We did not do that as well as we could have done. We have made many changes since we opened and we brought in a lot of talent operationally and from the marketing perspective.
We have been building up our slot business dramatically. We have attracted some junket operators that were not in our building [and] had been in our competitors’, which has lifted the eyebrows of some of the competition. The criticism is not factually based because we have not changed the terms.
The market is becoming more competitive, the [VIP] operators are becoming more discerning and they are more selective in terms of where they would like to set up the “shop”. In the stunningly beautiful MGM Macau tower, there were opportunities to bring in junket operators and we did that. We are proud of being able to do that and we are going to do that more.
We are opening our supreme gaming area that will cater to the upper-scale mass business. Some of our VIP slot business will be in that area. But we have over 40,000 square feet of shelled-out space that we have not touched yet. We have a theatre that we never fully built and we have many other facilities that we can expand and will do so.
Are you adding more tables?
We will be expanding to the extent that we are allowed to under the cap, yes. We have been working to that end and there are opportunities even within the current regulations for us to do that.
No restriction fears
In two consecutive days, top officials claimed that the Macau government is striving to control the gaming industry’s expansion, in order to promote an orderly and planned growth. Do you fear negative impacts ahead?
I am very encouraged by that, actually, and I will tell you why.
I had an opportunity to meet ambassador Wang Guangya, the current director of the Hong Kong and Macau Affairs Office when I was in Beijing, and I had an opportunity to be with the chief executive and secretary Francis Tam Pak Yuen. The impressions I got from meeting with a variety of officials is that the vision for Macau is one that is thoughtful and very clever. There will be pauses along the growth path and diversification has been a very important keyword in all the dialogues around Macau’s future.
How will it diversify? It will diversify into many different business types, in other words, vertically. It will build upon the strength that already exists today, which is an emerging diverse hospitality centre, as Hong Kong is a financial centre.
Macau can be a larger hospitality centre. How do you do that? Well, diversifying into integrated resorts that focus not only on the business traveller but also on the fit for the casual traveller, people like you and I that would visit for a long weekend, and leisure travellers. They [integrated resorts] can develop businesses that are attractive, whether it is theme parks, museums, galleries, public spaces and other forms of hospitality.
But gaming, in my opinion, will always be a very major part of that. I think that it will grow, but in a sustained way.
The regulatory climate is going to be very cautious because the risks are great and I am sure everyone understands that. If any operator runs into any regulatory problem, it is going to cast a cloud over the jurisdiction and nobody wants that.
In Macau, it is more than time for the system to become more transparent.
Again, it gets back to my comments about the United States and its growth. That is what has happened in Las Vegas. Las Vegas grew very rapidly and the regulatory environment struggled to catch up and stay ahead.
I am very proud of what I believe to be the best regulatory environment in the world. I think it is a standard by which other people judge themselves in other parts of the world. But it did not come without a lot of work by the regulators here in Nevada. They had to evolve and grow as rapidly as the gaming industry. The same is true in Macau.
Is Atlantic City a nightmare to forget once and for all, after their regulators ruled against your partnership with Ms Ho in Macau, eventually obliging MGM International Resorts to quit that market?
[Laughs] Well, we have not forgotten Atlantic City, since we still own half of the Borgata. There will be a time, hopefully in the not too distant future, that our equity interest in a casino in Atlantic City will be a memory.
However, we are still a very large landowner, something people tend to forget. We own an awful lot of land in Atlantic City.
We are disappointed about how this has turned out. We feel very strongly in the value of this partnership. We know clearly what Ms Ho has brought to this partnership. She is an extraordinary CEO and an accomplished person, and I think the process could have been handled much better.
We felt that [leaving Atlantic City] was the better course of action for our company to settle with New Jersey [regulators] at this point in time, rather than to continue to prolong this process to its next phase, which would be going to the casino control commission. It could have dragged out for months or years.
Do you still have hopes that one day they will review their opinion on Ms Ho?
I do not have high hopes now. I think it is a possibility but not one that we are actively going to pursue.
Our company’s energies should be focused in Las Vegas where the great recession has taken its toll on the resorts. We are starting to recover our business now. We think the best opportunity for our company is to get these resorts back to their pre-recession levels of profitability. Growing in Asia is a parallel priority and everything else we are looking at comes secondary.
Finally, of course, City Centre. It is an astonishing property but it came with a price. What are the expectations in overcoming the related financial challenges?
City Centre is a fascinating book of which only about three or four chapters have been concluded. And those were the toughest ones. Actually, the first two chapters were exciting and fun and then the last two chapters have been extraordinarily painful. But we turned the page on that last chapter because the financing of City Centre is underway right now.
It is profitable as an enterprise. It is progressively doing better and it is going to be, in my opinion, the most profitable resort in Las Vegas for many decades to come.