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“We can bring more”
MGM Resorts International will this month open its first mainland hotel but the company is keeping its eye on Macau, says MGM Resorts chairman and chief executive Jim Murren, who is also MGM China’s co-chairman. In an exclusive interview with Macau Business, Mr Murren reveals that MGM China wants more than just two casino-hotels in Macau and argues that his company is best positioned to deliver the kind of high-standard, non-gaming amenities wanted by the government
How anxious are you about government approval regarding MGM China Holdings Ltd.’s land application for Cotai?
Jim Murren – We are highly interested in getting the land as soon as possible because we do recognise that our position in the market is not the one we are accustomed to. We are typically the market leader. Certainly we are dominant in Las Vegas and we have the premium properties in the other markets where we operate, such as in Detroit and on the Mississippi Gulf Coast.
MGM Macau is performing extremely well now, after a very slow start. It had a tremendous number of challenges. We have been able to overcome most of them. It is capacity-constrained. Ultimately, in a few years from now it will have reached its physical potential, given a few very important expansions that we intend to do.
Cotai represents to us a very, very important opportunity to expand and to use our strengths in terms of portfolio brands, customer range, design and amenity diversity. We can bring a lot more to the market by having [a] Cotai [property].
We do not think Cotai will be the only future project for us in Macau. We have far broader aspirations in the long term than just a second property.
The land in Cotai is not that big, is it?
The Cotai piece that we are looking at is about 18 acres [7 hectares]. Size is not determinative of success, either in Las Vegas or in Macau. The quality of the offering, the quality of the service, your location, all will speak to how you do financially.
For example, MGM Macau is generating very strong returns right now. It’s not the largest property in Macau but it has one of the largest individual market shares. It even has a larger share than many properties that are far bigger in terms of square footage, slots or tables.
That speaks to a variety of important factors: the quality of the resort, which I am extremely proud of; the quality of the service; our brand and brand awareness; and our marketing programmes, as we have been able to have a broader reach throughout China and throughout Asia.
It also speaks to our tremendous partner, Pansy Ho Chiu King. She has brought a tremendous amount of knowledge to us from a standpoint of design, development, marketing and operations. And Grant Bowie is the best chief executive officer in the market.
So size does not necessarily translate into financial success and I think the same will be true in Cotai.
The land we hope to be able to conclude with the government is smaller than other parcels that other operators are trying to secure, but it is large enough to build everything that we would like to: a property that will be much bigger than MGM Macau and that will allow us to do more non-gaming development, which is what we are the best at in our industry.
Is everything ready in terms of design, materials, contractors and so on?
Nothing is ever done here. We design and change throughout the process right up to the opening day. But we have determined the brand, the architects and the designers. We are very evolved in our design documents and have started our pre-opening marketing plans in terms of the customer reach that we are looking toward. We have also started talking to some of our main partners in entertainment and in food and beverage.
Any deals made yet?
I’m not allowed at this point in time to divulge those details but we have had a tremendous amount of work done at the MGM China board level. We are very excited. It will be a very different property than the one we have. It will be complementary to what is already there in Cotai and also to what we imagine other people might be doing.
Measured growth
Were you surprised with Melco Crown Entertainment’s move on Macau Studio City?
It’s a big piece of land. It’s well located and it has tremendous potential. Studio City has been the source of a tremendous amount of consternation for the government and for other operators. I think the Melco Crown takeover provides a solution to that.
Were you surprised when secretary for economy and finance Francis Tam Pak Yuen announced the 3 percent cap on the growth of live gaming tables for the next 10 years starting in 2013?
I don’t think “surprise” is the right word. The government is taking great pains to be as transparent as possible, to be as clear to operators as possible.
In my opinion, the Macau government is utterly determined that the industry will grow in a very meaningful but measured way. It will attempt at all costs to avoid the pitfalls of hyper-growth, of over-extension in infrastructure, of labour, of prices and of capacity.
The government understands what it has. It literally has the world’s golden opportunity in what relates to gaming. It has only scratched the surface of what Macau can become in terms of the size of its gaming market. So the government is very focused on not going off track.
That frustrates people because they want to know with great certainty every element. When are land concessions going to be granted? When are the gaming concessions going to be extended? For how long will they be extended? Etcetera. That loses the forest for those trees. The forest is to make Macau an even more vibrant and much larger hospitality market.
So, I don’t get sidetracked, surprised or concerned about various interpretive intermediary comments by officials. I believe that I understand what the long-term vision is.
We will be, hopefully, in a position to invest billions of dollars more into Macau in the form of infrastructure, which will employ thousands more people and that will continue to expand the tax revenues for the Macau government. I don’t think we will be restrained or impeded from doing that.
But is 3 percent the right growth rate? Would 5 percent be better?
It’s a good idea right now to have a constraint or at least an understanding of what the total table pool will be over a period of time. It doesn’t mean the pool can’t change, that regulations don’t evolve over time.
We won’t have all the answers; neither will investors; neither will lenders – they just won’t. It’s not the way it’s going to be. Investors, lenders and operators are going to have to evaluate the business risk.
One of the business risks to evaluate is whether or not the government will be a constructive partner and allow you to do what you think is needed to generate a good financial return on the investment you are willing to make.
So far, has the government been a constructive partner?
Yes, we could say it has been a very good experience for us.
Sheldon Adelson likes that the government is pushing gaming operators to have more non-gaming amenities. The same applies to MGM China in Cotai?
[That development path] is quite clear in Las Vegas.
Let’s not make any mistake here. Macau is already more successful than Las Vegas has ever been. In terms of its gaming revenue and its growth potential, it is vastly better off in the long term than Las Vegas. But there are parallels that I think bear examination.
Las Vegas in many regards did begin along the same lines. Initially, casinos represented a big percentage of each property’s revenue and investment. Over time, we evolved into the current business model.
Las Vegas first became the entertainment capital with the Rat Pack, Siegfried and Roy, and several other entertainers. Now, it is legendary for its concerts, fights and other major events.
It also became very resort-based, with Mirage and MGM Grand, plus all those resorts that stretched the envelope. Then it became the retail capital, with the Forum Shops at Caesars and the Via Bellagio fashion mall.
Dining became very powerful, when it was all but non-existent on a quality level as recently as 25 years ago. And, of course, we are taking all that now to spas, golf, nightlife, day life.
All this speaks to the evolution of Macau over time and all this is perfectly aligned with who we are. There’s no one out here [in Las Vegas] that has the diversity of amenities that we do. We have the best shows, we own two arenas while our competitors have a grand total of zero, we have spas – all the right amenities. As a result of that, we have the largest market share of high-end gaming here.
We have created, in the form of the City Center, the largest green project that has ever been built and we have evolved design, architecture and operations to a new level.
Looking squarely within the future of Macau, the city will focus, emphasise and demand of its operators to extend the boundaries of what they do and not simply build windowless casinos with tables and slots. There has to be much more to it. Newer generations of casinos are doing that and I think we will be part of a generation that takes that further.
In a US government diplomatic cable released by Wikileaks, it is mentioned that MGM Resorts tried to sell its stake in MGM China during the 2008-2009 global financial crisis. Do you confirm that information?
We never looked at that once.
No changes post-IPO
After a long process, MGM China was finally publicly listed in Hong Kong in June. That also meant Ms Ho reduced her stake in the company to 29 percent from 50 percent, while MGM Resorts’ slice went up to 51 percent from 50 percent, gaining management control. Have there been any operational changes since this restructuring?
No change. We have expanded the board to accommodate the rules of the Hong Kong stock exchange but the executive committee remains the same size. The definition of duties between personnel is the same. Mr Bowie was the CEO before the change in ownership and he is still the CEO today. He has our full support. No changes whatsoever post-IPO, post the reorganisation of the ownership.
And any major changes in the role of Ms Ho, either on the operational or on the strategic side?
None whatsoever. She is obviously still the managing director. She is a chairperson and she has the same level of responsibility in contributions as she had before the change.
Were you surprised with Ms Ho’s decision to reduce her stake in MGM China Holdings Ltd.?
I was not surprised because I asked her to do it. From MGM Resorts’ perspective, it’s extraordinarily attractive to have 51 percent or the majority of MGM China because we can fully consolidate all of its results onto MGM Resorts’ financial statements. It has a profoundly positive impact on our financial performance.
Secondly, from a standpoint of why that would be interesting for Ms Ho, I asked her to consider selling down and look at if she would like to diversify her own holdings by investing in MGM Resorts, which she did. She took a significant portion of the proceeds she received from the IPO and invested it into MGM Resorts.
I feel that this could only have happened at this time. It became a discussion of what would be in the best interest of MGM China and MGM Resorts, in which she is now a significant investor. The best interest for MGM China was to have a clear path, to have an ownership that is understood, to have governance that is quite clear and to really eliminate discussions that could occur.
What would happen in an impasse? What if we, as equal partners, were to disagree?
I feel that we have been able to resolve all that with great clarity. It has been great for us and I think it has been great for her.
Volatility of gaming stocks continues and MGM China has not been immune to it. Are you worried about those ups and downs, some of them for no apparent reason?
We are a little battle-tested in this regard. I remember very vividly in the United States when gaming started expanding rapidly, when states started approving gaming and companies popped up. The volatility was unbelievable.
Stocks are traded on rumours, on expectations, on nuances. You need to have a view on where China is going over the next couple of years, where Macau is going. The capital markets’ piece in the story is only relevant if you are using your stock as a currency to do something, whether you are a buyer or a seller. Right now, we are neither.
Mainland debut
What is the most recent update on MGM Resorts International partnership with state-owned Diaoyutai State Guesthouse to manage more than 20 hotels in the mainland?
We are only [weeks] away from opening the first major resort, in Sanya. MGM Grand Sanya is a 675-room hotel that has been developed and will be managed by Diaoyutai MGM Hospitality. It’s a great location.
Next year we will open a boutique hotel in Beijing. We have projects underway in Chengdu, Nanjing, Tianjin, Ningbo and we have many more on the horizon.
Concurrently MGM Resorts is developing throughout the Middle East, with several projects in Egypt, Jordan and the Emirates, and three in India.
We believe that this is a great growth vehicle for the company to leverage our brands and some of our development and operational expertise.
How is the Vietnam project going?
It is on track. We will be the operator of one of the hotels. There will be multiple hotels over time, but the first Ho Tram property is an MGM Grand.
At the same time, the government is working very hard to improve the infrastructure and access to the beach. It seems like the construction schedules are still well aligned. The improvement to the infrastructure, the highway system, the port system to get conveniently to Ho Tram will be done at the time the MGM will open up.
You are very keen on online poker. I suppose you expect legalisation in the US soon. Does MGM want to be one of the first players entering this market?
Yes. It’s a very large commercial opportunity in the United States. We have been involved in Internet gaming in one form or another for over 10 years.
We actually launched a site back in 2001, on the Isle of Man. Of course, it did not take bets from US citizens or from people from other countries that did not permit gaming. It became a very good test case for us as to how to operate such a site.
The time is now correct in the United States. There is bipartisan political support. There’s a tremendous amount of gaming that it’s going on right now illegally. A strong federal bill would create a much safer regulatory framework and I believe there’s good support for this.
We will be ready to run out the door as soon as that is approved.
A year ago, you were cautiously optimistic about MGM Resorts’ City Center, which opened in December 2009. What about now?
Much more so. We had a good year, a very solid year, with growth in every metric. It has become a very popular destination. Aria is one of the most popular resorts in Las Vegas today. It received its five-star recognition. [City Center] scores really well on travel websites. It’s financially quite profitable and building up all the time.
