Shakeup at MGM, layoffs at Station

In a late-Friday night of the long knives, MGM Resorts International let go four property presidents. The official nomenclature is “laid-off” but we strongly suspect, given MGM’s history, that this prefaces a streamlining and centralization of authority. Out the door were Randy Morton (Bellagio), Cindy Kiser-Murphy (New York-New York), Cliff Atkinson (Luxor) and Eric Fitzgerald (Excalibur). Along with them went an unspecified number of high-level executives. According to Josh Swissman, co-founder of think tank The Strategy Organization, regional property heads are next on the chopping block. “In the short term, it makes sense because of the phased opening approach and because of the … lower demand that everyone’s expecting,” Swissman told the Las Vegas Review-Journal.

As Global Market Advisors pundit Brendan Bussman told the paper, “This continues to show the pressure that the gaming and hospitality industry is facing during unprecedented and uncertain economic times, with no timetable in place for moving forward … The longer this [quarantine] goes on, the more struggle each of these companies face in their long-term survival.” (Under cover of the weekend, Station Casinos announced a “significant” number of front-line and corporate layoffs.) Las Vegas will reopen in phases, starting May 15, but casino reopenings are not included and unlikely before month’s end. Lord only knows how many May 15 room deposits Phil Ruffin will have to refund.

Returning to MGM, the knives came out the day after the company reported a 1Q20 loss of 45 cents/share and a 29% decline in revenue, although the purge appears to have been very well-planned in advance (but not shared with investors). MGM China took the biggest hit, -63%, as net revenues plunged from $734 million a year ago to $272 million. Next came the Las Vegas Strip, down 20.5%, going from $1.4 billion to $1.1 billion. Regional operations did fairly well, only 9% off the pace, garnering $726 million compared to 1Q19’s $804 million. Only MGM China was cash-flow negative, as shutdowns and border closures have extirpated gaming revenue.

JP Morgan gaming analyst Joseph Greff predicted “a slow Strip recovery” for the Lion, decapitating its price target from $40 to $18/share. “Approximately 48% of LV Strip visitors arrive via air travel, and MGM’s exposure to mid-week convention and group accounts for approximately 15% to 20% of its total room nights. We envision significant airlift capacity declines for the next six months,” he explained. Elaborating, he forecast that the recovery curve for Las Vegas would be much shallower than those for Macanese or regional markets. “Only the cruise line sector may be more challenged than the Las Vegas Strip over the next year or two, in our view,” Greff wrote, predicting several months of negative cash flows on the Strip. He liked the prospects of Las Vegas Sands, Wynn Resorts, Boyd Gaming and Penn National Gaming better, the first two having comparatively small Strip exposure and the latter two none at all, unless you count Penn’s lame-duck status at the Trop.

“It’s not easy forecasting [recovery] and we suspect the operators themselves are finding it tough, too, and the challenges are unprecedented, particularly with regard to casino re-openings,” Greff allowed. He predicted MGM would reopen NY-NY and Excalibur (popular with the California drive-in crowd), and Bellagio (high-end) in June, followed by Park MGM in late-autumn/winter, MGM Grand in early 2o21, Luxor and Mandalay Bay the following spring, Aria in the fall and, lastly, The Mirage in late 2021. Recovery, in other words, is a 2022 proposition and even then it’s somewhat emaciated, with the Strip generating 78% of 2019 cash flow, Macao 90% and regional U.S. casinos 100%. The balance sheet shows 22 months of liquidity, a $6.4 billion debt load and no maturities for two years. And the only casinos it still physically owns are problem child MGM Springfield and joint-venture Aria.

The day after Greff opined, MGM announced its reopening strategy and NY-NY and Bellagio are definitely first in line, with Excalibur’s status left undefined. Ditto the other Strip properties. We’ll credit Greff’s timetable for now, with the caveat that MGM will probably accelerate reopenings if the Strip comes back faster than anticipated. Donald Trump says 4Q20 will be great but that’s at the mercy of consumer confidence and, most of all, discretionary dollars. As for Macao, the first word on April is complete disaster: a 97% revenue collapse. Can things get any worse?

As for l’affaire Station, the layoffs are effective May 16, even though the company expects to begin reopening some casinos in the near future. The job losses will be “meaningful” at the sooner-to-reopen properties, “significant” at the mothballed ones. Health benefits for full-time workers are being extended through Sept. 30, so Station is not being ungenerous. “We have tried to retain our entire team, but in the face of this continued uncertainty we can no longer do so,” CEO Frank Fertitta III said in a formal statement. “This has been the most challenging and painful situation in our company’s history. We are hopeful, though, that Las Vegas will rebound swiftly and allow us to rehire many of our valued team members when we emerge on the other side of this crisis.”

Phase One of the Station resumption will be headlined by Red Rock Resort and Green Valley Ranch. Other properties included will be Boulder Station, Santa Fe Station, Palace Station and Sunset Station, along with the company’s hole-in-the-wall Wildfire Casinos (among the last places we’d go during a pandemic but there you have it). Temporarily shelved are the Palms, Fiesta Henderson, Fiesta Rancho and Texas Station until the company can foresee the economics of operating “in a post-COVID-19 world.” Some surprise was expressed at the Palms closure but it’s been a millstone around Station’s neck, expensive to operate, so we can understand if Fertitta wants to postpone that headache. Texas Station and the two Ranchos are at the fringes of the Station empire, and Fertitta presumably wants to get the core casinos back on their feet first. As he said, “When we are permitted to reopen, we don’t know what business will look like other than knowing that business levels will be lower as a result of this unprecedented crisis.”

The Culinary Union was quick to shoot back, with Treasurer-Secretary Geoconda Argüello-Kline firing off a missive that the union “will fight to ensure all workers are retained and do not have to reapply for their jobs, that their seniority remains intact, and that all workers are offered extended recall rights when the casinos reopen.”  That’s cold comfort to those unemployed workers (and we do not refer to Station’s) who are having to line up at food banks as jobless benefits wait—and wait—to come through.