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Case study: MGM Mirage case study Critical issue The critical issue is marketing expansion. The symptom is maintaining attraction to customers through expanding internationally. Grading criteria (Recommendations) - I need 1-2 recommendations in 375 words. Considering the critical issue identified, and should also follow 1-3 below, please be sure to read the case study. 1- Offer 1-2 concrete recommendations 2- Describe how the recommendations arise from the analysis that was conducted 3- Describe how the recommendations address the critical issue identify/n MGM Mirage - 2007 John K. Ross III Sherry K. Ross Texas State University-San Marcos MGM Dc http://www.mgmmirage.com/index.asp Lately you have begun to get a little anxious. After all, it is your final semester at State and you still do not have a good job lined up. You interviewed on campus with several compa- nies; but none seemed right, until this last round of interviews. The first two interviews were great. You were apprehensive at first; after all, applying for a job with a Las Vegas casino had never been in your plans. But the on-campus interviewer was very professional and encour- aging. The second interview two weeks later went even better, and now you are on your way to the final interview at corporate headquarters, located in the Bellagio Hotel and Casino. Your flight was uneventful, landing as the sun was setting over the desert Southwest. The temperature has cooled to below 100° and it is dark by the time your taxi leaves McCarran Airport down the brightly lit neon road called the Strip to the Bellagio. As you gaze out the window you recall your MGM Mirage research and begin naming their prop- erties as you pass them. First is the Four Seasons next to Mandalay Bay on your right, then the Luxor, and then the Excalibur. At the next intersection is the MGM Grand and New York-New York, which are across the street from each other. Then you pass the Monte Carlo and finally turn into the Bellagio. You know that further down the strip are more MGM Mirage properties and that these are only the ones in Las Vegas. Even though you have read about these properties, the size and scope of the casinos and resorts owned by MGM Mirage takes your breath away. you As your taxi turns into the Bellagio the dancing fountains seem to welcome to what you hope will be your new career. MGM Mirage The story of the MGM Mirage parallels that of the gaming industry in the United States, and particularly that of the Las Vegas hotel/casino industry. But it is also the story of two Las Vegas gaming community giants, Kirk Kerkorian and Steven Wynn. Together, yet separately, these two men helped shape today's gaming industry and created Las Vegas as a destination resort. Mr. Kirk Kerkorian has lived the true American rags to riches dream. Born in 1917, the son of Armenian immigrants, Mr. Kerkorian lived through the Great Depression, learned to fly, and ferried planes from Canada to England for the Royal Air Force during WWII. He then started Trans International Airlines, which he later sold, and then made investments in Las Vegas properties and in MGM Studios. Loving Las Vegas and seeing its potential for growth, he opened the first MGM Grand in 1973. With shrewd investments and a keen knowledge of the markets, Mr. Kerkorian's investment company, Tracinda Corp., now owns over 50 percent of the outstanding shares of the MGM Mirage; and he is one of the wealthiest men in America. Steven Wynn, on the other hand, was raised in affluence and attended a military prep school and the University of Pennsylvania. He moved to Las Vegas in 1967 and through a series of astute investments gained control of the Golden Nugget in the downtown area. He took an ailing casino, turned it around, and invested the profits in land located on the Strip. Eventually he created the Mirage, followed by Treasure Island and the Bellagio. He is no longer affiliated with MGM Mirage and is currently CEO and chairman of the board of Wynn Resorts, a $2.7 billion luxury hotel and destination casino on the Strip in Las Vegas. The MGM Mirage was created when the MGM Grand acquired Mirage Resorts in 2000. By then, the themed hotel/casino resort concept had become firmly entrenched in Las Vegas as well as in much of the remaining gaming community. The acquisition was part of a consolida- tion trend in the hotel/casino industry and was continued when MGM Mirage acquired Mandalay Resort Group in 2005. In 2007, MGM opened MGM Grand Detroit and MGM Grand Macan, and will open huge new resorts in Atlantic City and Abu Dhabi, UAE in 2008. Properties Currently MGM Mirage acts principally as a holding company and conducts operations through its wholly owned subsidiaries. Exhibit 1 provides a complete list of the properties wholly or partially owned and controlled by MGM Mirage. The list includes properties in EXHIBIT 1 Resort and Casino Data Name and Location Las Vegas Strip, Nevada Bellagio MGM Grand Las Vegas Mandalay Bay The Mirage Luxor Treasure Island ("TI") New York-New York Excalibur Monte Carlo Circus Circus Las Vegas Subtotal Other Nevada Primm Valley Resorts (Primm) Circus Circus Reno Silver Legacy - 50% owned Gold Strike (Jean) Nevada Landing (Jean) Laughlin Railroad Pass (Henderson) ties (Laughlin) Other Domestic Operations MGM Grand Detroit (Detroit, Michigan) Beau Rivage (Biloxi, Mississippi) Gold Strike (Tunica, Mississippi) Borgata - 50% owned (Atlantic City, New Jersey) Grand Victoria - 50% owned (Elgin, Illinois) Grand Total Source: 10-K, February 28, 2007. Number of Guestrooms and Suites 3,933 5,803 4,756 3,044 4,404 2,885 2,024 3,990 3,002 3,764 37,605 2,642 1,572 1,710 811 303 2,524 120 1 N/A 1,740 1,131 1,971 N/A 52,129 Approximate Casino Square Footage 155,000 156,000 157,000 118,000 100,000 87,000 84,000 90,000 102,000 133,000 1,182,000 CASE 26 MGM MIRAGE - 2007 137,000 69,000 87,000 37,000 36,000 102,000 13,000 75,000 72,000 50,000 137,000 34,000 2,031,000 Slots 2,365 2,611 2,010 2,063 1,589 1,726 1,850 1,887 1,612 2,350 20,063 2,816 1,246 1,677 740 727 2,199 330 2,840 2,048 1,271 4,068 1,111 41,136 Gaming Tables 144 174 120 111 89 68 75 73 74 92 1,020 93 47 68. 10 10 72 6 259 72 93 56 178 36 1,761 260 JOHN K. ROSS III AND SHERRY K. ROSS Las Vegas as well as Jean, Laughlin, and Henderson, Nevada. Other states such as Michigan, Mississippi, and New Jersey are also well represented. The major properties for MGM Mirage are located on the Las Vegas Strip where big, expensive, entertaining, new, and exciting are the key words for success. And MGM Mirage provides it all: mega-casinos, world-class hotels and restaurants, and some of the biggest entertainment shows in the world. And it seems to work, as evidenced by the over $7 billion in revenues and $600 million net profits in 2006. The following section gives some idea of the scope and size of some of the major MGM Mirage properties. MGM Grand Las Vegas is one of the signature resorts and is one of the largest casino resorts in the world. Its guest rooms feature unique themes including an area offering bou- tique-style rooms called the West Wing, ultra-suites on the 29th floor called Skylofts, and the exclusive Mansion for premium gaming customers. World-class restaurants include two new restaurants by renowned chef Joël Robuchon, as well as Craftsteak, Nobhill, SeaBlue, Pearl, Shibuya, and Fiamma Trattoria. Other amenities include the Studio 54 nightclub, Tabu, the Ultra Lounge, Teatro, numerous retail shopping outlets, a 380,000- square-foot state-of-the-art conference center, and an extensive pool and spa complex. Entertainment by Cirque du Soleil is performed in a custom-designed theatre seating almost 2,000 guests. The Mirage is the other signature resort, featuring a luxurious, tropically oriented theme located on a site shared with Treasure Island at the center of the Las Vegas Strip. The exterior of the resort is most recognized for its water features around a 54-foot vol- cano, which erupts every evening at regular intervals. Inside the front entrance is an atrium with a tropical garden and additional water features capped by a 100-foot-high glass dome designed to replicate the sights, sounds, and fragrances of the South Seas. Restaurants include Kokomos, Japonais, Fin, Stack, Cravings, and Carnegie Deli. Entertainment at the Mirage is highlighted by Cirque du Soleil and Danny Gans. The Bellagio is one of the premier destination resorts located at the heart of the Las Vegas Strip. Bellagio is probably most famous for its eight-acre lake featuring over 1,000 fountains that come alive at regular intervals in a choreographed ballet of water, music, and lights. There is also a conservatory filled with unique botanical displays that change with the seasons, and 200,000 square feet of convention space. Restaurants include Picasso and Le Cirque, and entertainment options include O, produced and performed by Cirque du Soleil, the Light nightclub, and several other bars and lounges. Leisure travelers can also enjoy Bellagio's expansive pool, world-class spa, and Gallery of Fine Arts. Mandalay Bay Resorts is the most recent addition to MGM Mirage. This South Seas-themed resort features an extensive pool and beach area, including a wave pool and a European-style "ultra" beach, as well as a 30,000-square-foot spa. Restaurants include Charlie Palmer's Aureole, Wolfgang Puck's Trattoria del Lupo, China Grill, Hubert Keller's Fleur de Lys, and Border Grill. Entertainment venues include a 12,000-seat spe- cial events arena, a 1,760-seat showroom featuring the Broadway hit Mamma Mia!, the House of Blues, and the Rumjungle restaurant and nightclub. In addition, Mandalay Bay features the Shark Reef, exhibiting sharks and rare sea predators. Also included within Mandalay Bay is a Four Seasons Hotel with its own lobby, restaurants, pool, and spa. From pirates to pyramids to castles, other MGM Mirage properties follow the same general concept of themed entertainment gaming resorts covering a wide variety of loca- tions and catering to many different types of customers. The recent acquisitions of Mirage Resorts and Mandalay Bay Resorts have provided a tremendous depth and breadth of offerings and have significantly contributed to the recent growth of MGM Mirage. These acquisitions seem to have been successfully integrated into a corporate holding organiza- tional structure. Although MGM Mirage does not publish their actual organizational structure, Exhibit 2 might be representative based on the listing of key management. This type of structure allows operational decisions and responsibility for the MGM Grand group and the Mirage group to be located with specific individuals and further allows each to operate independently, yet coordinated. The corporate offices help provide a high degree of synergy between the two divisions and allow for shared resources to be used for future projects. ANAK EXHIBIT 2 Possible Organizational Structure Daniel J. D'Arrigo Senior Vice President- Finance John T. Redmond President, CEO MGM Grand Alan Feldman Senior Vice President- Public Affairs Bruce Gebhardt Senior Vice President- Global Security Phyllis A. James Senior Vice President and Senior Counsel J. Terrence Lanni CEO Gary N. Jacobs Executive Vice President Punam Mathur Senior Vice President- Corporate Diversity and Community Affairs Cynthia Kiser Murphey Senior Vice President- Human Resources CASE 26 MGM MIRAGE - 2007 1 Shawn T. Sani Senior Vice President- Taxes Mission The successful integration of the many properties of MGM Mirage can, in some part, be attributed to a strong management team with a clear mission. The mission of MGM Mirage, as stated by the company, is: The resorts and casinos of MGM Mirage are some of the most famous in the world, widely credited for establishing a new generation of excitement in Las Vegas! Our 24 destinations are renowned for their winning combination of quality entertainment, lux- urious facilities and exceptional customer service. Our dedicated staff of over 70,000 employees are committed to providing an unsur- passed experience for every one of our guests. We are actively expanding our presence globally, with potential developments in a number of domestic and international mar- kets. At MGM Mirage, we are all striving together to deliver our enticing blend of entertainment to every corner of the world. Source: http://www.mgmmirage.com/missionstatement.asp This mission has helped management remain focused on the core activities of MGM Mirage and pursue an aggressive growth strategy at the same time. The successful imple- mentation of these strategies by management has provided substantial financial resources to peruse new venues, and the management team has been well rewarded by the company, as can be seen in Exhibit 3 and Exhibit 4. Financials The financial management of an organization as large as MGM Mirage could be a daunt- ing task. From the financial data it appears that MGM Mirage is practicing solid financial statement management with even cash flow throughout the operating year. Recent trends in revenue seem to be following the industry with casino operations becoming a smaller percentage while the revenue from rooms is growing as a percentage of total revenues. This trend has been prevalent throughout the industry for years as Las Vegas has come to depend less on gambling and more on entertainment to draw cus- tomers. However, gaming does remain some 43 percent of total revenue with food and Robert H. Baldwin President, CEO Mirage Resorts President, City Center Robert C. Selwood Senior Vice President- Accounting 261 Bryan L. Wright Senior Vice President, Assistant General Counsel and Assistant Secretary 262 JOHN K. ROSS III AND SHERRY K. ROSS EXHIBIT 3 Management Compensation 2003-2005 Name and Principal Position J. Terrence Lanni Chairman and Chief Executive Officer Robert H. Baldwin President and Chief Executive Officer - Mirage Resorts, Incorporated John T. Redmond President and Chief Executive Officer - MGM Grand Resorts, LLC James J. Murren President, Chief Financial Officer and Treasurer Gary N. Jacobs Executive Vice President, General Counsel and Secretary Year 2005 2004 2003 2005 2004 2003 2005 2004 2003 2005 2004 2003 2005 2004 2003 Annual Compensation Salary $2,000,000 2,000,000 2,000,000 $1,500,000 1,500,000 1,500,000 $ 1,422,308 1,300,000 1,300,000 $1,315,385 1,200,000 1,200,000 $ 700,000 Source: Def14 A Proxy Statement Filed April 4, 2006. 700,000 700,000 Bonus $ 6,089,729 3,393,553 1,989,345 $4,562,205 2,542,327 1,490,345 $4,562,205 2,201,837 1,290,745 $4,562,205 2,031,592 1,190,946 $ 2,468,167 1,180,366 691,946 Long-Term Compensation Awards Other Annual $661,857 $ $ 612,114 504,921 25,225 11,345 4,981 $ 100,747 54,865 62,807 $ 24,972 24,924 11,883 Shares Underlying Options 1,200,000 1,400,000 600,000 1,200,000 600,000 1,000,000 700,000 1,000,000 400,000 600,000 All Other Compensation $ 849,036 817,162 812,350 $461,793 473,554 500,081 $ 329,607 282,219 300,123 $375,432 274,830 259,160 $ 357,345 274,590 243,094 entertainment revenue remaining constant. Segment data also shows that table games have shown a marked percentage increase (from 30 percent in 2004 to 40 percent in 2006) in casino revenues. This may be a reflection of the tremendous interest in table games, particularly Texas hold 'em as seen on television shows and played on home computers. Recent acquisitions have greatly impacted the balance sheet with large increases in property, plant, and equipment as Mirage and Mandalay Bay were consolidated into the financial statements. Additionally, a seemingly large goodwill account, at over $1.3 bil- lion, will need to be amortized in coming years. In the liabilities section of the balance eet, the $12.0 billion in long-term debt represents some 58 percent of liabilities and stockholders' equity. Although these numbers seem large, keep in mind that MGM Mirage earned $635 million net on revenues of $7.1 billion with a market cap of $18.99 billion. The Gaming Industry People have undoubtedly gambled or placed wagers on the outcomes of events since before the beginning of recorded history. Today the gaming industry is a multibillion- dollar worldwide industry, which incorporates everything from massive hotel/casino desti- nation resorts to state-run lotteries, to individuals sitting at their computer playing over the Internet. Over the past 30 years, just in the United States, we have seen gambling grow from a few destination resorts in Las Vegas and Atlantic City to some form of legalized gaming in 48 states, including the development of multistate lotteries, the proliferation of