Lanni: MGM revenue profile evolving

Dec 4, 2007 7:13 AM

MGM Mirage Chairman Terry Lanni says analysts following the company need a perspective that is as new as the thinking that drives the gaming and entertainment giant toward its future.

Talk about some big changes.

Lanni concedes it has probably been difficult for analysts to keep up with the process that has been reflected in recent project announcements.

"But that is understandable," he says.

Important elements of the on-going evolution have bobbed to the surface of current events only within the last year as non-gaming ventures involving billions of dollars in capital spending have been introduced.

Gaming revenue accounted for 70-80 percent of the company’s total income about nine years ago.

This figure could shrink to about 30 percent over the next five years, Lanni speculates, assuming current project plans continue developing as expected from Las Vegas to the Middle East and the Far East in locales such as Singapore and Macau.

"I think more people will be more focused on the change," Lanni says, "as MGM Mirage Hospitality adds more projects and construction begins."

The mission of this MGM subsidiary to leverage the company’s ability to develop and operate its myriad hotel and restaurant brands in joint ventures around the world was first discussed publicly within about the last year. It’s picked up momentum because of a number of joint venture announcements.

Top executives have recently been racing between significant events, some of them involving casinos, others aimed at MGM’s fledgling expectations for luxury non-gaming resorts and hotels in the Middle East, Singapore and the People’s Republic of China.

These include the Oct. 2, opening of its permanent Detroit casino, the Dec.18 opening in Macau of its joint venture with Pansy Ho, plans for a sort of son of CityCenter development in Atlantic City, the Las Vegas Strip joint venture with Sol Kerzner.

"Some of this will require shovels in the ground and construction going on, beams going up and pilings going in — like with CityCenter — before people get a real sense of the reality that’s going on ”¦ If we are having a conversation about this time next year," Lanni continued. "People will be recognizing that we are an evolving and changing company as we start construction in Dubai, Singapore and China."

Even as non-gaming revenue grows, Lanni warns against reading too much into the results on any given year. Results, he says, can sometimes be skewed by one-time events such as condominium sales.

There have been a lot of sales during the last year and 2009 will again be somewhat of a skewed year because much of the $2.7 billion associated with total condo sales will be due in ’09.

The emphasis on clubs as a revenue driver has received a lot of attention during the last year at all major companies including MGM which has partners in all but one of its clubs. That exception is Studio 54, which MGM owns but is considering turning over to an as-yet unnamed partner.

"Nightclubs, if you look at it, have about a five-year life and I think we’re far better off doing business with people who live and breathe the business. I’m amazed that Studio 54 has done as well as it has for us," he said.

But the relatively short life span of even the most successful clubs is, Lanni says, a fact of life.

So why focus so heavily on them? Is it because they bring in customers with high gambling profiles?

Lanni considers that for a moment and says, "I think it is more that they have a high spending profile. What they (good club customers) will do is come in on charters or their own aircraft, they’ll stay in the more expensive suites, eat in the more expensive restaurants and shop in the more expensive boutiques ”¦ Their spending shows more of a tendency to cross over into non- gaming interests than it does gaming."

Lanni does not want to discuss the revenues generated by this business, "because we have partners in a lot of these projects and we would have to agree to (release figures) together, but we do very well."

Which is obviously all that matters.