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Clouds swirl around MGM ventures

Aug 12, 2008 7:03 PM

Gaming Insider by Phil Hevener | Big question marks loom over proposed MGM Mirage ventures in Las Vegas and Atlantic City. They are not creations of the award-winning architects the company has recently been employing to design its world class ventures.

They are a product of these "challenging times." Case in point: Perini Construction officials were asked during a second quarter conference call last week if MGM had made a "final investment decision" on its 60-acre East Coast project, a sort of "CityCenter East," as it has been dubbed, with a preliminary budget estimate in the $4 to $5 billion range.

The single word response from a senior Perini executive was an unmistakable, "No."

There was a pause of several beats during which the response seemed to echo up and down phone lines before the exec decided a little elaboration was called for. If the decision has been made Perini, the project’s contractor, had not yet been informed. The same executive also volunteered that there is reason to believe MGM wants to take another 12 months for additional work on the designs, etc.

An MGM announcement earlier this year forecasted an Atlantic City groundbreaking before the end of 2008 with an opening in 2012.

During conversations after last week’s second quarter MGM conference call, a call that did not include any reference to the Atlantic City project, MGM CEO Terry Lanni said that as long as the company can break ground by September 2009, it could meet earlier expectations for a 2012 opening.

All this suggests that the "final investment decision is still to be made."

Lanni’s skills include a rare ability for handling greased pigs and other slippery or sharp-edged issues.

Both the Atlantic City development and the North Las Vegas Strip joint venture with Sol Kerzner stand to benefit, Lanni said in separate conversations, from the company being able to spend additional time fine-tuning concepts, designs, blueprints and so forth.

This, the chairman added, with a nice bit of positive spin, will minimize cost increases as the project moves forward.

Regarding the Las Vegas project opposite the Sahara, there’s no sense of its scope or design; Lanni said, "We’re not going to break ground any time soon."

This is not the same as saying either venture has been shelved or canceled since, unlike Boyd Gaming’s Echelon, construction has not yet started on either of the two MGM projects.

But a delay by any name is a delay, whatever the reason, although capital spending delays in the world of big business seem to be the norm rather than the exception.

As for Atlantic City, the betting among sources outside MGM and Perini, people who are well positioned enough to make conclusions worth considering, is that the project will be put on hold or canceled.

Why?

First, there remains the issue of the Division of Gaming Enforcement not having said anything about its Pansy Ho report months after some kind of response was expected.

Second, there is also, by now, the familiar issue of bleak conditions in the credit markets, which have already resulted in a long list of projects involving a long list of companies to be canceled or delayed until conditions improve

The continued lack of state action on the Pansy Ho case in view of the massive amount of time investigators have spent on it is a big issue that could put deep furrows in the brows of potential lenders who don’t need reasons as significant as this to reject loan requests these days.

Experts at all levels may speculate that state and local officials do not want to lose the MGM development that will help transform Atlantic City’s image. But the "challenging times" that every CEO in the business has made recent reference to, credit markets do not need much of an excuse to turn their backs on a project.

On the other hand, this could be one of those make or break moments, the time when DGE officials decide they have spent enough time either investigating or sitting on the Pansy Ho issue.

MGM also has financing options – in theory – that are not available to most other companies.

They include the presence of majority shareholder Kirk Kerkorian, who might just decide to echo a bit of Larry the Cable Guy’s determined outlook and reach into his own deep pockets as he declares, let’s just "Git-R-Done".