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MGM MIRAGE mulls money-saving moves

Oct 21, 2008 5:03 PM

Gaming Insider by Phil Hevener | Where do we go from here?

The best minds in the Las Vegas gaming industry are asking themselves some form of that question as they continue their "right-sizing" and cost cutting … or whatever anyone wants to call it.

Top managers at the MGM Mirage properties may soon have a better idea of their company's response to these unprecedented tough times. They are reportedly scheduled to take their plans before Chairman Terry Lanni and other top corporate officials this week.

MGM President Jim Murren has recently been traveling from property to property discussing the possible specifics of cutbacks and future operations at each location. Murren has also raised the specter during these meetings of bonuses being eliminated or, uh, down-sized.

From an outsider’s perspective it is difficult to say how many wage earners will be working shorter hours or not at all. An MGM spokesman last week denied rumors of three or four thousand losing their jobs. But other sources say this response may have been based on the timing of the question. There is no doubt that serious cutbacks are in the works as business slides.

"These big places are like auto assembly lines," a mid-level manager at a Mirage property was saying. "When the business is not there for whatever reason you do not need as many people."

But some of the figuring may depend on who’s doing the counting. A Boyd Gaming official explained, "If an order for a hundred additional Culinary Union workers is rescinded because an event has been canceled or down-sized, is that a cutback?"

Property bosses have already taken a close look at the "variables," the ever-changing number of maids, food servers and so forth needed. A more recent focus has been on "fixed costs" – employee levels in all departments.

One of the issues: In closely associated properties such as Treasure Island and The Mirage, how much duplication is necessary?

Within Harrah’s there have been discussions that could lead to elimination of the department running the companywide customer satisfaction surveys. This would result in a big savings because the survey results have been the basis for calculating employee bonuses that would presumably no longer be paid.

Harrah’s bosses have also toyed with thoughts of relaxing customer service standards, that in the case of the slot department, were expected to bring a response within several minutes whenever a player pushed a button indicating he needed help.

One of the reported arguments for this change was that "We can learn to live with a response of five or ten minutes. No one is going to be tracking this with a customer satisfaction survey."

Within MGM, there are a wide variety of cutbacks being planned because the company reaches a variety of market niches, everything from the Bellagio, where customers expect five-star treatment, down to the Excalibur where customer expectations are usually far short of the five-star level.

Lanni said he had never seen anything like the events of recent weeks, events that have seen a near global lessening of consumer confidence and MGM’s stock crashing to seemingly impossible lows in the low teens.

"I’ve been in the industry 31 years and I’ve never seen anything like this," he said, adding that it is difficult to imagine anything resembling a serious recovery sooner than the end of 2009.

But because one man’s crisis is another’s opportunity, people who have money and a desire to spend it on "the right place at the right time" have been on the road, developing a sense of where those deals might be found, once the current spending and lending freeze hits bottom.

But where is the bottom? Companies have been stepping out gingerly with their ongoing efforts to spot it.

Roger Wagner was recently on the Mississippi Gulf Coast checking out the possibilities on Jack Binion’s behalf.

Penn National Chairman Peter Carlino has made it clear during recent months the company is in a buying mode. But Penn is not known for quick action and there have been lot of rapid-fire changes lately, all of them combining to keep casino customers close to home

A team of Wall Street researchers was in Las Vegas recently assessing the damage to balance sheets and consumer spending tendencies. That team’s conclusions: There may very well be bankruptcies during the months ahead.

And a Nevada gaming control official looked at the heavy debt carried by the casinos owned by private equity groups and concluded, "This is going to be a real test of the private equity concept."

Maine voters expected
to okay Olympia casino

Voters in Maine appear ready to cast their votes in favor of a Jefferson County casino owned by Las Vegas-based Olympia Gaming.

Olympia’s Dean Harrold says recent polling shows that the proposed venture is a "slight favorite" to succeed when voters go to the polls Nov. 4.

Harrold said Olympia officials would have felt good about their chances of winning if the project has been behind by as much as 10 points, "but we’re not down, we’re ahead, so we’re feeling very good about things."

No legislative action is necessary if the initiative that would be taxed at a 49 percent rate is approved. There would be a 10-year monopoly. Olympia expects to spend about $100 million on a hotel and casino that will have about 125 rooms and suites and some 1,200 slots and table games.

Harrold said, "The voters of Maine understand that this is about creating good jobs in a state that has been licking its wounds" because of lost jobs.