MGM eyes $1B resort

May 27, 2003 4:40 AM

  MGM-Mirage Inc., content now to invest in its own stock and its existing casinos, and reducing its debt load, plans to build a new $1 billion resort in either Las Vegas or Atlantic City once its expansion of the Bellagio is completed late next year, a top company executive said last week.

James Murren, executive vice president and chief financial officer, also said that MGM is more interested in exploring new gaming opportunities overseas than in the United States.

"The returns are a lot higher outside the U.S. right now, so that is where we’re focusing," specifically the United Kingdom and parts of Asia, Murren told attendees of the 25th Annual Financial Executives Gaming Forum, hosted by the Nevada Society of Certified Public Accountants at the Flamingo Hotel.

The current U.S. gaming industry is basically good, but "is tougher now than ever before," he said.

MGM is concentrating on only three states in the future ”” Nevada, New Jersey and Mississippi ”” because they "have the most stable tax and regulatory systems. The other states say ”˜Let’s try to screw the industry as much as we can,’" Murren said.

Over the last year, MGM has been pumping its profits back into the company. Murren said MGM took the $500 million in free cash flow it earned last year and put $208 million of it into a stock buyback plan and then invested $314 million in company funds toward lowering its debt.

MGM has also been injecting funds into its gaming properties, including spending $375 million on the Bellagio expansion, "We don’t sit back and wait for acquisitions," Murren said. "It’s a better use for our cash to decapitalize. We are looking at racinos (but) we’re definitely looking at our existing operations. (MGM) has bought back $800 million in stock since I joined the company."

Murren added that once improvements to the Bellagio are completed by late in 2004, "our capital spending will then fall" and the firm will turn its attention toward developing another megaresort property.

"We’ll be looking at building a new property, and a big one””well over a billion (dollars)" either on MGM land next to the Bellagio or beside its property by the Borgata casino in Atlantic City, Murren said.

"The jury is out" on the location, he added. "We’ll make decision in late ’04."

MGM recently completed an expenditure of $150 million for new slot machines — mostly cashless ticket in/ticket-out models — and an improved Player’s Club slot card system. The new player tracking system alone cost $40 million.

"Our slot purchases will go down" as a result, Murren said.

"It’s getting tougher and tougher to maintain margins in this industry," he said, adding that better use of new slot machine technologies can help increase those margins.

Murren said that the MGM’s recent failure to mail almost 15,000 cash transaction reports to federal authorities was for MGM chairman and chief executive J. Terrence Lanni "the most embarrassing thing that has happened in his 26 years in the business and certainly the most embarrassing thing that has happened to MGM."

The State Gaming Control Board last week fined MGM a record $5 million for not sending the reports from The Mirage hotel, some of which sat at the hotel for more than a year.