This week’s layoff of 254 managers by MGM Resorts is the beginning, as Jim Murren plans 2000 firings by the end of 2020.
MGM Resorts laid off 254 managers this week, which is phase one of the 2020 Plan. The layoffs pleased MGM Resorts investors, who called for changes to the casino company‘s bottom line. MGM Resorts’ market capitalization is roughly equivalent to the size of its debt.
Both equal about $15 billion, according to the company’s financial reports. MGM Resorts therefore holds a debt burden higher than its chief competitors — including Caesars Entertainment.
Despite the estimates, traders continue to invest in MGM Resorts. MGM Resorts’ market capitalization — the market value of a publicly traded company’s outstanding shares — sits at $14.95 billion. The company’s debt burden is an estimated $15 billion.
Las Vegas Sands Corp, Wynn Resorts, and Caesars Entertainment each have a debt burden less than their Las Vegas rival. The fact surprises many investors, because Caesars Entertainment had $23 billion in debt as recently as 2015 and came out of a bankruptcy reorganization three years ago.
Investors continue to buy in on MGM Resorts. Share prices are up 14.55% this year, while stock is 8% this month ahead of the Q1 earnings report. MGM Resorts CEO Jim Murren releases the report on Monday, April 29. Shares fell 27% in 2018, which was a bad year for more Las Vegas casino company stocks.
The 2020 Plan
In January, Jim Murren announced the “2020 Plan“, a strategy to increase EBITDA (annual adjusted earnings before interest, taxes, depreciation, and amortization) by $200 million over the next two years. Murren hopes to increase EBITDA an additional $100 million by the end of the year 2021.
When he announced the 2020 Plan, Jim Murren said he wants to “transform the way we operate and leverage the most effective operational architecture for our company.”
Cut 3% of the Workforce
The plan calls for MGM Resorts to lay off 3% of its workforce over the next two years. That amounts to about 2000 employees, though Jim Murren said most of those jobs are “managers and above”.
It is a vast streamlining of the company, which is a big reason why share prices are up this year. Investors see a plan in place to make MGM Resorts more profitable.
This week saw the first phase of the 2020 Plan implemented, as MGM Resorts eliminated 254 management positions. The cuts were made company-wide in a global workforce, so few locations will notice an immediate change.
Next Phase of 2020 Plan
Whether the next phase is so little-noticed will be another thing. Unite Here Local 54 President Bob McDevitt, who collectively bargains with MGM’s Borgata in Atlantic City, warned of changes to come.
In particular, Bob McDevitt warned about the role of activitist investors on gaming company decisions. Earlier this month, the Atlantic City union leader said, “So-called ‘active investors,’ whether they are hedge funds or private equity, are generally interested in benefiting themselves and other shareholders in the short-term, often without regard to the long-term consequences for the company.”
“Consequently, they are a serious threat to the stability and longevity of our industry.”
Bob McDevitt vs. Carl Icahn
Bob McDevitt’s experiences have been shaped with his contentious relationship in 2015-2016 with Carl Icahn, the leading figure among activist investors. Icahn famously closed Trump Taj Mahal during a strike by UNITE Here. When New Jersey lawmakers decided Icahn was closing the casino in order to open it up again with non-union workers, they crafted a law (vetoed by Chris Christie) to punish anyone who did so.
In disgust, Carl Icahn sold the casino to Hard Rock International, which invested $500 million in the old Trump casino. Yet at the time, Icahn’s decision cost 3000 people their jobs.
Corvex Management’s Role
In MGM Resorts’ case, McDevitt was talking about HG Vora Capital and Keith Meister’s hedge fund, Corvex Management. Keith Meister’s role in MGM Resorts’ 2020 Plan and recent layoffs was addressed to Jim Murren himself, who defended the hedge fund manager.
Bloomberg asked Murren about Keith Meister’s role in the MGM boardroom, to which Murren replied: “Keith is an active board member — not an activist. I invited him onto the board because he knows gaming quite well and the issues we deal with.”
Switching into sales talk, Jim Murren said, “MGM is embarking on a major profit resurgence. We believe we’re now in a harvesting of free cash flow mode that will be put toward shareholder returns.”
