Mgm Resorts International
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MGMs mission is to be “the leader in entertainment and hospitality” through “a diverse collection of extraordinary people, distinctive brands and best in class destinations” .
II. Target market
For years the target markets of MGM were travelers, vacationers and gamblers who like luxury and comfort and ready to pay for the outstanding service and high quality gaming. In early 2000s MGM extended its market segment and started to offer value-oriented products and services for lower income visitors.
Even by MGMs financial report for 2011 over the half of their net revenue from owned domestic resorts was derived from non-gaming activities : gamblers were the main target of the company. MGM differentiates rooms, food and beverage revenue from tables revenue in the financial statements. However, large percentage of the gamblers stays in the hotel, eat, drink and play, so this deviation is not quite proper (Table 1). Over the last five years MGM has changed its strategy to expand worldwide positioning itself as highest hospitality hotels and resorts not related to the gaming activities.
MGMs target market is also divided geographically based on the regions, in which it operates: holly owned domestic resorts and MGM China.
III. Nucleus control
Kirk Kerkorians contribution into MGM Resorts International as its founder is impossible not to recognize. MGMs hotels were the largest in the business for years. Nevertheless he never was its controlling leader. Jim Murren, current Chairman and Chief Executive Officer, had a major impact on the company from 1998 on. Under his tenure MGM became the largest gaming company through the row of successful acquisitions. He reorganized the company in 2008; that helped to save five hundred millions in the beginning of the economic recession. “CityCenter” project came live in 2009 and became the largest green project and the largest private development.
IV. Functional Analysis
James J. Murren has been the Chairman and Chief Executive Officer of the company since 2008. He joined the company in 1998 as Chief Financial Officer. Prior to joining the Company, Murren worked in the financial industry for over 10 years, serving as the Managing Director and Co-Director of Research for Deutsche Morgan Grenfell and Director of Research and Managing Director for Deutsche Bank.
Daniel DArrigo is the Chief Financial Officer, Executive Vice President, Treasurer of MGM Resorts International. Mr. DArrigo has served as Executive Vice President and Chief Financial Officer since August 2007 and Treasurer since September 2009.
Robert Baldwin is Chief Design and Construction Officer, Director of MGM Resorts International. He has been Chief Design and Construction Officer of the Company since August 2007. President of Project CC, LLC, the managing member of CityCenter Holdings, LLC, since March 2005, and President and Chief Executive Officer of Project CC, LLC since August 2007.
Price – MGM compares with other market players not by lower price but by high quality services and entertainment that MGM believes are best on the market.
Product – MGM targets different market segment by offering luxury and value-oriented products and services.
Place – To expand and to diversify its business MGM resorts went internationally on Vietnamese and Chinese (Macau property) markets. Macau, the worlds fastest-growing market, whose revenues rose 58% in 2010, to a record US$23.4 billion from US$14.9 billion in 2009, and which is expected to sustain double-digit growth in the coming years.
Promotion – MGM positions itself as the largest company in a strip and promotes its products as the highest quality gaming and luxury services.
Enterprise value of the company is $18.09 billion and its 2010 revenue is more than $6 billion. However, I cant say that MGM Resorts International is financially healthy company. Financial ratios presented in Exhibit 13 on page 244 shows that company is underperforming comparatively to competitors even though they experienced the same economic downturn as MGM. It has heavy debt burden due to the huge construction project of CityCenter. Moreover, with such heavy debt (debt to equity = 401.9%) and maturing debt obligations MGM was close to bankruptcy. The risky position of the company reflected in its stock price. When all of its competitors stock started to rise after the deep recession of 2008 and 2009, MGMs stock staid at comparatively steady low level (Table 2). Negative Net Income margin is also the sign that MGM generates much less income then accrued costs. Losses on investment activities are tremendous for 2009 and 2010 what makes net income even lower with its already weak position with decreased operating income. MGM as other companies is supposed to generate large amount of cash due to the business specific (many customers pay cash). MGM has poorest cash flow performance among major competitors due to the dropping net income and growing debt retirement.
V. Problem statement
Based on the problem matrix (Table 4) I could state that MGMs problem is poor financial performance of the company on all stages caused by lack of planning