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Casino operator MGM flags job cuts

Fri, Jan 11, 1:14pm by Staff Writer

Casino operator MGM Resorts has flagged a new plan that will boost company earnings at the expense of jobs. MGM announced its new ‘MGM 2020’ plan last Thursday, one that it believes will transform the company and deliver an uplift in revenue.

By 2021 the company exists to have raised its revenue by $300 million and by $200 million by 2020.

Calvin Ayre reports that this ‘company wide, business-optimisation initiative’ is intended to maximise profits by, among other things, centralising ‘key company wide functions’ and investing in technology ‘to lay the groundwork for the company’s digital transformation to drive revenue growth.’

MGM acknowledge that half of the $200 million of earning the company expects to achieve by the end of 2020 will come through ‘labor savings.’

The savings potentially imply 2,000 jobs cuts, although most of those layoffs will be managers or higher, the company said some union jobs could be eliminated, according to the Las Vegas Review Journal.

In May 2018, MGM Resorts said it planned to boost its operating cash by as much as 39 per cent to $3.9 billion by 2020.

At the time of this announcement, Union Gaming analyst John DeCree said: “with a playbook in hand, we have greater conviction in the long-term forecast.”

Share price tumbles and new acquisitions draw closer

This latest announcement from MGM comes at a time when the company’s share price has nose dived in the past 12 months.

MGM Resorts share price has loss a quarter of its value in the past 12 months compared with a 7.3  per cent drop for the S&P 500.

The declines have sparked media reports that activist investors are interested in shaking up the company.

“It was a very prudent thing for MGM to do it (this announcement) at a time when their shares are at multi-year lows,” said Chad Beynon, an analyst at Macquarie.

MGM Resorts is on the verge of acquiring new properties in New York and Ohio this month that will take its total operations to 18 casinos in the United States.

Most of the company’s US operators are on the Las Vegas Strip, making centralisation a logical move for MGM.

Jefferies gaming analyst David Katz agrees stating: “there has always been a debate about the degree to which MGM is centralised and whether or not there is an opportunity for the company to benefit from more centralised operations.”

MGM Resorts is finishing an aggressive investment cycle that saw it spend more than $6 billion to build three casinos and an arena.

The company said it expects to reallocate some of its annual capital expenditures to technology.

One area that is ripe for cost-cutting is promotional expenditures. Casino operators have historically spent a significant portion of their budgets trying to attract players.

New technology enables operators to collect more data on consumers and better target promotions, including through mobile apps. This would enable cost cutting and improve revenues.

“The ability to analyse behaviour better and make the right inducements to get people to play is one of the most important themes in the industry,” Mr Katz said.

MGM Resorts International’s $850 million purchase of the Empire City Casino in New York is scheduled to close in January.

The Las Vegas based gaming company announced the news in conjunction with its appointment of Uri Clinton as the president and chief operating officer of Empire City Casino.

In May 2018, MGM Resorts International and MGM Growth Properties LLC reached the $850 million agreement to acquire the Empire City Casino.

At the time, MGM had anticipated closing on the property during the first quarter of 2019.

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