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Analyst: Murren’s departure from MGM ‘brings to question’ company’s strategic direction

Howard Stutz
Howard Stutz
The MGM Grand hotel and casino sign

The announcement that Jim Murren would step away as MGM Resorts International’s chairman and CEO before his employment agreement expires at the end of 2021 dominated Wednesday’s fourth quarter earnings conference call.

Exactly who the committee of independent MGM board members and an executive search agency selects to step into Murren’s role is the investment community’s newest fixation.

“His departure brings to question the strategic direction of the company,” Union Gaming Group analyst John DeCree told investors.

“While we have no doubts in the board’s ability to locate and recruit a strong successor, we could see the stock potentially in a holding pattern in the meantime,” said SunTrust Bank gaming analyst Barry Jonas.

That might be the case for several months.

MGM Resorts didn’t say which board members would comprise the committee, which could give some insight on how the panel views the process.

“When we are able to release that information, we will,” MGM Resorts spokeswoman Debra DeShong said in an email Thursday.

The 12-person board includes longtime members Alexis Herman, a former U.S. secretary of labor under President Bill Clinton, and Rose McKinney-James, a renewable energy activist who has held several appointed Nevada and local government positions.

Activist investor Keith Meister, founder of Corvex Management LP and a long-time associate of corporate raider Carl Icahn, acquired 3 percent of MGM’s stock and was appointed to the company's board in January 2019.

Meister was one of three board members on a committee assigned to appraise MGM Resorts’ expansive real estate portfolio last year, which led the sales/leasebacks of Bellagio and MGM Grand Las Vegas and the outright sale of Circus Circus Las Vegas.

The real estate committee’s efforts, which included board members John Kilroy Jr., and Paul Salem, resulted in transactions that provided MGM Resorts net proceeds of $8.2 billion, which was used to retire $3.1 billion of the company’s long-term debt, which now stands at $11.3 billion as of Dec. 31.

But analysts said the positive outcome isn’t reflected in the stock price, which was weighed down by the company’s fourth quarter results. Stifel Financial gaming analyst Steven Wieczynski termed the results, “uninspiring.”

Shares of MGM Resorts closed $31.80 Thursday on the New York Stock Exchange, down $1.86 or 5.53 percent. A year ago, the company’s closing price was $29.23.

Murren, 58, spent much of Thursday in town hall meetings with MGM employees in Las Vegas explaining his decision to step down from the position he has held since 2008. He joined MGM 10 years earlier as chief financial officer.

Murren’s announcement followed a year of turmoil for MGM Resorts. Through the MGM 2020 company-wide cost reduction effort, more than 1,000 employees were laid off while several long-time executives took early retirement buyouts.

In October, MGM settled litigation with victims of the October 1, 2017 shooting in Las Vegas, agreeing to pay between $735 million and $800 million, of which up to $751 million will be funded by the company’s insurers. A gunman perched in a Mandalay Bay hotel room fired down at the Route 91 Harvest Music Festival on concert grounds owned by MGM, killing 58 people and wounding hundreds.

Murren is credited with spearheading MGM’s growth through construction and acquisition. The company built the $1.2 billion MGM National Harbor in Maryland in 2016 and the $960 million MGM Springfield in Massachusetts in 2018 and acquired casinos in Ohio and New York last year. He also solidified the company’s leadership on the Las Vegas Strip and was “deeply involved” in bringing professional sports teams to the city, as well as building T-Mobile Arena. 

“This was not a decision that I made lightly,” Murren said on Wednesday’s conference call. “However, I know the company is well-positioned. Our balance sheet is strong. We have an efficient operating model and a powerful strategic plan.”

Several analysts commented that finding a successor to Murren with a strong gaming industry background is imperative to the company’s success. Analysts said the board could take months to choose the CEO to lead the casino giant, which operates 29 resorts in the U.S. and Macau, including nine on the Las Vegas Strip, and produced $12.9 billion in total revenue in 2019.

One national employment expert said the task might be easier said than done.

Andrew Challenger, vice president of Chicago-based Challenger, Gray & Christmas, Inc., a global outplacement and executive coaching firm, said 2019 marked the first time in six years that external candidates for open CEO positions outpaced the hiring of internal candidates.

Challenger said the CEO turnover rate nationally was up 37 percent in January and of the 198 replacements tracked that month, 107 came from outside the company.

“This is a tough environment and a lot of companies don’t have the talent on the inside waiting in the wings,” Challenger said.

He added that MGM’s board could seek to fill the chairman and CEO slots with separate candidates, which has been a trend across several industries, including gaming. Currently, of the four major Strip casino operators, just MGM Resorts and Las Vegas Sands have the same person filling both the chairman and CEO positions.

“It concentrates a lot of power with a single person,” Challenger said.

What a new CEO has to say about MGM Resorts initiatives launched under Murren could also be in question, such as pursuing an integrated resort in Osaka, Japan, expanding the company’s footing in the growing U.S. sports betting market and the continued monetization of the company real estate.

“A new leader at MGM may provide a completely different perspective and direction for the company,” Global Market Advisors Partner Brendan Bussmann said Thursday.

He pointed to Eldorado Resorts’ pending $17.3 billion acquisition of Caesars Entertainment. Eldorado ended Caesars’ decade-long pursuit of a Japanese gaming license to focus solely on the domestic casino market.

“MGM is in a good position to garner a license in Japan and is working to maximize the company’s impact on sports betting,” Bussmann said. “It will be about continued execution to maximize that ability while looking at better ways to retain and attract new customers."

Howard Stutz is a freelance gaming reporter for The Nevada Independent and the executive editor of CDC Gaming Reports. He has been a Nevada journalist for 30 years. He can be reached at [email protected] On Twitter: @howardstutz


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