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Casino giant MGM Resorts International is undergoing a change in leadership.
Jim Murren announced on Wednesday that he will vacate the role of CEO prior to the conclusion of his contract, which was not set to expire until the end of 2021.
The departure will not be immediate, though. Murren will stay on, for now, to assist the company’s board of directors in finding a suitable replacement.
Neither the official notice to the board nor the press release specified a reason for his early departure. The announcement, however, came just hours before the company released its disappointing fourth-quarter results. Some in the industry have speculated that MGM made its decision under pressure from investors.
The change in leadership comes at a pivotal time for the company as it attempts to establish itself in the new and rapidly growing US sports betting market. Roar Digital, which it formed with gaming heavyweight GVC, is seen as a partnership packed with potential.
At the same time, it’s a different sort of business from MGM’s traditional operations, and a management change might just be the key that unlocks the potential.
How well Murren performed as CEO depends on who you ask. There’s no question, however, that MGM evolved a lot under his leadership.
Murren began his career as a Wall Street prodigy, a Chartered Financial Analyst for Cyrus J. Lawrence, and the youngest person to be elected to that firm’s board of directors. In that role, he participated in the recapitalization of MGM.
That relationship likely helped pave the way for Murren to join the company as CFO in 1998. Ten years later, he became CEO, a role he has held ever since.
When Murren took over as CEO, the US was going through the Great Recession of 2008-09. He led the company through several years of aggressive growth in spite of those headwinds, though, building Las Vegas City Center, expanding MGM’s presence in Asia, and opening new casinos in Maryland and Massachusetts.
MGM was also pivotal in bringing professional sports to Sin City during his tenure by:
Despite these accomplishments, however, not everyone is sad to see Murren go. The Las Vegas gambling community has been particularly critical of many of his decisions.
There’s been a trend in recent years among casinos — particularly those on the Strip — to increase the house edge on games, cut back on perks, and find new revenue streams for their properties. Locals and professional gamblers tend to see the strategy as short-sighted and stingy.
Murren has embraced that strategy. In his years as CEO, MGM began charging for parking at its properties, increased the resort fees for staying at its hotels, adopted versions of roulette, blackjack, and video poker that are less favorable to players, and so on.
Detractors often point to last year’s sale of the Bellagio and Circus Circus as evidence of MGM’s plans backfiring. MGM claims that going “asset light” to increase cash flow and reduce leverage is part of a long-term strategy.
The company also dealt itself a major public relations injury under Murren’s watch through its handling of the 2017 mass shooting in which a domestic terrorist fired guns into the Route 91 Harvest music festival from a window of Mandalay Bay. MGM initiated preemptive legal action against some of the victims and their families in an attempt to fend off lawsuits, resulting in outrage and a torrent of negative press.
The stock market’s reaction to the news of Murren’s imminent departure was chaotic.
The initial response Wednesday was a brief dip followed by a sharp increase, leading to net gains of 2.7% over the course of the day. Following the release of MGM’s Q4 results, however, share prices dropped sharply and, by Friday, were nearly 5% below Tuesday’s close.
The results presumably had as much to do with the stock’s movement as Murren’s announcement, but investors must have known bad news was coming.
The departure of high-ranking executives doesn’t usually foretell good things, and some of the challenges facing MGM were already known. Analysts have said that nothing in the fourth-quarter results was bigger news than Murren’s resignation.
MGM’s stock soared from $17.88 in early 2016 to a high of $35.58 two years later. Like many casino stocks, however, it suffered a disastrous year in 2018 from which it has only partially recovered.
And from the looks of things, the company isn’t out of the woods yet.
For starters, the Asian gambling market isn’t what it used to be.
Casino revenue in Macau has been dropping since early 2014, and visits to Las Vegas are similarly on the decline. MGM reported that revenue for baccarat — typically the game of choice for Chinese high rollers — was down 30% in 2019.
These problems, which are not unique to any one company, are compounded by the recent outbreak of coronavirus COVID-19. MGM had to scrap its earnings guidance for 2020 entirely.
On the home front, MGM’s entry into the online sports betting market hasn’t gone as well as hoped.
Until just a few weeks ago, the BetMGM app was only live in New Jersey, while most of its competitors have begun operations in multiple states.
Even in NJ, BetMGM hasn’t performed up to expectations. MGM told investors last year that it was aiming for a 10% to 15% market share by March, but as of December, it was still languishing at just 7.7%.
Because of these and other problems, MGM missed its earnings targets by a significant margin. The market hoped to see adjusted earnings per share of 26 cents for 2019, but the actual number is just 8 cents. Though disappointing, that’s still an improvement over 2018 when the company showed a net loss.
The MGM board of directors will likely have online gambling and sports betting in mind when choosing Murren’s replacement.
In 2008, the company was saddled with debt and facing a global financial crisis. Murren’s Wall Street background and eye for cost-cutting made him the CEO it needed — or at least felt it needed in that context.
Now MGM has offloaded several of its most expensive properties, and states are lining up to legalize sports betting and online casinos. It’s in a position to make new investments, and eyeing a potentially huge but new and largely uncharted market. Perhaps a different set of circumstances calls for a fresh approach.
That said, a change in leadership is always a risky proposition. And there are some particular downsides to losing Murren in terms of the sports betting market.
His work in bringing professional sports to Las Vegas meant developing relationships with team owners and league brass. Those relationships most notably led to three league-level sports betting partnerships, including a nationwide first with the NBA.
His replacement will have some work to do in re-establishing that rapport, then, though Murren has promised to stick around as long as needed to facilitate the transition.