In Business Q and A
Jim Murren, President and COO of MGM Mirage Interviewed by Richard Velotta / Staff Writer
Jim Murren's promotion to president and chief operating officer of MGM Mirage didn't get much attention when it occurred last summer.
That's because, at the time, the company was in the midst of so much other news that overshadowed the announcement: A deal with Dubai World that places half of the ownership of Project CityCenter in the hands of a foreign investor; another with Sol Kerzner, whose spectacular Atlantis project in the Bahamas is considered one of the premier resorts in the world, to design a Jim Murren is president and project with MGM Mirage on a site at Las Vegas Boulevard and chief operating officer of MGM Sahara Avenue; and the opening of a new casino resort in Mirage. Detroit. Photo by Steve Marcus
And Murren, who joined the company in 1998, has been involved in all of them.
He started with the company as executive vice president and chief financial officer after a 14-year Wall Street career. In 1999, he was named president and chief financial officer, and he is a member of MGM Mirage's board of directors and its executive committee.
A strong believer in philanthropy, Murren and his wife, Heather, founded the Nevada Cancer Institute, a nonprofit institution dedicated to providing a cancer center for the state. He also serves as a trustee for foundations at the University of Nevada, Reno, and UNLV.
Murren talked with In Business Las Vegas about several of his company's recent deals, progress at CityCenter and why he's frustrated with some of the community's problems — and the people who feel gaming taxes should be raised to solve them.
Question: You have a new title since the last time we talked with you. What are your new responsibilities?
Answer: As president and chief operating officer of the company, my principal responsibilities are the oversight of the majority of our properties at MGM Mirage. What that means is that most of the operating units, all of the Las Vegas properties with the exception of Monte Carlo and the Bellagio, our interests in Borgata, our interests up north in Reno, our casino in Detroit and in Biloxi all report directly to me. In addition, I have responsibilities with my partner, Bobby Baldwin, on casino marketing. Thirdly, as part of the executive committee with Terry Lanni and Bobby Baldwin and Gary Jacobs, we manage the affairs of the company at large.
This is the day-to-day operation, right?
It is. Does this make you MGM Mirage's No. 2 executive?
I don't think so. What it makes me is a person who is motivated to help the company. It is a job change. The board has asked me to take on these new responsibilities and I'm happy to accept them. But in terms of a pecking order, the way I view it is I work for Terry Lanni, I work for the board and I'm happy to do my job and it's been good so far.
Tell us about how you conceived Project CityCenter and how your concept has evolved. Give us an update on progress there.
I was going back to the dark ages in college, I was in urban studies and an art history major and I've always been fascinated with the evolution of cities, why some cities succeed and others fail, why cities are located where they currently are, and what are the common elements to vibrant cities? What elements need to be resident for a city to be considered an exciting cosmopolitan place? I've always wondered at Las Vegas as a community. We're the fastest-growing community as you well know. We certainly are the largest born post-1950 with well over 1.8 million on our way to 3 million people, yet we don't have a dynamic city core.
Mayor (Oscar) Goodman is doing his best and great efforts are under way downtown but beyond that, what we have in the southwest and southeast is suburban sprawl around a commercial core. I've always wondered why we don't have a stronger city center here. So the concept of CityCenter was born out of the idea that we could have a counterpoint to the suburbs, which I embrace and enjoy — I live in them — but a place where people here, who live here, as well as our visitors who come from other places will have the type of dynamic that you expect in a city.
There will be urban density, tremendous urban planning. There will be great architecture, world- class architects. There will be a variety of brands that collide with one another to create the complexity that I think make cities so exciting, and I hope there are dozens of languages and people from around the world all convening upon a very exciting central place. We anticipate being able to help teach kids with a contemporary art program and bring people here and make it a day.
I grew up on the East Coast, an hour from Manhattan, and some of my greatest experiences were when my mom would take me into the city and go to a museum or go to Mamma Mia, which at that time was an Italian restaurant and not a play, and go down to Little Italy and Chinatown. It was just tremendously exciting for a young man. I think that is a great aspirational idea for people who live here, to have a counterpoint to what I enjoy in the suburbs. So the idea of CityCenter was, do we want to build another resort? Do we need to build another sprawling horizontal structure with a Y tower or can we do something different? I have no doubt that we could have been successful building a resort. No doubt of that. But I think that would be selling the site short. It is clearly the prime piece of real estate of the Las Vegas Strip, right next to Bellagio. That is literally midtown Central Park from a standpoint of looking at it from a Manhattan analogy. And I thought we could do something more than a resort, that we could create the nucleus of a city to develop in a more appropriate way.
We live in the desert. When are we going to wake up to that fact and build something more environmentally respectful to the desert, that has the concepts of LEED ratings in mind, that uses more verticality and urban density so that we don't consume as much property as we simply have, that has a much better flow from a vehicular perspective and, more importantly, from a pedestrian perspective. What has always been intriguing to me with an urban planning background is the Strip. It's not a city road, it's not even a county road. That's a federal highway. All these resorts were designed to fight one another thematically and from an egress perspective. That's the antithesis of a proper city. A proper city has that kind of complexity and diversity, but is organized in a fashion that is geared toward pedestrian friendliness, which is exactly the opposite of what we have right here. So CityCenter, in my mind, if we do it correctly, will be a great gathering place for people who live here as well as the tourists who are very important to us and will allow us to Ironworkers are shown at develop in this more urbanized way, which is more sensitive to the MGM Mirage’s CityCenter environment, offers better business and a better pedestrian project. experience. Photo by Steve Marcus And what's the status now?
It's flying. Bobby Baldwin is running that project for us. There's no one better than Bobby at doing this. He's extraordinarily organized and I know he loves this. I've been with him quite a bit on this project. He is the captain of that ship.
We have about 500-odd people working on CityCenter that work for our company. We have thousands of contractors and subcontractors that are being employed right now. We are on budget right now, we're on time right now. This is the most ambitious and largest privately funded project in the United States right now. It's due to open up, all facets of the project, all at once, in the fourth quarter of 2009. It is totally on track. By the end of this year, we'll spend close to $2 billion this year alone on CityCenter. That's a tremendous investment in the community.
One of the keys to growth at CityCenter is in the sale of residential property there. What's the status of sales?
We're over halfway done already. The residential market, of course, is soft nationwide. The market for vertical residential is in even worse shape than the broader overlay of residential. And yet we still continue to show success selling residential product at CityCenter. And the reason is, as we've tried to explain to folks in the past, is that we do believe there's a contrast between what we're providing at CityCenter and every Tom, Dick and Harry that announced a project in Las Vegas.
Projects need a few key elements in order for them to have a chance of being successful in any real estate market and especially in the tough one that we're in right now. They have to have a tremendous location, and we have that. Most projects did not. There was a view during the frothiness of the real estate market here in Las Vegas that if you can't be on the Strip, it's OK being a block or two away. Well that's fine in Manhattan. If you're not on Fifth Avenue in Manhattan, you know Seventh Avenue or Third Avenue is just fine. But here, if you're not on the Strip, you may as well be in another town and I don't think people understood that distinction. But we are on the Strip — not only on the Strip but we're on the center of the Strip, No. 1.
No. 2, we've got the brands. No. 3, we didn't need to go out and do construction loans. We have the money. From a certainty of completion, from a certainty of occupation from the owner, those risks are off the table, whereas they were clearly front and center on every other project and we've demonstrated success in the past. We're not pros in Miami, but we're pros here in Las Vegas. Given our brands, given our development expertise and our operational expertise and our location, we believed we would be successful residentially and people have challenged that point of view. And so far, they're wrong. So I think we're going to be successful. I think we're going to exceed our forecast in terms of residential sales. It will have a very positive impact on the net project cost of CityCenter, which in turn will have positive impact in the return on investment and I think we'll do more residential after CityCenter because it's a proven winner for us.
Halfway around the world, you have another big project that's about to open. Can you give us an update on what's going on in Macau?
Well, I could, but my boss could give you a better one because he's literally sitting over there right now. I talked to him yesterday and it's a stunner. It's a very beautiful project. The MGM Macau sits right next to Steve Wynn's very pretty property. It (MGM property) towers over it and we believe it's very iconic and dominant on the skyline of the peninsula of Macau. It's due to open in the fourth quarter and it will do so with our partner, Pansy Ho. It will be fully energized, it will be operational and, I think, very, very successful all of next year, 2008.
It is likely the first of many properties that we will have through our partnership in Macau and we've already got a good eye on a second location and we're beating down the doors on sites three and four. It's a very, very important market. Steve Wynn has been tremendously successful, Sheldon Adelson even more so, so far. MGM is third to the party, but we're not afraid of competition. We obviously compete well right here and I think we'll be successful in Macau.
Are the other sites on Cotai?
Can't tell you. Good try, though (laughs).
There were some recent reports of a fire at the new tower at the Borgata in Atlantic City. What can you tell us about that?
It was a construction accident. It was a disappointment. We don't have all the details yet. Boyd's (Gaming Corp.) running that for us. They've been very responsive and have been great communicating with us, but what we understand is that there was a welder that had created a small fire situation in the breezeway between the Borgata and the Water Club, which is what's under construction right now. It ignited some material and some flames shot up the narrow side of the building. The sprinkler system went right off, which was great.
We had the building totally surveyed, so the surveillance cameras are being reviewed. The Fire Department responded immediately and, most importantly, nobody was hurt or anything worse than that. The Borgata was never closed. In fact, I don't think most of the customers even knew what had happened. From a standpoint of what it means, it's going to cost money, but that's why we have insurance. We're going to have a delay in the opening of the Water Club because it did damage some FF&E (furniture, fixtures and equipment) and some low-rise material and we're going to have to go back up the façade of he building and Boyd hasn't indicated yet what that means in terms of a timetable. I think they have the matter well in hand.
MGM Mirage has a new strategic partner in Dubai World and its numerous subsidiaries. Tell us how that deal came about.
Deals evolve, I guess. We've done a few of them here and every deal has its own story. This story began probably a dozen years ago when Terry Lanni met Sultan (Ahmed Bin) Sulayem and developed an acquaintance that evolved into a friendship. Fast-forward to earlier this year when we were approached by Sol Kerzner with the potential of joint venturing with Kerzner on a site here in Las Vegas. His team met with our team. Negotiating went at light speed. I've never done anything this quickly. We got to a letter of intent within 10 business days to build a multibillion-dollar property on land that we own just north of Circus Circus. The reason it went so quickly is that the relationship between Kerzner and MGM goes back literally decades. Sol Kerzner and Kirk Kerkorian, Sol Kerzner and Terry Lanni. Ken Rosevear who runs development for us was a CEO for Kerzner for many, many years. So we have a mutual degree of respect for understanding each other's business and a very strong commonality in how we approach development, design and operations. So that deal was done very quickly and of course, as now the world knows, Dubai World not only owns 30 percent of Kerzner as a shareholder, but it was also interested in partnering up with Kerzner and us on this project.
So that started the ball rolling on in terms of talking to Dubai World about their other interests in Las Vegas, which then evolved into a very, very high level of interest in CityCenter. I don't think the people of Las Vegas certainly appreciate how much attention CityCenter is getting outside of our borders. It has to be in the top five of development projects in the world right now from the hospitality perspective. Anyone that's involved in hospitality worldwide, whether it's in the Middle East, Asia, Europe or North America knows about CityCenter. They're intrigued about its urban planning. They're captivated by the roster of architects that we've hired and they're very impressed by the ambition of it. A lot of people want to be involved, including Dubai World.
So Dubai World came to us, I led the negotiating team from our side, they put their CIO in charge from their side and they hired Credit Suisse to represent them, we did what we normally do — we hired ourselves. We do our own banking here and save the shareholders a bucketful of money. We negotiated over about a three-week period of time the deal you now know about. I think it goes back to Terry (Lanni), then it goes to the Kerzner deal and weaving through that is the understanding of CityCenter by Dubai and anyone that's involved in development, culminating with an intense interest in people from overseas to invest alongside MGM and invest in Las Vegas. And that's not the last deal we're going to do, I can promise you that.
And you can't share any of that either.
Well I can give you hints. As you know, we're the largest land-owner along the Strip. We have 800 acres here. We've been engaged in inventorying and evaluating all our land holdings. We've come to a few conclusions. One is, we're not going to sell a square inch of land on the Strip. We'd be willing to partner up with people, contribute land into the right partnership as we have done with Kerzner. But our land is not for sale.
No. 2, we've concluded that there's a lot of land that's not being properly utilized now. Either it's totally undeveloped or it's underdeveloped. It sits with inefficient structures on it that are a remnant of the way we developed as an industry back in the '70s, '80s and even '90s, and those days are over. So we're really rethinking, trying to take a smart approach toward redevelopment.
Thirdly, we're taking a page out of the hotel industry and concluding that the historical way to develop in the gaming industry is outdated. The old way was raise a bucketful of money, come up with some idea, build it — probably over budget, but do the best that you can — open it up and hold your breath, hope people show up, try to work your mountain of debt down until you have some more money, wait a few years, build another property. Though I'm young and we are young- minded as a company, we're way too impatient for all that and that's not what the hotel industry does.
What Four Seasons does, what Marriott does, what Starwood does is they're willing to put money into projects — in fact, in some cases, they own the projects outright — but they find the right partners, they get development fees, they get management fees, they accelerate their growth, they diversify their cash flows, they get their brand out globally, which becomes more powerful as an economic engine in and of itself and it's a very smart way to develop. That's what we're doing. So if you were to overlay that thinking, that philosophy, on the property that we own, think about where we might want to build. We have the Kerzner JV (joint venture). Right next to it, we have 35 acres that is literally raw land. That, you would guess, might be a project we should develop over time. We have Circus Circus. When we acquired Mandalay Bay, most people said, "Well, they'll probably sell Circus Circus. It's not core." That was the thinking. You've got to be nuts. Of course we're going to keep Circus Circus. Why would we get rid of an iconic property with great employees that actually makes close to $80 million a year? With a little bit of love and little bit of expansion and redevelopment, that property would make a lot more. So that's a property that we need to really focus on, and we will over time.
We have land all around the Mandalay campus. Between Mandalay and Luxor, in front of Mandalay, in front of the convention center, behind Luxor and Excalibur, there's land all around there. We have 15 acres across from Luxor that currently is a surface parking lot. I don't think that's the best use of Strip frontage. We have 13 more acres at MGM Grand on that campus. Those are just a few examples of enough land, in other words, to be in the development business for the next 30 years. I think that is an approach that people should zero in on. I think the Kerzner deal intrigued people, but the Dubai deal really put the exclamation point on the fact that this company is open for business for finding the right partners.
We're not going to just look for money. Money is relatively easy to get, even in today's environment. I don't think that brings enough to the table. We know what we bring to the party. We need somebody to bring something intriguing that will help grow our business model, whether it's a new customer base, like Dubai does, an approach to development like Kerzner does. Maybe new technologies in the technology industry, maybe entertainment in the entertainment industry. I think we've attained a level of exposure that it is quite likely that we'll do more of these type of deals. Our phone has not stopped ringing since we did the Dubai deal from other enterprises that want to partner up with us.
How does the deal with Dubai World help MGM Mirage?
I think if you consider the ramifications of the deal — and we don't even know the full potential here, but I'll give you some examples. This isn't like Joe's Finance Company partnering up with us. This is an emirate of the Middle East, part of the UAE (United Arab Emiraes), that is experiencing the type of growth that is unique only to Las Vegas in the United States from the diversity, development, construction perspective.
They have access to tremendous wealth in Eastern Europe, Europe in general, Middle East, Northern Africa, India. These are folks that have created wealth for themselves that are experiencing hospitality, in some cases, for the first time, and they are not at all price-sensitive. In fact, they are paying prices that we would find to be astronomical here for residential for the right hospitality experience. To have an opportunity to touch those customers is a tremendous benefit to our company.
No. 2, our Dubai friends have very ambitious aspirations to develop alongside us in many other parts of the world. If it is, in fact — and it is — an ambition of this company to plant flags around the world so as to help cross-market our core properties in Las Vegas — which everybody should want us to do, to bring people from around the world here — then that's a big, big benefit.
Thirdly, we're very, very focused on developing the hospitality business as opposed to simply the gaming business. We've taken the view that is unique, I think, to us that most of our capital over the past several years has been outside the casino. Yes, we'll invest in the right technology and slots. But a table is a table and the people make the business in the casino business. Most of our capital has been in entertainment and restaurants, rooms, retail, spas, golf. By doing so, you can see that the financial results have been strong, but it's really been focusing on the nongaming revenue. That is critical, we believe, to evolving Las Vegas from what it could have otherwise been — just a place where gamblers go on vacation — to what we want it to be and what it is becoming rapidly now — where vacationers may or may not gamble. That distinction we recognized a decade ago and we think these kinds of partnerships allow us to further that business model.
Should Nevadans be concerned that a company owned by a foreign government will own a significant stake in MGM Mirage and half of the city's most expensive resort?
My answer, of course, is no, for a variety of reasons. People fear the unknown more than anything else. I think that's unfortunate, but it's part of human nature. The reality is very simple. No. 1, Tracinda, Kirk Kerkorian, owns the majority of this company. No. 2, by our agreement with Dubai World, they can own no more than 20 percent of our company. In other words, the maximum they can own of our company is a minority stake in our company.
No. 3, we manage the development of CityCenter. It's not jointly developed; it's developed by MGM Mirage. We run CityCenter. It's not jointly run; it's managed and run by MGM Mirage. We are very much in control of the development and management of this asset, which was never a debate in the negotiations. There was never a discussion or any kind of controversy. They're very willing and excited about investing alongside us, but understand what we bring to the table from a development and management perspective. My view is no and I think as the facts are played out, people will agree with us.
We understand that Kerzner will be designing the acreage on the north Strip. Can we expect some kind of an Atlantis Las Vegas project?
I would expect the unexpected. I would expect something that is not resident here in Las Vegas. I can't tell you exactly what it is, because I don't know. I'll tell you one of the greatest strengths of Kerzner is their creativity. It's really the heart and soul of who Sol Kerzner is. We've seen examples of what they've developed and we've seen examples of what they've proposed to develop that never got built and some of that work is better than the stuff that's been built.
The reason why we did the deal with Kerzner was that we had a meeting in this room and we said, "Who would we want to partner with?" We have a lot of friends in the gaming industry and a lot of gaming companies wanted to partner with us because we have the home-team advantage, we've got the land and a lot of gaming companies don't have any land here. We said, "We love you guys," but why would we want to partner with another gaming company here? What did they bring to the table that we don't bring? I don't want to sound arrogant about it, but this is our business.
We singled out Kerzner a year ago as the singular example of a company that's in the gaming business, but I think it is almost ancillary to what they actually principally do — really strong resort development. We singled them out as the one company that we would consider partnering with. And we believed that. So what you should expect is something keeping with what Kerzner stands for. Water is a big element of the Atlantis, but I can almost say with great certainty that it won't be called Atlantis.
I think that Las Vegas is great at creating its own brands and own identity. That comes second to actually what it will be. For example, we haven't told you what CityCenter's casino-hotel will be called yet. But we designed CityCenter from the soap dish on up before we even started thinking about what we were going to call it. You don't put the cart before the horse.
And now, we do know, actually — but I can't tell you — what CityCenter's hotel will be called, but we didn't know it at the time. That's why we're starting with this process now with Kerzner. This will take six to nine months of really good dialogue with Kerzner to think about conceptually what makes sense. This is a collaborative effort. They're leading the charge, but they're relying on us for our knowledge of the local customer, our knowledge of the tourist that comes to Las Vegas and they're relying on us from a trade perspective, from a construction perspective. So it will be truly collaborative, but the initial ideas will be coming from them and in the conversations we've had with them early on, we have to cut through the clutter and do something much different, like I think we've done with CityCenter. With CityCenter, you can love it or hate it think it will work or not and the jury's all out on that. But no one can argue that it is not a departure from what we have done in Las Vegas and Kerzner will be a departure from what's here.
Are there any concerns about licensing Kerzner?
No.
Can you say when you are going to announce the name of the CityCenter hotel?
That would be up to Bobby (Baldwin). I don't know when we'd do that. Probably next year.
How much longer will it be after CityCenter is wrapped up that we'll see work beginning on the North Strip? Will you just move the construction cranes and the CityCenter development team up the street when they're done at CityCenter?
That's a perceptive question because we believe we've developed quite a team at CityCenter that is integrated and very uniquely experienced in doing what they're doing there. We want to keep them interested and employed. So therefore, we are thinking now of what parts of that team will kind of move up and down the Strip to a variety of other projects not limited to that joint venture, but other projects we have going.
One of the management changes that occurred here — we talked about myself — but another important one, of course, was Bobby (Baldwin). Bobby now has oversight over everything we do in design and construction. That means before we had about four different construction enterprises at this company and many different approaches to design, development and construction. Now, it all resides under Bobby's leadership. Bobby and I, for example, spent about four hours yesterday at the MGM Grand, looking at the standard rooms because we're going to remodel all the rooms. We were looking at master planning ideas of some of the Mandalay property. My point is that Bobby is very focused on deploying those people so as not to lose them and have to find them a year from now.
As it relates specifically to the Kerzner deal, my guess is that by mid-year next year — June or July — we'll have very firm idea of what we're going to do, we'll have the financials associated with that, a business plan that's been formulated will be at a stage that we could at least start motivating the site and doing a bank deal. And, of course, when we launch the bank deal, the bankers — they love us, but they're going to kind of want to know what we're doing there — so at that point, we'll start moving dirt and getting the project going. I think we've stated a very preliminary opening date of 2012 and if you work back the math, it takes about three years, point to point, to do something like this. So we have to have a pretty good idea by the middle of '08, we have to do all the architectural and engineering work — that's takes about a year — the permitting process, etc., so we should be really digging up like crazy by 2009.
MGM Mirage is contributing in a big way to one of the greatest expansions of hotel rooms in the city's history. What is the company doing to contribute to some of the solutions to problems that come with such rapid expansion?
Well, you know, quite a bit. Every time we talk about, it sounds a little self-serving. I was reading the papers this weekend about the return of the mantra, "Let's just tax the casino industry to death." And, "They're the deep pockets" and "They're responsible for all the problems so they should pay for all the problems." It's hard to rationalize with people who have that point of view. I'm from the East Coast, and I've been here nine years and I learned a few things when I moved out here. One is, I was a Republican in Connecticut, now I give to everybody. I'm just a Nevadan now.
So I give to and support candidates who care about the state and who care about our community and I've become pretty much color-blind as it relates to anything else but that. I lived in a very static community. My town was founded in 1683, the British came through and burned half of it and a big idea for growth is adding a small two-story office building. I come out here and you have this explosive growth for the last nine years and with it comes all the problems. I am very disappointed in education here in our state. I am disappointed in the breadth of medical care and, in some cases, the degree of specialized medical care. I am becoming really discouraged with all the traffic issues that we have.
Back East, when people think nothing of commuting an hour and a half to work and they move right out here and they say, "Who's complaining?" But I've been out here long enough that I know it's worse than it was nine years ago. I get discouraged when we have a $5 billion transportation problem that the state solves with $1 billion, during the last legislative session. They think that they've accomplished something and I think that they've totally failed.
We have people here that have moved from other states that felt like they gave at the office. "I lived in Illinois all my life, I gave to the schools, I moved out here, I don't want to pay any taxes, I don't want to do this, I don't want to do that. I just want to benefit from living here. I'm going to benefit from the medical care that I can get, but I'm not going to pay for it."
I get discouraged with the north-south divide that exists in this state. I thought the Civil War was over 150 years ago or so, but it seems to still exist here today. I get really annoyed with the concept that since our gross gaming tax rate is lower here than it happens to be in other states that we should just raise it with no thought as to why that gaming tax is lower and what it has accomplished. Look at what we invest in this community vs. what we invest in other states.
CityCenter, as one example, is going to employ 12,000 more people. What company is employing 12,000 more people with more great-paying jobs? Nobody. What are the other industries doing? What does the banking industry do? What do the real estate industries do? What are these developers that live out of state and make a bucketful of money and go back to Arizona or California, what are they doing? I feel like — and this is me speaking — it's a moronic but sophomoric point of view to just tackle the gaming industry because it happens to be very visible here.
So what do we do? We don't toot our own horn a lot, but we give away millions in the community, more than any company. We provide more taxes than any company. We provide more taxes than anybody, we're the largest taxpayer in the state. In fact, a little trivia for you, there's no company in the United States that represents a larger percentage of a state budget than MGM Mirage does to this state. We not only provide a lot in gaming taxes, but in property taxes, in real estate taxes, in employment taxes, in taxes for our partners that come in.
We attract billions of dollars, in this case in Dubai, to invest here. Would Dubai invest in XYZ Casino here? No. They're invested in us to redevelop here. I don't think we do enough. I don't think anyone does. I think we do a lot and we do more than anyone else, and we should because we are the largest employer and the largest taxpayer. We should do our fair share.
My final point is that I'm a huge believer in public-private partnerships. In fact, our current governor ran partly on that ticket, so MGM Mirage and Harrah's — let's take Harrah's because I don't work there — they made a large contribution to UNLV recently, but it's a matching gift. UNLV is responsible and they should be for finding that money. That didn't get a lot of press, it was just simply that Harrah's gave them a large check and they should be commended for that. But if you read the fine print, and it's not even that fine, it is a matching gift. There are obligations of the university system to meet a financial goal for Harrah's to activate that money, and that's good, that's smart.
When my wife and I started the (Nevada) Cancer Institute, we didn't ask the state for any money, even though every other state in the union heavily supports their institutes. The Nevada Cancer Institute is the state's cancer institute, there is no other. It is the only one. We get some modest funding, not nearly enough, but we promised to raise private funding, which we've raised far more than we had promised and we've gotten less than we had hoped for in return, but that's an example of a private-public partnership that I think works.
MGM Mirage is happy to partner up with public entities to do that, but we are not going to be the solution for all state, county or federal problems. We're not going to be. We're not big enough, it's not fair and it doesn't create the sense of responsibility and ownership that the state needs to take. We have a state Legislature and a governor that is underfunding what we need to accomplish in the state. It seems that we continue to put Band-Aids on issues and then wait for two years later when we get back into session again and it's the same issues.
What is our transportation problem going to be the next legislative session? If we had a $5 billion problem this time, and we put $1 billion into it, what's the problem a couple of years from now? I think that the answer is, is our gaming tax lower than it is in Illinois? Yes. Has MGM Mirage put a nickel into Illinois since we've been a part of that state? No. Are we investing billions here? Yes. It is cause and effect. As I tell my children, you take responsibilities for your actions and there are ramifications for what you do.
How would a significant increase in the gaming tax affect the company's future plans?
We'd invest less. It's simple. We're not a nonprofit enterprise here. To avoid any kind of confusion, this isn't a charity here. This is a public company that is owned by shareholders that expect us to perform and they'll vote wit h their feet. If we're not doing a good job, they'll sell their stock and our ability to perform financially is directly correlated to our ability to raise capital, which is directly related to our ability to reinvest the capital, that capital goes into projects that we believe will have a good return on investment. And if they do, we've proven that we reinvest that capital.
We don't pay a cash dividend. We're not spending kazilllions of dollars overseas. We're putting the vast majority of money right here, where we live. So if the economic overlay deteriorates here, we'll invest less here. We can do other things with our capital. The state can't tell us what we do with our capital. We can give it out to our shareholders, we could just reduce debt, we could buy back stock, we can put it into another gaming market, we can buy another industry company. Who says we have to be in the gaming industry? I think that it is very much a function of a top-down approach to the return that we expect to get on an invested dollar of capital.
Harrah's recently announced plans to build a 20,000-seat arena just off the Strip and another company is trying to build a stadium downtown. What, if anything, do these announcements mean to your company?
It means more competition. We're pro-competition. We've taken the view, which is not shared by every company in this industry, that we're not going to get in anyone else's business and we're not going to thwart anyone's ability to better themselves or grow. So let's take the Harrah's deal. We have a lot of friends at Harrah's. Building another arena here will clearly impact us. We own two arenas. A third arena, which would be larger than either one of the two we own, would compete very mightily against us and will take share from us. There's no question about that. We're cool with that. We can't run up and try to deflect it.
What we will do is we'll be very clear as we have been in terms of having a view about the public supporting arenas or stadiums. We don't believe that is keeping with the competitive dynamic. But in terms of them building an arena which would benefit them, it's going to have an impact on us, no question about that. They are smart guys there. We'll just have to try to be smarter. That's life. No one said things are going to be easy. As it relates to the arena idea downtown, I, for one, am a big Oscar (Goodman) fan. I love listening to him, I love his enthusiasm. I probably don't agree with everything he says, but I cannot question his enthusiasm for the City of Las Vegas.
I, for one, don't live in the city of Las Vegas. None of MGM Mirage's properties are in Las Vegas. When I fly here, I don't fly to Las Vegas. He represents a part of this valley that is in dire need of reinvestment, and I'm a big fan of that. When I lived in Manhattan, I lived in the East Village, a pretty tough neighborhood. I got mugged a couple of times, but went one-for-two (laughs). I won one of them and got cracked ribs on the second one, but I saw the East Village gentrify and redevelop, and now it's the hottest place to live.
I am a huge fan of the arts district downtown and a huge fan of investment and my wife and I were commenting on what a great success the whole (World Market Center) furniture mart and that whole area has been and who would have thunk it — Oscar had the vision. I'm a big, big fan, although we don't have $1 invested in the City of Las Vegas. Our company and myself personally are very big fans of redeveloping that area. It seems to me as an ex-finance guy an extraordinarily ambitious and somewhat astonishing scope to a project, but I hope it happens.
Richard N. Velotta covers tourism for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at (702) 259-4061 or by e-mail at [email protected].