MGM Resorts International is a company that operates in the hospitality and gaming industry. This company was established in 1986. During its formation, the company was established as a subsidiary of Tacinda Corporation in order to invest in the entertainment and travel industry. Through the subsidiaries, this company operates and owns casino resorts. Such resorts offer service like dining, convention, hotel, retail, and entertainment. Other businesses under the operation of this company include Fallen Oak golf course, which is located in Saucier, Shadow Creek golf course, which is located in Las Vegas, and the Prime Valley golf club being located in California. In the financial year that ended December 30, 2011, this company earned $7,849,312,000 in revenues. It was an increase compared to the 2010 revenues that amounted to 6,056,001,000. Most of its properties are located in Mississippi, Nevada, Illinois, Michigan, and Macau. This company is famous due to properties such as MGM Grand, Monte Carlo, and The Mirage. The current share price of MGN Resort International is $12.74.
Environmental Analysis of MGM Resorts International
Environmental analysis of MGM Resorts International can be conducted in the best way by considering the PEST analysis. PEST analysis helps a business to determine the political, economic, social-cultural, and technological factors that affect business operations. The political environment of United States is stable. This country has a stable government which favors the business operations of MGN Resort International inside the state. The taxation policy for casinos in Michigan, Nevada, Mississippi, and Macau is favorable. In most cities, the taxes for casinos are set at 33% percent of the gross casino revenues. In addition, Canadians gambling in casinos which are located in the United States receive tax refunds for the 30% withholding tax which they pay during gambling. It encourages foreign gamblers to gamble in the casino’s own of this company. United States government has also started many policies to favor the hospitality industry. The resort taxes are low, which is beneficial to the tourists residing at MGM Resorts International.
The economy of United States is the largest in the world, since it has GDP of about $ 48,100 per capita. However, the United States’ economy shrank in the fourth quarter of 2012. The shrinking of the economy was triggered by spending cuts by the government of the United States. In addition, companies in the United States restocked at a slower rate compared to the previous quarters, causing the country to experience slow economic growth. United States’ government also reduced its exports and military spending, which is also a reason for slow economic growth. Despite the above mentioned hardships in the United States economy, the casino and resorts industry continued to improve, making MGN Resorts International perform well. According to research that was conducted by the American Gaming Association, casinos in United States have been performing well, since they generate about one percent of the total gross domestic product of the state’s economy. Even though there was a slowdown in the economy of United States during the last quarter, the casino industry still managed to generate $ 49.7 billion from foreigners. MGN Resort International earned consolidated net revenues of $2.3 billion in the last quarter of 2012. In addition, the room revenues from its wholly owned domestic resorts increased by two percent due to increased spending by the Americans.
The number of Americans seeking premium services in resorts has been increasing. This made MGN Resorts International earn positive revenues in its luxury brands such as Bellagio, Aria, and Vdara. The majority of the consumers seeking resort services in its luxury brands are the high-income earners. However, the company is losing revenues from the middle and low class earners, especially in United States’ market. The decline in revenues is attributed to the fact that Americans are spending less in their gaming budget due to the slowdown in the economy. In addition, Americans are travelling less, since they are using their entertainment budget to pay for their bills.
Considering the technological environment, most casinos are introducing online gaming. This is because it is cheaper to operate online gaming, which does not require huge set up costs and initial capital outlay. Recently, MGM collaborated with Byod Gaming in order to create Internet poker website that would serve American gamblers. Bwin, which operates PartyPoker and World Poker Tour, will support this party.
Porter’s five-force analysis tool is used to analyze if new services, products, and businesses are potentially profitable. According to Porter (2008), the five forces shape every single market and industry. The five forces which are identified by Porter are supplier power, buyer power, competitive rivalry, threat of substitution, and threat of new entry. Suppliers’ power assesses whether it is easy for suppliers to raise the prices of products that are offered by a particular company. MGM International has many suppliers. Through its supplier diversity program, MGM receives many requests from suppliers who want to do business with this company. The costs of switching from one supplier to another in this company are not high, since it has many alternative suppliers. Due to this, the supplier power is not that strong. Porter argues that if a company has few suppliers, the suppliers will have more influence on this company, and it will make these suppliers powerful.
Buyer’s power assesses whether it is easy for buyers to lower the prices of a particular commodity. If a company relies heavily on one customer, then there is a high possibility that this buyer may have a significant effect on the margins that are earned by a company (Porter, 2008). MGM Resorts International has many buyers. Examples of these buyers include gamblers and travelers. Due to this, it is not easy for these buyers to drive the prices of the products that are offered by this company, since it does not rely on one single buyer. Most of the customers of MGM Resorts International are not price-sensitive. This company targets high-income earners especially on its luxury resorts. Such consumers will be willing to pay any price which they are charged while receiving services from this company.
The third force of Porter’s analysis is competitive rivalry. Competitive rivalry concentrates on the numbers and capabilities of the competitors of a particular company. A company has little power when it has many competitors offering equally attractive products. MGM Resorts International has many competitors. Examples of these competitors include Caesers Entertainment Corporation, Las Vegas Sands Corp, Trump Entertainment Resort, and Boyd Gaming Corporation. MGM Resorts International is able to deal with this competition, since it offers differentiated services compared to its competitors. People associate MGM’s brand with luxury. It makes consumers prefer products that are offered by this company, since they know that they are of high quality and luxurious. Although there are many firms in the gaming industry, people view MGM Resorts International as the dominant one.
Threat of substitution assesses whether it is easy for the customers of a particular company to switch to competitive product or service. If the cost that is incurred during the switching of products and services is low, then there is a high possibility that consumers will switch to the cheaper substitutes (Porter, 2008). It is not easy for the consumers of MGM resorts international to switch to other competitive services. This is mainly because this company offers quality services and good experience to all its clients. Its M Life program helps to ensure that its clients receive many benefits, making it hard for them to switch to competing products and services in the market.
Threat of new entry evaluates whether it is easy for the new companies to enter a particular industry. The cost of entering into the resort industry and the fixed costs that are incurred by companies in this market are very high. It makes it hard for new companies to enter and compete in the hospitality and gaming industry. Consumers are also loyal to the major brands in the gaming industry in United States. This is because they trust the services that are offered by these companies. If new companies enter into this market, it will be hard for consumers to switch to them.
MGN Resorts International has launched several strategies in order to market product which it offers to consumers. One of these introduced strategies is the collaboration between Amerister Casinos and MGM Resorts International for the provision of reward programs for their clients. This collaboration targets MGM Resorts M life members, so that they receive benefits and offers while at Amerister Star Awards and Amerister Casinos. Introduction of this strategy helped to strengthen the consumer loyalty of these two companies. According to the management of MGM Resorts International, this strategy will help to ensure that the clients of MGM Resorts properties have high level experience in many destinations across the United States. The benefit of this strategy is that it will ensure that the members of M Life to receive introductory offers from casinos that are owned by Amerister. Some of the offers that they will receive include bonus play, additional dining services, and discounted hotel rooms. The above collaboration also helps to ensure that Pearl members of M Life receive upgraded Tier status.
The pricing strategy of MGN Resorts International aims at targeting the high-income earners in its resort facilities. By charging them high premium prices, it is able to earn significant revenues for its growth and expansion strategies. The demand of the rooms that are owned by MGN Resorts International is very high. Due to this, it charges premium prices to clients, earning, thus, good margins. Economists have revealed that MGM Resorts International controls 40,739 rooms in Las Vegas. This figure represents about 27% of the total rooms in Las Vegas market. This company uses differentiated pricing strategy in its rooms. Differentiated pricing strategy enables it to cope with the national recession that affected the economy of United States. MGN Resorts International also introduced three luxury brands that target the high-income earners in the society. These brands include MGM Grand, Skyloft, and Bellagio. Bellagio is located on the Las Vegas strip. Consumers love spending their nights in this hotel, since it has large dancing water fountain that is synchronized with music. This hotel has a spa tower containing 935 rooms. Since its brand is associated with luxury, consumers pay high premium prices. Skyloft also offers high quality services to high-income earners. Clients are picked up from their destinations by Maybach. It charges $900 each night.
Advertising and Promotion Strategy
MGM Resorts International has adopted the promotion strategy of using social media to inform the public about the products which the company offers. Its Likedin profile informs consumers about special discounts that are offered to its consumers. In addition, it uses this site to obtain feedback from the consumers regarding the gaming experience that they had after visiting its casinos. Other social media sites that this company uses to market its products include Facebook and Twitter. Researchers have established that companies are using social media to market their products, since such a strategy reaches a large consumer base. In addition, it is cheaper to advertise products through social media compared to other channels of advertising. Social media advertising is also a good advertising strategy, since it benefits from peer to peer recommendations. Researchers have established that Facebook users become fans of business pages in order to show brand affiliation of a particular business to their friends. GM Resorts International also uses Media Kit, a magazine which is published periodically to advertise its services. This magazine is an in room publication of MGM Resorts International. Consumers love reading articles in this magazine, since they explore glamour, style, and excitement of having Las Vegas experience. MGM Resorts International is able to show the travel experience, fashion, and nightlife that are experienced by clients when they seek its services.
MGM Resorts International recently signed Calvin Harris as an advertising strategy aimed at building its brand. Calvin Harris is a Grammy award winning DJ internationally recognized artist. Calvin Harris is a producer and songwriter. He is known for the gold selling album that he produced in 2006, which is known as I Created Disco. He won the Best Electronic Video award for the song Feel So Close. He also won an award for the Video for the Year for the song We Found Love. The signing of Calvin Harris is a good promotion strategy, since it will help in building the brand MGM Resorts International.
Distribution and Logistics
MGM International has automated its distribution. It uses web-based software from Evention to manage its service charges and commissions that it gives to suppliers and customers and gratuities to both management and service staff. It uses automated distribution, since it owns many properties having different rules and policies. The business base of MGM Resorts International has been increasing in the past 3 years. It has made this company to recruit new suppliers to manage its logistics. It has a Supplier Diversity program that helps to manage its supplies. This program is responsible for managing cleaning and maintenance supplies, food and beverage products, kitchen and restaurants supplies, hotel supplies, and uniforms for its employees. The main aim of the Supplier Diversity program is to ensure that all suppliers have equal access to the purchasing opportunities that are offered by this company. MGM Resorts International gives contracts for supplies to minority business enterprises, women business enterprises, disadvantaged business enterprises, and veteran owned businesses. By giving supply contracts to minority businesses enterprises, consumers view this company as a social responsible company. This is due to the efforts which it has put forward in order to ensure that it cares for the less fortunate people in the society.
Critique Ad/Website/ Social Media for Product or Service
MGM Resorts International has decided to adopt the strategy of using social media to advertise its products. However, this strategy is risky, since it may make this company face many legal risks. Researchers have established that marketing using social media is risky due to possible legal suits originating from false advertising claims. In addition, this company may find being linking confidential information about its operations to the public, thus, making itself face more risks. The use of social media advertising has also many hidden costs. These costs originate from the fact that this company has to update regularly all its social media platforms regarding any developments that it may have succeeded. It is also very difficult to measure the success of social media advertising. It is difficult to quantify the monetary value of Facebook likes and the followers on Twitter. It will make it hard for MGM Resorts International to determine whether its social media strategy is yielding positive returns.
This company also uses its company website to advertise the products which it offers to consumers. The adverts that are posted in this website are effective, since they show the portfolio of businesses that it manages. In addition, it grabs the attention of a consumer as soon as he/she visits the website of this company due to the pictures of major cities all over the globe. The content of its website also revolves around the major events which face this company, making consumers be informed about its operations. It is also easy to navigate through the website of this company, making it user-friendly.
Analysis of Major Competitors
The gaming industry faces high competition. Some of the key competitors of MGN Resort International include Caesers Entertainment Corporation, Las Vegas Sands Corp, Trump Entertainment Resort, and Boyd Gaming Corporation. Caesers Entertainment Corporation began its gaming activities in Reno Nevada. This company is known globally, since it offers diversified services in its casinos. In addition, it grows its asset base through acquisition of resorts, expansion of its existing projects, and the construction of new resorts globally. It operates under brands such as Harrah, Caesars, and Horseshoe. It also owns such casinos as London Clubs International and the World Series of Poker. This company focuses on strengthening in brand loyalty. Since this company has a large market share in the gaming industry, it has a major threat to MGM Resort International due to having a wide brand portfolio. It operates dockside casinos, harness racetrack casino, and riverboat casinos. Moreover, its online gaming business is profitable, as it has formed alliances with online gaming providers which are located in France and Italy. One of the major strengths of this company is that it operates in many countries such as Egypt, South Africa, Scotland, Uruguay, and England. Thus helps the company establish a wide market share all over the globe. The current price of the stock of this company is $ 10.84. The revenues of the last two quarters of this company have, however, reduced.
Las Vegas Sands Corp is based at Paradise Nevada in the United States. This company operates in the hospitality and tourism industry. It owns and operates casinos and resorts. It also owns the Venetian and the Palazzo. These two properties are rated as Five-Diamond luxury resorts that are located in the Las Vegas Strip. It also owns the Venetian Macao, Sands Macao, and the Four Seasons Hotel Macao. In the financial year that ended December 30, 2011, this company earned revenues that amounted to about $9,410, 745,000. It was a significant revenue increase compared to the revenues that it earned in 2010, amounting to $6,853,182,000. Its net income in 2011 was $1,510,123,000. Financial analysts argue that this company posts good performance, since it has a robust revenue growth and good record of its earnings per share. In addition, its share price has been increasing since 2011. The price earnings ratio of this company is 24.7. It is above the price-earning ratio of the industry that stands at 17.7. The shares of this company increased by 14.6 percent in the previous year.
Donald Trump founded Trump Entertainment Resorts. It owns and operates Trump Plaza Hotel and Casino and Trump Taj Mahal. These two properties are located on Broadwalk in the Atlantic City. Trump Entertainment Resorts operates about 4,100 slot machines. In addition, it has more than 2,900 hotel rooms and 250 gaming tables. This company filed for bankruptcy in 2010. Both Trump Taj Mahal and Tramp Plaza and Trump Marina lost about $60 million in 2010, making this company have financial difficulties. The gambling market in Atlantic City was performing poorly, which affected the revenues of the casinos owned by Trump significantly. However, Trump Entertainment Resorts was able to emerge from bankruptcy after $225 million in new equity. This money aimed at eliminating $ 1.3 million of the debt that it owed to creditors.
Boyd Gaming Corporation is also a major competitor of MGM Resorts International. Currently, it operates and owns 22 gaming properties in the United States. Its casinos are located in New Jersey, Indiana, Iowa, Mississippi, Louisiana, and Nevada. In the financial year that ended in December 2011, this company earned revenues amounting to $2,336,238,000. In 2010, this company had 7550 hotel rooms. In addition, it had 425 table games and 21,400 slot machines.
Company’s SWOT Analysis
One of the major strengths of MGN Resort International is its wide brand portfolio. This company operates under such brands such Citycenter Las Vegas, Aria, Vdara Hotel and Spa, Crystals at City Center, Veer Towers, Monte Carlo, Hotel32, Luxor and Circus Circus. This helps to ensure that it earns positive returns even if some of its brands perform poorly. This company has also managed to diversify China’s gaming industry. In the financial year that ended in 2012, MGM China managed to earn net revenue of $731 million. This was two percent increase in revenues compared to the fourth quarter of the previous year. MGM China signed a land concession contract with Macau’s government in October 2012. This contact will help MGM Resorts International to construct a five star luxury resort and casino in Cotai. This company also has a strong financial background that is boosted by its casino revenues. The revenues that it earns from its rooms are also high, making it have available funds for expansion and renovation projects. The M Life loyalty program also helps in ensuring that the company has a wide customer base. This program gives the members a chance of visiting 15 world-renowned resort destinations. Members also earn Tier benefits, for example, pre-sale access to entertainment tickets, VIP services, and priority reservations. Another major strength of this company is that it practices corporate social responsibility. It earned an award for the Overall Leader in CSR Practices, since it has more than 10,000 employees. Its strong corporate social responsibility originates from its Diversity and Inclusion Program, Environmental Sustainability and Philanthropy, and Community Engagement.
Despite much strength that this company has, it still faces some weaknesses. One of the weaknesses is the decline in its tax benefits. In 2011, MGM Resorts earned tax revenues of about $79.7 million. However, its figure of tax benefits reduced in 2012 to stand at $2.6 million. The company also has a huge long term debt, making it spend many funds in financing the debt. Its long-term debt is $12 billion. After the recession hit America, its casino revenues reduced, since American consumers reduced their expenditure on gambling. It became hard for this company to finance its long-term debt. MGM Resorts also relies heavily on the gaming and hospitality industry in the United States; however, it has not considered doing major investments in countries such as Saudi Arabia and United Kingdom.
MGN Resorts International has an opportunity of using Nevada Online Gaming License, which it recently acquired in order to tap into the online gaming market. According to researchers, about 41% of Americans use Internet to play social networking games. If MGM launches many social gaming websites, it will have an opportunity of taping the growing social gaming industry. In 2012, the global hotel industry grew by a good margin. In 2012, the number of consumers travelling globally increased, and some hotels recorded the highest bookings in 2012. Countries that recorded a significant growth in their hotel industry included Saudi Arabia and India. If MGM Resorts International expands to these countries, there is a high possibility that it will increase its room revenues. The hospitality industry in China also performed well. If MGM increases its expansion strategies in this country, its revenues will also improve. However, MGM Resorts International faces the threat of decrease concerning 2013 revenues due to the slowdown of the United States economy. If this slowdown continues, consumers will spend less in their travel and entertainment budget (Garman, 2012). This will decrease the revenues that MGM Resort International earns from its luxury resorts. In addition, the high competition which the company faces from Caesers Entertainment Corporation and Las Vegas Sands Corp threatens to reduce its overall revenues.
Company Financial Analysis
In the financial year that ended December 31, 2012, the company earned total revenues of $9,160,800,000. The revenues increased compared to its 2011 revenues that stood at $7,498,100,000. From these revenues, it earned a gross profit of $3,239,600 in 2012 compared to the revenues of $2,823,000,000 that it earned in 2011. Its cash balance in 2012 was about $ 1.5 billion. $952 million of this cash balance was from MGM China. As at December 31, 2012, its total debt was approximately $13.6 billion. However, it earned an operating loss of $425 million compared to an operating income of $91 million that it earned in the fourth quarter of 2011 (Hitt, Ireland, & Hoskinsson, 2012). Its adjusted EBITDA in the fourth quarter of 2012 was $505 million. In contrast, the earnings stood at $482 million in the fourth quarter of 2011.
The total debt to equity ratio of this company is 2.49. In contrast, the total debt to equity ratio of the industry is 1.40. It shows that this company has huge liabilities. Its interest coverage ratio is 0.2. In contrast, the interest coverage ratio of the industry is 2.1. The gross margin of this company is 36 (Hitt, Ireland, & Hoskinsson, 2012). In contrast, the gross margin of the industry is higher, standing at 40.70. The industry performs better than MGM Resorts Internal considering the gross margin ratio. The return on investment of this company is -3.40. The return on investment of the industry is 5.00, proving that the gaming industry performs better than this company. Receivable turnover ratio of this company was 20.9. Receivables turnover of the industry was 17.30. The company performed better in the inventory turnover ratio compared to that of the industry. Its inventory turnover ratio was 55.30, while that of the industry was 22.50. Its quick ratio performed better than that of the industry. In 2012, its quick ratio was 1.40, while that of the industry was 0.80.
There exist several trends which may affect the operations of MGM Resorts International. One of these trends is globalization. According to recent studies, the number of tourists travelling all over the globe has been increasing since 2005. Receipts from tourism in 2005 were 679 billion. In 2010, the global revenues from tourism were 918 billion. This shows that MGM Resorts International will improve its performance due to globalization if this trend continues. Consumers are also emphasizing on the quality of services which they receive while at resorts. The increase in competition in the hospitality industry has caused hotels and resorts to emphasize on offering quality and unique services in order to increase consumer satisfaction. MGM Resorts International offers world class and luxury services. It shows that it will benefit by earning high revenues due to increase in hotel bookings. Resorts are also adopting modern technology in order to enhance the efficiency of their business processes. The use of technology enables resorts to increase the productivity of their staff and reduce the response time which is required to satisfy guests. In addition, it increases the efficiency of restaurants and caterers by saving time. This shows that MGM Resorts International will increase its consumer satisfaction if it uses latest technology to manage its operations.
Recommendations for the Future
MGM Resorts International should consider implementing several policies in order to remain competitive in the hospitality and gaming industry. It should try reducing its huge long-term debt, since this has affected its credit ratings. If it manages to reduce its long-term debt, investors will become confident on the liquidity of the company. They will be willing to invest in this company by purchasing its shares. The company can reduce its long-term debt by adopting several strategies. One of the strategies is reducing its huge expenditure that it incurs in its expansion strategy, especially concerning its projects in China. In addition, it may also consider obtaining capital by issuing additional shares to the public.
Another key strategy that the company can consider to pursue is expanding into other markets rather than its present markets in United States and China. It can consider expanding into countries like United Kingdom, Saudi Arabia, and India as well. These countries have a wide consumer base of gamblers. Moreover, these markets have consumers who love luxurious resort facilities. It will make them support the services that are offered by MGM Resorts International, since this company is associated with offering products that are associated with luxury. MGM Resorts Company can also consider expanding its online gaming platform. If it is able to win this market, it will capture consumers who love gambling in websites, offering online gambling services.
The company has already started efforts of diversifying into non-gaming industry. However, it should introduce more services in its non-gaming sector, so that it is able to earn revenues even if other sectors perform poorly. In 2009, the gaming industry in United States did not perform well. In addition, travelers booked fewer rooms in the resorts that are offered by MGM Resorts International. If this company had diversified well into other sectors, it would have not earned the poor returns. Therefore, the company will benefit significantly if it continues pursuing its efforts of expanding into non-gaming sector.
Overall, MGM Resorts International performs well in the hospitality and gaming industry in the United States. The good performance of this company has enabled it to record significant revenues compared to other gaming companies in the industry. Consumers love the services which are offered by this company, since it offers luxurious services. Although it faces stiff competition from companies such as Las Vegas Sands Corp and Caesers Entertainment Corporation, it is able to establish brand loyalty by offering innovative products such as M Life program. In order to remain competitive in future, MGM Resorts International should consider reducing its long term debt. Moreover, it should also expand into new markets such as India and Saudi Arabia. This will make it diversify its investments and not rely on United States and China’s market alone.