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By Steve Player
Republished from Business Finance Magazine
How do you trim finance costs when you're one of the biggest hospitality companies in the world, you've had years of explosive growth, and your operations range from retail outlets to restaurants to casinos to massive, multihotel developments? It can be done. Rick Arpin, senior vice president/corporate controller at MGM Resorts International, tells the story.
Steve Player: Could you provide some background on MGM Resorts?
Rick Arpin: We're one of the largest gaming companies in the world, operating casino resorts in Las Vegas primarily, but also in Reno, Nevada; Biloxi, Mississippi; Tunica, Mississippi; and Detroit, Michigan. We also have investments in other gaming resorts in Macau, New Jersey, and Illinois. In total, we generate about $6 billion in revenue and have about 60,000 employees.
SP: We're currently going through a rough patch in the economy. A lot of people have shifted their discretionary spending. How has this impacted the gaming industry?
Arpin: This industry has been relatively hard hit. The hospitality industry in general has struggled, but gaming, in particular, seems to have been at the center of the recession. We're subject to leisure discretionary spending as well as business discretionary spending. This is unlike the last major recession; even with 9/11, that was more of a blip. Back then, we were much more focused on the leisure side, but over the past 10 years Las Vegas, in particular, has become very dependent on the business side. This was good when people were traveling for business, having conventions and meetings, and business was growing. But it almost screeched to a halt with the depth of the recession. Businesses really turned that spigot off pretty fast.
On the leisure side, we've asked when those folks are going to start spending again, or if they already have started spending in certain segments. It seems as though some of the luxury retailers are starting to see a little bit of life, and even some of the hospitality companies are seeing some light. We're certainly seeing people travel more this year than, say, last year. But spending is still a bit of a challenge.
SP: You have gorgeous integrated properties here in Las Vegas. Does MGM own the whole shooting match - the rooms, restaurants, retail stores, etc. - or are those leased out to other companies?
Arpin: Basically, we own and operate all of our own hotels. We started to look internationally at more of a management model, like the typical hospitality company, but we do very little of that. We're looking to expand that. But here in the U.S., with the casino resorts, we own and operate the resort itself.
SP: I'm amazed by the diversity of businesses - the hotels, the health spas, the clubs. You're the landlord of real estate, but you are often also the tenant and operator …
Arpin: When people ask me how complex finance is for us, I say, "Well, we're one of the largest hotel companies in the world. We're the largest casino company in the world. We're one of the largest restaurant companies in the world. We're one of the largest entertainment companies in the world."
This combination can get into some strange business transactions. We own half of CityCenter, which at $9 billion is the largest privately funded construction project in U.S. history; it's a 68-acre development featuring four resort hotels, multiple restaurants, and retail. The mall there leases space to us as MGM Resorts for a restaurant. So we're paying ourselves, in a way. And we then have someone manage that restaurant for us on our behalf!
SP: It's kind of mind-boggling. As corporate controller, how do you keep up with all of that diversity?
Arpin: In the industry in general, there's some complexity on the business side. One piece of it is that in those multiple lines of business, you've got multiple systems. Unlike a single-line-of-business company, where maybe they're fortunate enough to have an ERP system that runs the whole thing, we've got a lot of different source systems. We have to accumulate that information for the back-end accounting and do something with it. So what you end up seeing are a lot of bolt-on tools for those systems to help us get data pulled out and put into a usable format.
The systems may be very different for, say, food and beverage analytics - which are extremely important these days, when you're trying to scrape every percentage of margin that you can - versus the hotel side, where a yield management system is needed to make sure that you're doing that right.
The one offsetting factor for us is that the general industry accounting isn't terribly complex. Compared to some financial institutions, for example, where they've got derivatives and all those crazy business models that really challenge the back-end accounting systems, ours is pretty much debits and credits. It's just that there are a whole lot of them, and they're from multiple sources.
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