Turns out firing people is good for shareholders

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MGM Resorts CEO Jim Murren attends a parade at last year's opening of the company's billion-dollar casino-hotel in Springfield, Massachusetts. (Photo by Nicholas Hunt/Getty Images)

MGM Resorts released its quarterly financial report last week, and a preponderance of professional expert-texpert market watchers agree: firing people makes shareholders happy.

MGM hoped as much. The company’s quarterly report and accompanying corporate presentation all but gush over the wondrous effects of “our new operating model,” MGM 2020 — a key part of which involved laying off more than 1,000 workers in the second quarter of 2019, most of them in Las Vegas.

MGM’s second quarter results, including corporate-wide net revenue of $3.2 billion, a 13 percent increase over the prior quarter, are not all attributable to cost-cutting by tossing Las Vegans out of work. For instance, revenue was up 26 percent at MGM’s newest casino in Macau, which opened early in 2018.

Still, “During the quarter, we made significant progress on phase 1 of MGM 2020 with reductions in labor and sourcing savings” said Corey Sanders, MGM Resorts chief financial officer and treasurer.

MGM 2020 is “transforming the company’s operating model,” Sanders reported to shareholders.  “In fact, we now expect to realize roughly $100 million in 2019 compared to our previous guidance of around $70 million,” Sanders said.

The market welcomed the results. The company’s stock price rose about 7 percent the next morning. Market analysts are becoming more bullish on MGM’s stock, which closed Tuesday at $30.55, the highest price in more than a year. 

MGM! 2020! MGM!  2020!

“We expect MGM 2020 will be an additional catalyst for second half earnings growth,” added The Great Man himself, MGM CEO Jim Murren, in last week’s report to shareholders. “We are confident that we will achieve” earnings and cash flow growth “through continued ramp up at our newer properties and further progress in executing our MGM 2020 Plan.”

“We remain excited” about opportunities like expanded sports betting and the prospect of opening a property in Japan, while “creating long term value for shareholders,” Murren added. 

“To that end, we bought back 11 million shares during the quarter,” Murren said.

The CEO also noted that … wait…

What?

The same quarter the company was throwing people out of work to save money, it was spending money to enrich shareholders through stock buybacks?

MGM! 2020!

As it happens, the 282 million American dollars MGM spent to buy back 11 million shares during the second quarter is but a fraction of the corporation’s current stock buyback schedule, which totals $2 billion. There’s still $1.1 billion left, so more buybacks to come.

The current buyback program was launched in May 2018, on conclusion of an earlier billion-dollar buyback.

Stock buybacks are, as MGM has put it, “designed to return value to the company’s shareholders.”

Critics put it differently.

For instance, in a column co-authored by Bernie Sanders and … wait for it … Chuck Schumer(!?) published earlier this year, the two Democratic senators described buybacks as a “corporate self-indulgence” that “has become an enormous problem for workers and for the long-term strength of the economy.”

The senators characterized buybacks as the result of corporate boardrooms “obsessed with maximizing only shareholder earnings to the detriment of workers and the long-term strength of their companies, helping to create the worst level of income inequality in decades.”

By one study, there is more income inequality in Nevada than in all but three other states. But I digress.

“Americans should be outraged that these profitable corporations are laying off workers while spending billions of dollars to boost their stock’s value to further enrich the wealthy few,” wrote Sanders and Schumer. 

The latter senator succeeded Harry Reid as leader of the Senate Democrats. Reid now works for MGM. But again, I digress.

When companies buy back their own stock, they’re taking the shares off the market. That usually raises the price of remaining shares, primarily to the benefit of the wealthiest investors, like the 1 percent of the population who own 50 percent of U.S. stocks.

Investors, including corporate CEOs and board directors who typically have holdings in the company they’re CEO’ing or directing, also prefer buybacks to dividends, because earnings from buybacks are taxed as capital gains, at rates fare less than those paid on income from dividends.

The tax cuts passed by Trump and Republicans in Congress were supposed to lead to higher wages (and also save Dean Heller’s reelection campaign, but again, I digress). But inasmuch as there has been wage growth, it has been slow and small. So what did America’s fine corporate neighbors spend all their tax windfall on? Often as not, stock buybacks. More than a trillion dollars’ worth last year.

There are of course many factors contributing to MGM’s ability to free up billions of dollars to enrich the already rich and invest in sports betting, Murren’s Japan dream, and properties in other domestic markets, like New York and Massachusetts.

And there’s an argument to be made (I’ll make it now) that one of those factors is the marvelous generosity of the people of Nevada, whose public services remain mired in underfunded mediocrity (or worse) while the state’s largest employer and its industry brethren pay by far the lowest casino tax in the nation.

Fun (not really) fact: The $1.9 billion MGM spent on stock buybacks since September 2017 is about $600 million more than the state of Nevada has collected in casino taxes from the entire gambling industry over the same period.

Untold billions of dollars just fly out of the state every year. That’s partly because MGM cares about its shareholders a lot more than it cares about Nevadans.

But it’s also because Nevada lets it happen.

That’s weird, since Nevadans, and particularly Las Vegans, tend to fancy themselves a pragmatic bunch, hardened by the peculiar and peculiarly cold realities of a gambling/resort economy and culture.

The way they let MGM and other powerful companies take advantage of them and play them for chumps, you’d think Nevadans were a bunch of wide-eyed conventioneers from Peoria.

Hugh Jackson
Editor | Hugh Jackson has been writing about Nevada policy and politics for more than 20 years. He was editor of the Las Vegas Business Press, senior editor at the Las Vegas CityLife weekly newspaper, daily political commentator on the Las Vegas NBC affiliate, and wrote the then-groundbreaking Las Vegas Gleaner, which among other things was the only independent political blog from Nevada that was credentialed at the 2008 Democratic National Convention. He spent a few years as a senior energy and environmental policy analyst for Public Citizen, and has occasionally worked as a consultant on mining, taxation, education and other issues for Nevada labor and public interest organizations. His freelance work has been published in outlets ranging from the Guardian to Desert Companion to In These Times to the Oil & Gas Journal. For several years he also taught U.S. History courses at UNLV. Prior to moving to Las Vegas, he was a reporter and then assistant managing editor at the Casper Star-Tribune, Wyoming’s largest newspaper.

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