Gambling and the Law®: By Professor I Nelson Rose
CityCenter in Las Vegas has now opened, and appears to be enough of a success to save MGM Mirage, the second largest casino company in the world (Harrah’s is first), from bankruptcy.
But, it almost didn’t happen, due to the treachery of its partner.
Only the brilliant poker playing of Kirk Kerkorian, who controls MGM, saved the day.
Kerkorian spent a lot of time gambling in Las Vegas during the 1940s, but I don’t know if he ever plays poker with cards today. Yet, when it comes to trading multi-hundred million dollar casino properties, Kerkorian usually comes out a winner.
He started in 1962, by buying 80 empty acres on the Las Vegas Strip for $960,000 – it’s now Caesars Palace. More than once, he built the largest hotel casino in the world, including the International, now the Hilton, and the MGM Grand, now Bally’s. He made a lot of his billions by buying, selling and rebuying MGM, starting in 1969, when he purchased the movie studio and turned it into a casino company.
During the last year of George W. Bush’s failed presidency, MGM was hit by what has been called a perfect storm of unfortunate, and to some extent unforeseeable, events. In October 2007, the stock was at $96 a share. March 2009 it was below $2.
First, came gasoline selling for more than $4 a gallon: visits to Las Vegas have always been greatly impacted by the price of gas. Then the housing bubble burst and lay-offs and the Great Recession began. The vacation industry tanked.
Coincidentally, the People’s Republic of China restricted residents of Guandong, the mainland province closest to Macau, where MGM has a casino, from unlimited visits to no more than four a year.
But MGM and other large casino companies may have been hurt worst of all by the freezing of the credit markets.
MGM was in the middle of building its “city within a city” when the financial disasters hit. Its plans for the $8.6 billion CityCenter on the Strip – condominiums, hotels and shopping centers – originally included massive towers, such as the 61-story ARIA gaming resort. Speculators were putting down payments on two, three or four condominium units.
MGM had to figure out ways to raise the cash to pay not only its operating expenses, but also its periodic loan payments. Things got so bad that MGM told its shareholders in its annual report that it might not be able to meet its obligations or continue as a going concern.
The last thing it needed at this time was to be sued by its partner in CityCenter, Infinity World Development, a subsidiary of Dubai World.
The partnership always seemed to me to be more than a little strange. According to Wikipedia, Dubai World “is an investment company that manages and supervises a portfolio of businesses and projects for the Dubai government.” It was established under a decree ratified on March 2, 2006 by Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai, who also owns the majority stake in Dubai World.
Sure, Dubai is considered “progressive,” compared with Islamist extremists. But what was the government of a Muslim Arab country doing as the co-owner of casinos?
And progressive is a relative term. This is the same government that created a worldwide uproar, and was fined $300,000 by the Women’s Tennis Association, when it refused to let tennis star Shahar Peer compete in the Dubai Championships, because she was from Israel.
Also, the oil money is not as good as it used to be. Certainly not for Dubai, which has no oil of its own and relies on the kindness of its neighboring Arab states.
Dubai World sued MGM and said it was not going to make any more payments into the CityCenter project. The suit was filed on Monday March 23, 2010. Dubai World and MGM were each required to post $100 million on Friday March 27.
Why did Dubai World sue its partner?
It said it didn’t like the cost overruns and it feared MGM wouldn’t be able to keep up its side of the deal.
That might be true. But Dubai itself is in deep trouble: It had to have a bailout of $10 billion from other Arab governments. One unfortunate cost is that local Muslim leaders have been emboldened to attack Dubai’s “Western” culture, like “risqué” clothing.
So, maybe Dubai World really wanted out. Though that seems bizarre even by Mideast standards, since it had already invested billions of dollars.
More likely, Dubai World wanted to force MGM to give it an even larger piece of CityCenter. As a government, now $10 billion richer, it could make all the payments itself and cut MGM’s share down to a small minority interest.
Which is where Kerkorian called the bluff. He had MGM threaten to file bankruptcy, scaring the banks and other lenders and giving him more time to work out his deals. Then he told the banks that MGM would make the entire $200 million payment itself.
Dubai World folded its cards. And CityCenter was able to be completed.
Of course, MGM still has to figure out how to come up with hundreds of millions of dollars more in the coming months, but it is selling property, like the Treasure Island casino.
And speaking of Treasure Island, even with Kerkorian’s poker-playing skills, he might have avoided this problem if he had done a little research on Dubai before agreeing to be its partner.
Before signing a treaty in the middle of the 19th century, the formal name for the Dubai area was “The Pirate Coast.”
© Copyright 2010. Professor I Nelson Rose is recognized as one of the world’s leading experts on gambling law and is a consultant and expert witness for players, governments and industry. His latest books, Internet Gaming Law (2nd edition recently published) Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.