Thursday, June 24, 2004
Copyright © Las Vegas Mercury

Editor's Note: Our 'company town': Myths and realities

Las Vegas occasionally is referred to as a "company town." The phrase conjures images of a coal camp in the hills of West Virginia where one company owns the mine where most of the people work and the stores where they shop, a place where the employees might receive their wages in scrip that can be used only at company-owned businesses. In a company town, the owners and executives also exert control over political affairs, turning the mayor and police chief into pawns charged with protecting the company's interests.

In certain vague ways, Las Vegas could be viewed as a company town, but it doesn't really fit the historic definition. There's no question the casino industry plays an influential role in economic, political and cultural affairs, but no single casino company runs the town. From Fremont Street to Las Vegas Boulevard South, an array of companies and individuals run the resorts, competing for tourists, for employees, for ideas, for political influence. At times, the industry has united as a single, loud voice in the community and state, but it doesn't happen all the time. Casino operators disagree quite a lot, actually, on everything from taxation to transportation.

MGM Mirage's planned acquisition of Mandalay Resort Group could alter that situation. The $7.9 billion buyout, pending federal and state regulatory approval, would create the world's largest casino company. It would own 50 percent of the business on the Strip, an unprecedented figure that Howard Hughes could only dream about as he gobbled up Las Vegas casinos in the 1960s before the feds stepped in.

Press coverage of the deal has thus far been largely positive. Obviously MGM Mirage and Mandalay officials believe the deal will be good for their shareholders--and good for their bank accounts. Wall Street analysts have showered praise on the deal and brushed off antitrust concerns (except for the sale of a Detroit casino). The local news media, impressed by the big numbers (28 casinos) and charismatic executives (Kirk Kerkorian, etc.) involved, have seemed reluctant to ask tough questions.

Here and there, however, legitimate issues have been sneaking through the spin. These issues ought to be taken more seriously:

¥ There will be layoffs. One advantage of the larger company is increased efficiency--why have two people doing a job when it can be accomplished by one? It appears that most of the job cuts will come in the middle-management ranks, which reduces the sympathy factor, but most of these folks aren't rich. They will need to find new jobs somewhere, and if they aren't snapped up right away, they and their families could suffer.

¥ Vendors that don't hold favor with executives of this new goliath could see their business drop. Conventional wisdom suggests that a big corporation would make important decisions about who to work with strictly on the basis of price and performance. But it's still true that who you know and who you haven't pissed off lately are just as important. Cross this behemoth and your Strip customer base is suddenly half as big.

¥ Sen. Harry Reid, D-Nev., has said that MGM Mirage and Mandalay are both "ideal corporate citizens," and the Culinary Union, which represents 23,000 employees between the two, hasn't expressed any worries. But the MGM Grand, for several years, fought aggressively against union representation for its employees. Culinary officials may have a calm public face, but they have to be wondering what might transpire during the next contract negotiation.

¥ It has to be said: Do we really want to see the Wal-Martization of the Strip? Wal-Mart is taking over the retail world, driving smaller competitors out of business, decimating small-town America and undercompensating its employees. It would be unfair to compare either MGM Mirage or Mandalay with the predatory Wal-Mart, but such a large casino company inevitably will increase homogeneity and reduce diversity on the Strip. As Steve Wynn told the Review-Journal, consolidation doesn't add "value" to the Strip. In other words, it doesn't enhance the tourist experience or inspire new levels of creativity. Mammoth corporations are not generally known as bastions of benevolence or incubators of innovation.

There's a bright side. First, although MGM Mirage-Mandalay will control 50 percent of the Strip, its competitors aren't going to simply fold their cards and go home. Sheldon Adelson operates the giant Venetian and is expanding. Steve Wynn is building the Strip's next-generation megaresort, Wynn Las Vegas. Harrah's is a huge national casino chain with visions of enlarging its presence on the Strip. Caesars Entertainment has restored Caesars Palace to its former glory and is extending its brand. George Maloof has resort dreams that reach beyond his trend-setting but relatively modest Palms. The Las Vegas Hilton and Aladdin have new owners with ambitious renovation plans. In short, as big as it will be, MGM Mirage-Mandalay still has numerous competitors for tourist dollars.

Second, there's speculation that the buyout may lead to the sale of some lower-end properties. While MGM Mirage may see Circus Circus, for example, as an underperforming resort, another operator may envision a great opportunity. This scenario is already playing out at the Golden Nugget, which MGM Mirage sold to entrepreneurs Tim Poster and Tom Breitling, who are reinvigorating the downtown resort. If this same kind of thing happens on the Strip, it would help relieve monopolistic concerns.

The MGM Mirage-Mandalay merger appears to offer as many potential positives as negatives. Here's hoping the potential negatives receive a full hearing before the ink dries.

--Geoff Schumacher