Look Who Plans To Profit From The MGM Profit Growth Plan
Indubitably, we will learn more ways in which MGM Resorts International will cut corners on guest offerings in the name of increasing profit via their Profit Growth Plan. They'll find creative ways to add new or increase existing fees, shave points off M Life comps or change the rules, again. This is a slippery slope of bean counting that leads to a bottomless well of profit driven, anti-customer, anti-employee, anti-Vegas decision making.
Most tourists will never know the difference, a percentage who do will shrug it off and the rest - informed regulars - will consider other options. By the time 2018 rolls around, nobody will remember how three years ago MGM stuck the curved end of a craps stick inside their customers' rear ends and rooted around for some spare change.
Ok, someone will remember... us... and seven members of MGM Resorts International's executive team. In 2018, MGM's Lucky Seven could cash in on millions of dollars in free stock benefits they gifted themselves in the name of the Project Growth Plan.
On October 7, 2015, MGM Resorts International filed seven Form 4 documents with the U.S. Securities and Exchange Committee (the SEC) the governmental body whose mission is "to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation" on stock markets and financial exchanges.
Form 4 is a "Statement of Changes of Beneficial Ownership of Securities." Publicly traded companies are required to file Form 4 to publicize "transactions and holdings of directors, officers, and beneficial owners of registered companies." An example, if Steve Wynn - director, officer and beneficial percentage owner of Wynn Resorts - buys, sells or is gifted stock in WYNN, the company is required to file a Form 4 to disclose this. Shareholders are required to know when the boss decides it is time to get out, time to get in or being gifted equity bonuses.
Here is MGM Resorts International CEO Jim Murren's Form 4 filing, drafted on October 5, and filed with the SEC on October 7, 2015. There are six others, just like it, containing information about Profit Growth Plan bonuses given to Murren and fellow executive team members Bobby Baldwin, Corey Sanders, Bill Hornbuckle, Dan D'Arrigo, John McManus and Phyllis James.
Jim Murren, CEO has been gifted 56,414 base shares. Bobby Baldwin, Chief Customer Development Officer, has been gifted 28,207 base shares. Corey Sanders, Chief Operating Officer, has been gifted 28,207 base shares. Bill Hornbuckle, President, has been gifted 14,104 base shares. Dan D'Arrigo, Executive Vice President and Chief Financial Officer, has been gifted 14,104 base shares. John McManus, Executive Vice President and General Counsel, has been gifted 9,873 base shares. Phyllis James Executive Vice President, Special Counsel and Chief Diversity Officer, has been gifted the smallest amount of shares at 3,173.
Even at the C-suite, golden parachute level, women - including the company's Chief Diversity Officer - are getting paid less than the men.
All Profit Growth Plan Form 4 filings for the MGM seven are public SEC documents. Some of these execs also participated in a Management Incentive Plan stock gift program in 2014, here's Murren's Form 4 from that event.
The key to understanding these PGP Form 4 filings is - naturally - contained in the teeny tiny green tinted fine print. It is here that the rules for the Profit Growth Plan Performance plan are laid out. Fine print is fine for a reason. Rather than make you read microscopic type, I've copy/pasted and broken it out into digestable chunks and added emphasis where helpful. Put on your thinking caps.
Profit Growth Plan Performance Share Units ("Profit Growth PSUs") granted under the MGM Resorts International ("MGM Resorts") Amended and Restated 2005 Omnibus Incentive Plan and the Profit Growth Share Incentive Plan, pursuant to MGM Resorts' Form of Performance Share Units Agreement (Profit Growth Share Incentive Plan).
Profit Growth PSUs are forfeited if the Company does not achieve its performance goal pursuant to the Company's Profit Growth Plan as of December 31, 2016.
Each Profit Growth PSU represents the right to receive between 0 and 1.6 shares of MGM Resorts common stock depending upon the performance of the common stock from the grant date to the date that is three years after the grant date (the "Performance End Date"), relative to a target price of $25.76 (the "Target Price").
The Target Price is equal to 125% of the average closing price of MGM Resorts common stock over the 60-calendar-day period ending on the grant date.
If the ending average stock price is less than 60% of the Target Price (the "Minimum Price"), then no shares will be issued on the Performance End Date.
If the ending average stock price is equal to or greater than 160% of the Target Price (the "Maximum Price"), then 1.6 shares will be issued on the Performance End Date per Profit Growth PSU.
If the ending average stock price is between the Minimum Price and the Maximum Price, then a number of shares will be issued on the Performance End Date per Profit Growth PSU equal to the ending average stock price divided by the Target Price. For this purpose, the ending average stock price is the average closing price of MGM Resorts common stock over the 60-calendar-day period ending on the Performance End Date.
Profit Growth PSUs shall be forfeited in the event that the participant's employment terminates for any reason on or before December 31, 2016, but shall not be subject to forfeiture in the event that the participant's employment terminates for any reason after December 31, 2016, however the Minimum Price on the Performance End Date must still be obtained for any shares to be issued in respect of the Profit Growth PSUs.
Given: the stock target price (STP) is $25.76, 25% over the Q3 2015 mean.
If: stock average price is below $15.45 (60% of STP) on December 31, 2016, no shares are issued.
Else if: stock average price is greater than or equal to $41.21 (160% of STP) on December 31, 2016, 1.6 shares are issued for every PSU.
Else: stock average price is between $15.45 and $41.21 (61% - 160% of STP) on December 31, 2016, shares issued are equal to average stock price divided by target price.
Say stock averages at $31.31 in Nov/Dec 2016, divide this by the Target Price $25.76 = exec given 1.21 shares for every base share gifted. Should the stock stay exactly the same as the moment I'm writing this $23.75 - each executive gets 0.92 shares per base share gifted.
Now, The Spreadsheets...
If MGM's stock averages below $15.45 during Dec/Nov 2016, execs get goose eggs and the Profit Growth Plan PSU's are cancelled. Game over.
If MGM's stock closes at the target price ($25.76), execs get paid bonuses on a 1:1 unit basis:
If MGM's stock averages within the minimum boundaries (greater than $15.45) execs get paid a variable PSU multiplier:
Today's valuation would be:
If MGM's stock grows by 60% to $41.21, the shares enter a bonus round ceiling of 1.6x PSU:
So for all the fees, generic toiletries, cheaper linens, outsourced operations, surge bar pricing, preference fees, renegotiated contracts, naming rights agreements, downsized departments, decreased comps, robot bartenders, paid self-parking, real estate investment trusts and laid off employees exist for one reason only... profit growth. The goal here is to cut costs and reshuffle the numbers at all costs (other than increased costs) to make analysts and big institutional investors take another peek at MGM's stock and snap it out of their eight-year-long doldrums and drive the price higher.
Should this cost cutting wager prove to be successful, MGM's Lucky Seven could collectively grow their own personal profit by $10 million dollars when these gifts vest in late 2018.
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