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Look Who Plans To Profit From The MGM Profit Growth Plan

By Chuckmonster on Wednesday, 2nd December 2015 12:59pm
  » filed under MGM Mirage  comments: 38

   

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.

Pgp Mgm Exec Bonuses Form4

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.

To clarify...

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:

Pgp Mgm Bonus Target

If MGM's stock averages within the minimum boundaries (greater than $15.45) execs get paid a variable PSU multiplier:

Pgp Mgm Bonus Lowest

Today's valuation would be:

Pgp Mgm Bonus Today

If MGM's stock grows by 60% to $41.21, the shares enter a bonus round ceiling of 1.6x PSU:

Pgp Mgm Bonus Best

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.

Merry Christmas.

Pgp Mgm Exec Bonuses








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Comments & Discussion:

Ahhhhhh! Follow the money! Now it is coming into focus. MGM shareholders need to take a very close look at this, and I as a renter of rooms and buyer of services will do the same. I am not against maximizing profit and becoming a more efficient operator.......BUT, building a clientele takes years while maximizing profits for a short term gain takes only months. Then you have the big crash. I love some of the rooms in some of their resorts, but asking the customer to walk around with the craps stick up their wazoo is not a good idea for long term growth. This begs the question now.........is there an unlimited pool of clients out there that pay no attention to value for the dollar? You know the type.......never really learned to do the math and will just pay the price to see and be seen at any costs. Nothing registers until their credit card gets denied. Is this the new Vegas and I just cannot grasp it. Great reporting Chuck.......you shine the light!

Well, it all makes sense now. Great post, thanks Chuck. New competition from Alon, Resorts World, etc. cannot come soon enough. Caesars, MGM and even Wynn with his proliferating 6:5 BJ and 2x craps; it seems all the major players are on a race to the bottom.

With a PE north of 35, MGM seems pretty expensive already. However, National Harbor should be a big revenue-generator, and if Vegas continues to improve and Macau turns around, perhaps they generate enough interest going into the end of 2016 to give the stock a good pop. Murren gets his payday, and we get scratchy sheets, shitty odds and crap hootch.

Great get on these numbers Chuck.
One can only wonder what will happen once (hopefully) the new resorts, RW, Alon and LD, come on line.
Murren may be shocked to see how many "loyal" customers were just waiting for competition.

For those saying "see what happens when the new resorts come online". It doesn't matter. Per Chuck's post, these grant value on Decmber 31, 2016. No current customers can leave to Alon, RW, etc as they wont be open yet.

To me this is a fantastic self-serving move. The likelihood is they can goose profits by being cheap this coming year. Which will make Wall Street happy and goose the stock up some. All but guaranteeing the payday. And it values before those new resorts show up which can (and I think will) bring competition and this swing the favor back to the customer. But those stocks will be long granted and sold to buy 2nd (4th?) homes for everyone. That is shitty and if I was Wall Street investor I would be pissed. These grants are not a long enough window to keep the balance of short term and long term in view. It makes it too easy to go for the short term and get paid damn the long term repercussions to the customer base.

Assholes. The lot of them.

To the MGM PGP & the tree of execs who benefit, "I fart in your general direction. Your Mothers are hamsters, and your Fathers smell of elderberry's"

That plan in a nutshell is what is wrong with corporate America. If the stock price stays the same, they get a bonus. If the stock price goes down by less than 40% they get a bonus. If the stock price goes up by 40% they get a giant bonus.
The interviews with Murren show that he is not truly in touch with Las Vegas as a destination nor as a place to live. He doesn't get that Vegas is unique and if you turn it into Chicago or New York then people will just go to Chicago or New York.

Well done sir. For me, it's not about how much money someone is getting. It's about exploiting the spirit, history, and culture that was built by people with vision and passion who saw unlimited potential for Las Vegas. We know some of the names; Stupak, Sarno...heck even Wynn. As much as it feels like the 7 individuals above are taking from us the consumer, they are really stealing from the legacy that is Las Vegas. I am certainly not pro organized crime at any level, but what Chuck reports on here in my opinion is skimming. The only difference is that what is being skimmed relates to the heart and soul of the wonderment that is Las Vegas and our emotional attachment to it.

Astounding. Chuck has done a real service. So, how do I protest? I refuse to stay at any MGM property. Vegas, I'd feel better if the real mob came back.

@skyyontherocks you are absolutely right. i don't curse this crew because they're doing what their company pays them to do - making money for the company. this is what they get paid to do every day... optimize shit, make it better and do it in a way that enhances the customer experience. it all seems like a hollow excuse to invent a technology sector style equity moment where it rains cash at super low (in this case non-existent) strike prices. even if it blows up in their faces, they'll make out like bandits.

@detroit like you, I read a lot of the SEC releases from the major companies. i missed these completely. give thanks to the anonymous tipster.

^ Another anonymous tipster? Makes you wonder...

I bet this kind of fiscal enrichening happens in many companies' boardrooms. But that doesn't make it right for MGM to be doing it, also.

That $10 million maximum bonus payout assumes MGM's stock price climbs dramatically. Perhaps MGM is starting to receive enough negative attention where that dramatic climb won't be an issue.

That said, $10 million isn't much in the grand scheme of big companies. (For instance, it works out to "comping" about 1,000 hotel guests' $29 resort fee every day for a year. That sounds like a doable number, until you remember Aria alone has 4,000 rooms.)

But maybe that 10 mil could pay down some debt or fund new attractions rather than lining the pockets of already rich people. At the very least, it makes it difficult for MGM to plead poverty, even as Macau revenue tumbles.

10 mil or less seems afull pissanty for all of the changes. Does the rest of the skim go to debt service?

I feel like we need to band together and pull off some kind of "Trading Places" like stock price screwing like Valentine and Winthrop did to the Dukes.

Aww, nothing for Scott Bellagio?

All of this seems like it has the potential to blow up in their faces at the lower properties. Would I still want to stay at Bellagio if the parking wasn't free, drinks were poured by computer to the recipe, and hidden fees lurked everywhere? Yeah, probably. Would I want to take the same for Luxor or Excalibur? Fuck no, let's call the Trop.

The real ball-drop lies with the Nevada Gaming Commission for allowing these two companies to have their mega-mergers that made the market look like it does. A more responsible corporate growth plan is to work at a resort by resort level to identify underutilized resources and areas of improvement at hotels that aren't working as well as they could; and squeezing cash if necessary only the ones that are already stretched to the limits of supply.

This shotgun approach makes any already unappealing hotels even less so, which is honestly the last thing that they need.

Very nicely done, and why does it feel like Anonymous poster is #8 on the list, poor person. Maybe it's because I see this all the time in my company and elsewhere, but it's a shame it doesn't surprise me anymore. I can even sort of get behind, shafting the customer or tightening up areas of the business. I think the part that gets me, is there is no longer any type of trickle down effect with this for MSMs employees, continue to downsize their positions, cut benefits, and remind them they are lucky to have a job. Just doesn't make a whole lot of sense, when we see the fat getting fatter.

Great reporting. Crazy that the SEC allows this kind of grant. Lost amidst some of the commenting here is that Murren + co have to achieve the PGP targets in order for these units to not be forfeited (and only then does step 2, the calculation of how many units based on share price performance, kick in). The MGM Q2 press release mentioned how ultimately the PGP is "expected to result in $300 million of annualized Adjusted EBITDA benefit. The Profit Growth Plan commenced in July 2015 and it is expected to begin to show results as early as the second half of 2015 and be fully realized by the end of 2017."

So with those generalized figures, has there been any further specific details made public? These new units require the company to have met "its performance goal pursuant to the Company's Profit Growth Plan as of December 31, 2016". December 2016 is just 12 months away now, so that is some serious cost cutting to come in the next 12 months if they hit their target by then.

I would expect to start to see some labour union rumblings at some point too, as job cuts or attrition could be involved somehow (unless robot bartenders find a way to unionize?), and in the name of efficiencies I would expect that some other roles will be asked to do more with less (e.g. add rooms to a housekeeping workload...Maybe housekeeping will be supplemented with robots too, with a Roomba helping shave the per-room cleaning time?)

@TwisterII. It does make you wonder. You can find similar discussions like this about many publicly traded companies on Yahoo Message Boards every day, with the LT investors accusing the Negative News guys of short-selling the stock.

Here's the message board for MGM

http://finance.yahoo.com/mb/MGM/

@bill @twister folks don't play pump & dump with us. Those folks serve stuff to a Seeking Alpha/Motley Fool scribes that are plugged into the major syndication machines (Yahoo! Finance etc).

Love the coverage of these PGP initiatives, but can we please retire the "beancounter" references? It's a tired old cliche. As a CPA, I can tell you that accountants keep the score, but aren't calling the plays.

This wouldn't be happening if Kirk Kerkorian was still on this earth.

@Gringo your request is taken under advisement. perhaps you can suggest an alternate term that is suitable to your profession. Here's a few I came up with:

skinflints
tightwads
cheapskates
poon hoarders
bundt fudgers
queef picklers
beer pubers
tub farters
EBITDAooochbags
fractionists fuckheads
M.B. A-holes
Executaints

Chuck- great research and reporting...Interesting stuff.

Murren Minions?

Executaints. That is beautiful

Chuck,

In recent months I've become a regular visitor to the site, and I've loved much of the content.

In recent weeks however, the relentless MGM bashing and snarky tone has become increasingly tiresome.

It saps all of the fun out of reading the site, not least because in my eyes it's completely unfair towards a company just trying to do what they're meant to do (make a profit), and generally making a mountain out of a molehill (if you really care what shampoo you get at the Bellagio then I respectfully suggest you take a look at your priorities).

But fine, I get that rightly or wrongly, it seems to be the viewpoint of the majority here, and everyone's entitled to their view, so I was biding my time, waiting for you all to get bored and get back to talking about fun things.

Sadly, your reply to Gringo is the final straw for me. Gringo made a perfectly reasonable request that you lay off with the negativity towards accountants. I agree with him, it's unjustified.

How did you respond? Like an adult by justifying your use of the term, or at least respectfully disagreeing?

No, you responded like a petulant child at best, and a narrow-minded, immature, arrogant, hateful, cynical, prejudiced bigot at worst.

So congratulations, you've just lost a reader.

I suspect you won't care much, because as long as you've got your adoring clique to lap up every bitter missive about how MGM/Caesars/Wynn is daring to try to make some money, or how they're daring to target a different demographic to your own, you'll be happy.

U mad bro?

@johnh obviously. That might be the most hateful thing anyone has ever posted to VT. Impressive.

I'm not sure how to respond to the comments of djmoody. I could always go old school and say "Lighten up Francis", or go new school with "Bye Felicia".....

The users that get their shorts in a bunch over the content here obviously don't understand the lay of the land here. If you're offended by smart-ass remarks and sarcasm, what the hell are you doing on the Internet? If there was a Vegas Internet Mafia Family crest, I'm sure one of the banners would say Ipso Facto Smartasso......


MGM and Murren crew are wrecking the Vegas we Love. Keep reporting the information VegasTripping.

Should anyone else have mis-interpreted my comment to @gringo, I will clarify. Gringo requested we not use the term "bean counters" because it connects the executives making these decisions with people who have taken up the fine occupation of accountancy. My response to him was to request a replacement term that would NOT indict accountants, but still get the point across. My list of replacement terms was NOT me calling @gringo or accountants in general goofy names.

I don't get the controversy. I think most people realize that "bean counters" in the original context applies to the douchebag decision-making taints and their rump-sniffing underlings who want their big bonus, too, and not the accounting team that makes sure the books look okay to Uncle Sam.

For what my opinion is worth, which is incredibly little, articles like this are incredibly important. Understanding why some resorts are making changes we feel are myopic and detrimental to the Vegas experience is valuable to us frequent visitors.

Yeah, they are trying to make a profit. But, there are multiple types of profit. This move, as stated before, is shortsighted. Understanding corporate incentives tells us this (thanks to VT). This type of profit is unsustainable because revenues are not increased by enhancing the consumer experience in any meaningful way.

And for me the type of shampoo at Bellagio does matter. There is a certain expectation of luxury amenities at a luxury property. If they are still trying to maintain bellagio as the top toer property why would the toiletries be the same quality as Excalibur. Maybe they can replace the linens with Super 8 quality or trade Prime for Sizzler.

Sizzler! Sizzler! Sizzler!

@chuckmonster Vegastripping, it ain't for everybody, but it is for me!

tis time to bring the stalk down to $15



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