Lanni exits at perilous time as industry faces hardship

By Liz Benston

Sunday, Nov. 16, 2008 | 2 a.m.

Terry Lanni’s decision to retire as chief executive of MGM Mirage will be viewed with some concern, if only because he is one of the industry’s most respected leaders.

As head of Nevada’s largest private employer, Lanni has welcomed debate about controversial subjects such as taxes, clogged roads and water shortages.

When other companies deliberated in private, Lanni publicly declared his company’s interest in pursuing the legalization of online gambling.

While most executives would prefer to avoid discussions that could lead to higher tax bills, Lanni floated a proposal to shore up the state budget deficit by increasing the now-minuscule business payroll tax.

He initiated a diversity campaign that has earned national honors from gay rights organizations and other groups — a step forward for an insular industry.

But most importantly, Lanni, 65, has three decades of experience as a casino operator — experience that’s at a premium in this historic downturn.

Lanni said he decided to step down primarily to spend more time with his family.

His named successor, President and Chief Operating Officer Jim Murren, 47, is better equipped for the daunting task of guiding the company through this turbulent economy, Lanni said.

Indeed, Lanni has for at least two years been grooming Murren, promoted from chief financial officer to the chief operations post in August 2007, for the top job.

“It’s a lot easier for a guy in his 40s than a guy in his 60s to take on this responsibility,” Lanni said in an interview Thursday.

Still, the timing has raised questions. Lanni’s two-week notice came the same day a story was published in The Wall Street Journal revealing that Lanni had not received an MBA from the University of Southern California, as his corporate resume had indicated since as early as 1982.

Lanni’s departure takes with it years of experience leading gaming giants.

In 1995, Lanni left Caesars World, based in Los Angeles, to become chief executive of MGM Mirage predecessor MGM Grand Inc. For the next 13 years, he would commute from Los Angeles to Las Vegas. That trip has worn thin over the years, he said.

His wife is involved in community activities in Southern California and is taking care of her father. The couple hasn’t seen much of each other, he said.

Lanni stepped down as chief of MGM Grand in 1999 to spend more time with his family. At the urging of the company’s board, he rejoined the company months later, after majority shareholder Kirk Kerkorian made a move to acquire Steve Wynn’s Mirage Resorts. The $6.4 billion deal, in May 2000, would create the world’s largest casino company.

Lanni also oversaw the company’s $7.9 billion acquisition of Mandalay Resort Group in 2005, which would create an unprecedented casino empire including 10 of the Strip’s megaresorts. He also shepherded the company’s global expansion into Macau and is the face of the company in Asia, making regular trips there to court high-rollers and paving the way for future resorts.

Lanni will remain on the company’s board of directors.

Murren has a shorter gaming industry resume. Lanni’s expected successor is a former Wall Street analyst with an undergraduate degree in art history and urban planning from Trinity College. He joined MGM Grand as chief financial officer in 1998.

Lanni calls Murren “one of the finest chief financial officers this industry has seen” and a man who has impressed his peers with his quick grasp of business operations.

“He’s really succeeded there, just as he succeeded in his financial role,” he said.

Yet Murren is still considered something of an outsider in an industry that historically values ground-floor experience more than academic credentials. Some of the industry’s most respected operators, like Steve Wynn and Frank Fertitta, grew up in the business, learning about casinos from the ground up.

“In a downturn, I’d rather trust someone who has worked their way through operations,” said one insider, who requested anonymity.

Murren, however, wouldn’t be the first person to run a casino company who hadn’t been promoted from the casino floor or, like Lanni, from the operations side of the business. Gary Loveman was a business school professor at Harvard University before he was tapped to become chief operating officer of Harrah’s Entertainment in 1998. Loveman also was groomed for the top job.

Sheldon Adelson ran the giant Comdex trade show before he bought the historic Sands hotel, opening the Venetian resort there in 1999.

Lanni, too, knew little about the gaming business when he took his first casino job in 1977 as chief financial officer of Caesars World. He was running the company a mere five years later.

Still, some view Murren as more of a skilled number cruncher than a leader.

For the past few months, he has led an expense reduction program, which began as an initiative to streamline operations following a string of mergers but has become more focused on cutting costs to offset earnings that have declined more than 60 percent from a year ago.

MGM Mirage, like most gaming companies, has laid off workers or cut their hours. The company has — including attrition, restructuring and layoffs — reduced its full-time workforce on the Strip by about 7.5 percent, which amounts to some 3,200 jobs, as of the company’s latest earnings report.

Despite his forthcoming promotion, Murren’s most enduring imprint on the company might have been made. CityCenter — a $9.2 billion multi-resort complex that will open in late 2009 along 76 acres fronting the Strip — was his idea.

This unprecedented collaboration among name-brand architects is the most expensive privately funded construction project in U.S. history. It has also become a financial albatross for MGM Mirage.

Though hailed as a forward-thinking attraction that will boost tourism for years to come and improve the community through the installation of $40 million worth of public art, CityCenter has drawn criticism from Wall Street for its drain on the company’s balance sheet, especially in today’s economy.

The project wasn’t entirely financed before construction began on the site three years ago, forcing the company to pay high interest rates now that the credit markets have dried up. And executives who assured that financing would be finalized this fall lost some credibility with investors when that didn’t happen.

MGM Mirage still needs at least $1 billion to completely finance CityCenter, though both MGM Mirage and joint venture partner Dubai World have committed to spending the cash needed to finish the project.

Financing CityCenter and weathering the downturn may be the least of the company’s concerns.

The company will have billions in loans coming due in the next few years, perhaps forcing the company to take even more drastic steps to cut costs.

Murren’s job might be eased by the fact that the company has spent millions on upgrades and new attractions in recent years, giving MGM Mirage a competitive edge.

Either way, Lanni says Murren is the man for the job.

Murren participates in weekly meetings with top executives, which include Chief Design and Construction Officer Bobby Baldwin and General Counsel Gary Jacobs, where ideas are reviewed by committee.

“We are very collegial in our management and decision-making,” Lanni said. “We discuss each subject, we talk them out and we have different points of view.”

MGM Mirage has a history of promoting executives with varied backgrounds to manage its casino properties, he said.

A chief executive, he said, needs to “know what you do know and what you don’t know, and what you don’t know you find people who can handle those areas who have the expertise necessary.”