Las Vegas Sun

March 28, 2024

Show’s end likely to cut profits only modestly at MGM MIRAGE

The potential permanent cancellation of the Siegfried & Roy show at the Mirage would not only mark the end of a seminal performance inextricably linked with Las Vegas but would mean millions of dollars in lost revenue for parent company MGM MIRAGE.

Still, the losses would be modest compared to the overall profitability of the resort, analysts said Monday.

Potential costs include severance payments for some of the nearly 300 people employed by the show as well as lost gambling and dining revenue from reduced foot traffic generated by the show each week, they said.

Illusionist Roy Horn was attacked by one of the show's tigers during an evening show Friday, leaving Horn in serious though stable condition as of Monday afternoon. Officials confirmed Monday that there are no plans for the show to continue but have not yet said what will replace it.

Ticket prices of about $110 for the duo are among the priciest on the Strip. With sell-out performances in its 1,500-seat Siegfried & Roy Theater six times a week for 44 weeks a year, the show generates more than $40 million in revenue per year.

Some analysts said they expected the cancelled show to cost MGM MIRAGE from $5 to $10 million in cash flow per year. That could mean shaving from 5 to 10 cents per share in earnings for the company, they said.

That compares to $152.2 million in cash flow generated at the Mirage last year and the $37.4 million it generated most recently in the second quarter. The company as a whole earned $1.83 per share in 2002 and 35 cents per share in the second quarter of this year.

Cash flow, defined as earnings before interest, taxes and certain other expenses, is a key indicator of casino performance.

"Although Siegfried and Roy marked a ground-breaking show, investors should keep in mind that it represented only a small portion of (MGM MIRAGE's) overall profitability," J.P. Morgan analyst Harry Curtis said. The potential loss to MGM MIRAGE "has been exaggerated" by some observers given the hefty cut of profits performers Siegfried Fischbacher and Horn receive from the show, he said.

Curtis said he predicted the cash flow hit at $3 million to $5 million, or 1 to 2 cents per share, for the show itself as well as a similar effect on ancillary revenue such as the casino, food and retail. Severance packages could cost the company $2 million and could be recorded this quarter, he said. He also expects the company to take a one-time charge to wind down the show.

Representatives of MGM MIRAGE, the company's public relations firm in Las Vegas and the show's owner, Feld Entertainment Inc. in New York, could not be reached for comment. Nor could a Las Vegas advertising firm for the Mirage be reached for comment.

Anthony Curtis, publisher of the Las Vegas Advisor consumer newsletter, also believes the effect on the resort may be overblown.

Impressionist singer Danny Gans, who also headlines at the Mirage to sellout crowds, "is huge," he said.

"I think (Gans) will cushion this a great deal," he said. "There's a lot of things at the Mirage that a lot of people are still going to want to see."

The show is much more important for its iconic status in Las Vegas than its overall financial effect, he added.

Instead of rotating name-brand entertainment, Steve Wynn placed the illusionists front and center at the Mirage in 1990, creating a high-budget, year-round extravaganza to complement a megaresort concept that ushered Las Vegas into the modern era, he said.

Siegfried and Roy have since performed for millions and become one of the world's best-known acts.

The company will probably begin to bring in some headliners for short engagements, Las Vegas entertainment broker Jack Wishna said. The temporary acts will allow the resort to keep the "aura of Siegfried and Roy" and maintain traffic without triggering a backlash by fans, he said.

News of the attack led Lehman Brothers analyst Joyce Minor to lower fourth-quarter and 2004 earnings estimates for MGM MIRAGE, though other analysts maintained their estimates pending more information from the company.

MGM MIRAGE likely receives less than 50 percent of the show's ticket sales, she said.

UBS Warburg analyst Robin Farley said the loss of the show could cost the company less than 2 to 3 cents per share. Insurance policies on Siegfried and Roy could make up for lost ticket revenue thought it might not cover incremental casino revenue from the show's visitor traffic.

The estimates don't factor in the effect of another performance taking over the space in the interim, some analysts said. Also, corporate insurance coverage could lessen the hit to MGM MIRAGE, they said.

MGM MIRAGE is working with lawyers to determine the extent of its insurance coverage, Deutsche Bank Securities analyst Marc Falcone said.

In a research note to investors Monday, Falcone estimates a loss of 5 to 10 cents per share in earnings, though the loss would be felt less in the fourth quarter because the show is typically dark from late November to late December, he said.

Business interruption insurance covers profits that would have otherwise been earned by the company in the event of a catastrophe and has become commonplace in corporate insurance plans.

Such insurance typically applies in cases of property damage and would not apply to the tiger attack at the Mirage, however, said Robert Hartwig, a senior economist at the Insurance Information Institute.

On the other hand, companies often take out insurance policies on key executives or other individuals responsible for generating or overseeing millions of dollars in revenue, Hartwig said.

Some insurers specialize in special event coverage involving dangerous stunts that are tailored to cover a company, a particular property or show owners from loss, he said.

In any case, he said, the attack may have a ripple effect in the insurance industry that could hike coverage for shows involving wild animals or other elements of risk, he said.

Potential liability and audience trepidation may lead other properties to re-evaluate their shows, the Las Vegas Advisor's Curtis said.

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