Two giants duke it out

Friday, May 14, 2010 | 3 a.m.

MGM Mirage, like other hotel owners, faces plenty of challenges in working through the current recession.

Not enough tourists are visiting Las Vegas to fill all the hotel rooms, and as a result MGM Mirage lowered room rates and experienced declining hotel occupancy rates in the first quarter. Despite the striking scope and quality of its $8.5 billion CityCenter, the complex suffered a first-quarter loss.

Despite these challenges, MGM Mirage remains in solid financial shape with a proven ability to tap Wall Street and banks for credit and equity. The company has $21 billion in assets including $1.78 billion in current assets such as cash and accounts receivable.

“We believe the company has a certain degree of (financial) flexibility ... to successfully navigate through a challenging operating environment in Las Vegas, while management works to improve EBITDA (a profitability measure),” Deutsche Bank analyst Andrew Zarnett told clients after MGM Mirage issued its first-quarter report.

The fact that the largest employer in Las Vegas remains in sound financial shape is important to communicate, given recent charges to the contrary.

General contractor Perini Building Co. is mired in a dispute with MGM Mirage over CityCenter construction defects and nonpayment of construction invoices because of allegedly “nonconforming work.”

It may take years to resolve this dispute, which is pending in the form of a lawsuit between the parties.

Although Perini claims it and its subcontractors are owed $500 million, MGM Mirage has counterclaims for damages that may equal or exceed that amount.

MGM Mirage says it had hoped for a quick resolution of this dispute so that subcontractors would get paid and, in March, MGM Mirage said it would submit its disputes with Perini to arbitration as required by their contract.

Perini, however, opted to bypass arbitration and on March 29 sued MGM Mirage in District Court in Clark County. Nothing substantive has happened with the suit. That’s no surprise, given the time-consuming nature of complex business litigation.

While the big boys duke it out in court in what may be a replay of the massive Venetian construction lien litigation, scores of subcontractors are waiting to be paid.

We see this as a three-way fight between MGM Mirage, Perini and the subcontractors, and we’re hopeful some interim solution can be found to keep the small subcontractors afloat while the main lawsuit is litigated and insurance claims are considered.

Perini is trying to convert this private dispute into a public issue and the contractor hopes to draw Gov. Jim Gibbons into the mess.

Perini last week launched a public-relations campaign against MGM Mirage, suggesting financial problems at the gaming company are behind the nonpayment of the $500 million and urging Gibbons to investigate “the real reason MGM Mirage is not paying their bill.”

MGM Mirage hasn’t had much to say about the charges leveled by Perini. But when it does, its lawyers will likely do the talking.

“While we disagree with all of the claims made in Perini’s letter to the governor, unlike Perini we are not going to litigate this case in the media,” said Alan Feldman, MGM Mirage senior vice president. “The matter is before a judge, and the courtroom is the appropriate venue in which this dispute should be heard.”

This dispute will eventually be resolved, either in court or in arbitration or mediation should a judge send the case to an alternate dispute resolution process.

In the meantime, it’s not productive for Perini to try to get Gibbons and other elected officials to intervene. And, with its questionable charges, Perini is hurting its own credibility.

The problem with Perini’s claim that MGM Mirage is not paying the disputed bills because of financial trouble is that, according to Zarnett and other Wall Street analysts, the gaming company is not in such trouble.

MGM Mirage and chief shareholder Kirk Kerkorian have long been responsible corporate citizens, and Perini is likely to get nowhere with its claim the gaming giant isn’t living up to its financial obligations.