Executive Suite: You Can Bet On MGM Mirage’s Lanni

EXECUTIVE SUITE: YOU CAN BET ON MGM MIRAGE’S LANNI
By Edward Iwata, USA Today

USA Today
Sept 24 2007

LAS VEGAS – In the late 1970s, a baby-faced executive named Terrence
Lanni had a tough time persuading banks to lend millions of dollars
to build hotels and casinos in this fabled gambling mecca.

Few lenders dared to finance projects in the gaming industry,
which was still young then and troubled by federal investigations,
organized-crime influence and corruption in the old Teamsters union.

CORPORATE PULSE: Executive Suite index

"It was very difficult to get a loan back then," says Lanni, who was
the young chief financial officer of Caesars World at the time. "It’s
a lot easier now, I can tell you that."

Today, the 64-year-old Lanni is CEO of MGM Mirage (MGM), the No. 2
gaming-industry company in the USA, and lenders line up for his
business. The stigma of the old Sin City is long gone, and Lanni and
other corporate visionaries hope to usher in a new economic era for
Las Vegas as a world-class destination city in the same league as
Paris and London.

Under Lanni, MGM Mirage also is going global with Middle Eastern and
Chinese investment partners in hotel, casino and residential projects
in the USA and abroad.

The MGM Mirage’s crown jewel: Project CityCenter, a $7 billion
urban development on the Strip that’s billed as the largest private
project in Las Vegas history. Opening in 2009, CityCenter will feature
high-rise housing, a 4,000-room hotel-casino, a convention center,
upscale restaurants and a retail-entertainment center.

Throughout its history, Las Vegas has seen its share of legendary
tycoons, from Howard Hughes to Steve Wynn. The low-profile Lanni
flies under the public’s radar, but he’s one of the most-respected
and influential forces in the $90 billion gaming industry.

"I’ve dealt with a few CEOs, and I’d have to rate Terry up there at
the top," says Kirk Kerkorian, the 90-year-old owner of Tracinda,
which held 56% of MGM Mirage’s stock as of June. "I’ve always liked
this company. We’ve got a hell of a team there."

In a recent interview at his spacious, art-adorned office at the
Bellagio hotel, Lanni reeled through the turning points of his life
and career as if they were a board-meeting agenda.

If Lanni had not joined the gaming industry, he would have pursued his
first love: politics. The son of a Los Angeles Times executive and a
schoolteacher, Lanni grew up in Beverly Hills and attended Chaminade,
a Jesuit school, where he was student-body president and aced his
civics and debate classes.

After earning an MBA from the University of Southern California, then
toiling in financial services, Lanni worked as a campaign advance
man for President Ford in the 1976 election that Ford narrowly lost
to Jimmy Carter.

For Lanni, planning campaign events was a baptism under fire and
good business training. He had to think fast, manage people, juggle
logistics – even battle the Secret Service over how many public
appearances Ford and running mate Bob Dole could make.

Over the years, power brokers have floated Lanni’s name as a candidate
and tried to persuade the moderate Republican to run for Nevada
governor or the Senate.

"Terry’s been pretty clear that family and business come first,
but he’s still very interested in politics," says Frank Fahrenkopf,
former chairman of the Republican Party and now CEO of the American
Gaming Association trade group.

Lanni lobbies for the gaming industry, and he’s served on a
congressionally created national committee that studied gambling.

He’s also co-chair of Sen. John McCain’s national finance committee
for the Arizona Republican’s presidential campaign.

"Politics has always appealed to me, but then I see the abuse that
people heap on politicians," Lanni says, chuckling. "I’d sooner run
for the hills than run for office."

After Ford’s campaign, Lanni was persuaded by recruiters to check out
a chief financial officer job at Caesars World. The gaming industry
was on the verge of dramatic growth in the late 1970s, so an intrigued
Lanni accepted the offer.

Lanni was exactly what the gaming industry needed then to gain
credibility on Wall Street, says former Caesars World CEO Bill
McElnea. Lanni was a well-spoken, well-dressed, business-school
graduate with the financial smarts to impress bankers and investors.

"We were building a company, and we needed the respect of people back
East," McElnea says. "Business people had confidence in Terry. He
opened things up."

After Caesars World was sold to ITT in 1995 and Lanni left, he was
quickly courted by Kerkorian and Wynn. Kerkorian won, and Lanni joined
the old MGM Grand as CEO.

"Steve Wynn is a brilliant visionary, but I thought Kirk would be a
little more hands-off and give me more independence," Lanni says.

"He’s a man of few words and many big-picture ideas."

Lanni and multibillionaire investor Kerkorian make a potent duo.

Kerkorian, the son of Armenian raisin farmers from Fresno, Calif.,
made his fortune in airlines, Hollywood and Las Vegas. He’s also
notoriously media shy, while Lanni enjoys public speaking and chatting
with analysts and reporters.

"They seem to have a good relationship," says analyst Sumit Desai at
investment research firm Morningstar. "And they’re always focused on
creating new value for the market."

Vegas’ next act

Every generation or so, Las Vegas leaps to its next economic stage.

In the 1940s, gangster Bugsy Siegel and the Fabulous Flamingo hotel
brought fame and notoriety to the city. In the 1960s, Frank Sinatra’s
Rat Pack caught the public’s imagination. And since the 1990s,
flashy resorts and entertainment spectaculars have drawn hundreds of
millions of tourists. Last year, visitor spending hit a record $39
billion,according to the Las Vegas Convention and Visitors Authority.

Now Las Vegas is evolving into an era of megaprojects. Some call the
Strip the busiest development corridor in the USA with commercial
real estate going for $30 million to $40 million an acre.

Baby boomers, wealthy global travelers and young consumers are
flooding into fast-growing Las Vegas. That’s creating demand for
upscale town houses and condominiums on the Strip, even with the
nationwide housing slump.

"It’s the Manhattanization of Las Vegas," says Bill Eadington, an
economics professor at the University of Nevada, Reno. "The older,
obsolete casinos are being replaced by world-class residential centers,
shopping, entertainment and restaurants."

The building boom of multibillion-dollar projects includes CityCenter,
Boyd Gaming’s Echelon Place, (BYD) the Cosmopolitan hotel-casino
by developer Ian Bruce Eichner, the Fontainebleau Las Vegas by
Fontainebleau Resorts, the Encore hotel-casino by Wynn Resorts (WYNN)
and residential high-rises by Donald Trump. (TRMP)

Will the real estate downturn and a recession hurt Las Vegas?

It would slow but not cripple the economy, Eadington says. Las Vegas
outperforms other destination cities with 90%-plus hotel occupancy
rates and a glittery reputation as "a place to see and be seen,"
he says.

Managing director Larry Klatzkin at Jefferies & Co. (JEF) says Las
Vegas will easily absorb the 16,000 hotel rooms and condos coming to
the Strip from now to 2009.

Under Lanni’s helm, MGM Mirage appears well-positioned to ride
the boom.

"The general trends in Vegas are strong for all of the players,
and MGM is widely considered one of the best operators," Desai says.

Formerly known as the MGM Grand, the company acquired Wynn’s Mirage
Resorts and Mandalay Resort Group a few years ago. The mergers
created a corporate giant with $7.2 billion in annual revenue and
64,000 employees.

Now MGM Mirage is challenging Harrah’s Entertainment (HET) for
supremacy in the U.S. gaming industry. Harrah’s, a Las Vegas icon
founded in 1937, enjoys $10.3 billion in yearly revenue and employs
85,000 people.

But MGM Mirage may have more momentum, as it morphs into a "non-gaming,
diversified holding company" with current and potential investments
in the USA and overseas, analyst Klatzkin says. Most of MGM Mirage’s
revenue already comes from non-gambling sources, including hotels,
restaurants, stores and entertainment, according to Klatzkin.

One of MGM Mirage’s biggest cross-border projects is a joint venture
with Dubai World, the holding company of the Persian Gulf state, with
Dubai World investing $5.1 billion in MGM and CityCenter. Another
global project: the MGM Grand Macau, a hotel-casino opening later
this year in Macau, the former Portuguese colony and gambling capital
of China. Analysts say the deals work because of Lanni’s contacts
in China and the Middle East, plus MGM Mirage’s strong management
team, including President James Murren, a former managing director
at Deutsche Bank, (DB) and Chief Administrative Officer Aldo Manzini,
a former Walt Disney (DIS) executive.

"This company is well-structured and well-managed, and it keeps
creating value with each project," analyst Desai says.

Calm and collaborative

Lanni’s management style? Calm, not crazed. Collaborative, not
command-and-control. He insists that everyone call him Terry, and he
spreads credit to others while downplaying his role.

In talking about the origins of CityCenter, he praises Murren and
Robert Baldwin, the former head of Mirage Resorts who stayed on after
MGM Grand bought the company.

"I hire people who are brighter than I am, and I give them authority
and responsibility," Lanni says. "I want them to be loyal to the
company, not to me."

Lanni’s also big on diversity. About 45% of MGM Mirage’s managers are
women, and 32% are minorities. Last year, MGM Mirage used more than
100 suppliers owned by minorities and women and minority and female
contractors on its projects.

He also has solid ties with labor. Recently, MGM Mirage and Unite
Here, a union of 50,000 hotel and casino workers in Nevada, agreed
to a five-year contract with annual raises, health benefits and the
right to form unions in future MGM Mirage joint ventures.

Unite Here President John Wilhelm, a Democrat, has known Lanni for
21 years. Despite their political differences, they’ve found common
ground on business-related issues such as tax policies, immigration
reform and economic growth.

After the Iraq war broke out, Lanni drew praise when he said that 100
MGM Mirage employees serving in the military in Iraq and Afghanistan
would receive full salaries, benefits and whatever tips they would
have earned.

"A lot of business leaders use their ideology when it comes to unions
or other issues," Wilhelm says. "Terry never does that. He approaches
business pragmatically, finding what’s best for shareholders, the
company and employees."

Lanni seems to be a good bargain for shareholders in an era of
overpaid, poor-performing CEOs.

Last year, he earned $9.7 million in total compensation while MGM
Mirage earned a 56% investment return – beating the 16% return on the
Standard & Poor’s 500, according to compensation expert and Bloomberg
News columnist Graef Crystal.

When Lanni isn’t in the boardroom, he’s advising his two sons, in their
early 20s, on their budding business careers. Or attending fundraisers
with his wife, Debbie, who runs in Los Angeles philanthropic circles
with Nancy Reagan. He also owns racehorses, including Sinister
Minister, a 2006 Kentucky Derby entrant.

While Lanni’s business act may be as highflying as a Cirque du Soleil
stunt, his philosophy of life and work is pretty down to Earth.

"I learned from my father that whatever you do, you must be passionate
about it," Lanni says. "After 31 years in the gaming business, I can
still say I love what I’m doing."

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