While MGM Resorts International CFO Jonathan Halkyard said Tuesday that business was largely back to normal roughly a month after its September cyberattack, he also doesn’t expect a related insurance matter to be resolved until sometime next year.
“We will have a business interruption claim…which should be resolved sometime in 2024,” Halkyard said during a presentation at the Bank of America Securities Leveraged Finance Conference this week. “So when that happens, we’ll call that out to our shareholders, but our expectation is all of our costs in this incident will be covered by our cyber insurance carriers.”
Last month the company estimated that the cybersecurity issue would have a negative impact of approximately $100 million to Adjusted Property EBITDAR for its Las Vegas Strip Resorts and regional operations, collectively, according to a filing with the Securities and Exchange Commission. The company also faces class action litigation in two lawsuits filed in U.S. District Court in Nevada in connection with the cyberattack, according to Industry Dive sister publication Cybersecurity Dive.
The attack prompted the company to shut down a number of services to mitigate risk to guests’ information, left some hotel customers unable to use key cards to get into their rooms and locked employees out of corporate emails. In his talk, Halkyard said most of the impact from the attack was felt in September but “a little of it bled into October,” noting that by the middle of October, “we felt it was largely behind us.”
In a note to clients last month, investment bank Jefferies characterized the fallout from the cyberattack as “just part of the business,” with insurance being a risk mitigator. The cyber issue is not expected to have a lingering impact on MGM shares, Jefferies analysts said.
Other costs next year will likely emanate from a five-year labor agreement the company reached with its culinary union a few weeks ago, but the company has “a number of levers on the top line” to offset the impact, Halkyard said.
The entire compensation amount for the group, per the new collective agreement, will be about $1 billion per year, with about five months of impact in 2024, he noted. The agreement, which was reached on November 9, averted a strike at eight MGM properties and came a day after rival Caesars Entertainment reached a deal with 10,000 workers.
The Jefferies note also pointed to the Las Vegas market recovery as demand from groups and events improves. Halkyard characterized this development as a positive sign, despite economic uncertainty.
“I certainly am concerned about the general macroeconomic environment and overall demand perhaps being impacted,” Halkyard said. “But I also think the market has…changed quite a lot, and I’d say permanently,” owing to persistent opportunities from sports and other events.
Sports events are a growing opportunity for MGM in the Las Vegas market at a time when the supply of hotel rooms has changed little over the past decade, Halkyard said, with the Formula 1 race earlier this month being the highest grossing weekend in hotel revenue in the company's history.
“You have all of these attractive dynamics, which drive demand in multiple segments and yet against limited supply, I think they all really augur well for just the continued performance of the market,” Halkyard said.
The growth of sports events in Las Vegas is “singly the biggest change I've seen in the market,” drawing not only investment, but the embrace of these events by locals and professional sports leagues, Halkyard noted.
Going into 2024, the company sees sports as a continued bright spot as it expects to benefit from Super Bowl LVIII and a strategic partnership with Marriott International, which will allow Marriott Bonvoy members to earn and redeem points for stays at 17 MGM properties.
In the third quarter, MGM reported its consolidated net revenues rose 16% to $4 billion year over year, mainly due to increased revenues at MGM China. Domestically, however, the company’s earnings took a hit in part due to the impact of the cybersecurity issue. At its Las Vegas strip resorts, MGM reported net revenues fell 8% in the quarter to $2.1 billion.