MIRAGE RESORTS: EXPANSION AND DEVELOPMENT ANALYSIS
This research analyzes expansion and development by Mirage Resorts, Incorporated. A general discussion of the company's expansion and development activities is followed by an analysis of the relationship between the company's expansion and development activities and the company's operational performance. The period of analysis is 1992-1996.
Expansion and Development by Mirage Resorts
The key to the expansion and development activities at Mirage Resorts is the company's stated goal of creating value for the shareholders of the company. The key to the creation of value, according to top management at Mirage, is to build and operate fine hotels and casinos. New construction, according to Mirage top management, "generally results in a better asset."
Policy at Mirage Resorts is to finance capital construction through a combination of internally generated funds and borrowed funds. Mirage borrows approximately one-half of the capital required for the construction of each new project.
Mirage expects each of the company's new projects to generate returns on investment (ROI) "exceeding 20% per year." Over the past 10 years, Mirage Resorts has invested $1.5 billion in new resorts and have projects under constructions values at $2 billion.
Mirage builds large projects. Large projects in the gaming industry produce what is known as step-function growth. Under a step-growth pattern, a company's earnings increase "at relatively modest rates between large jumps caused by the openings of new facilities." Mirage Resorts experiences this pattern of earnings growth. Therefore, expansion through the development of new hotels and casinos is a crucial element of the company's long-term strategy.
The development of new resorts by Mirage also is designed to assure that the new facilities will complement the existing operations of the company. The last thing that top mana...