MGM Resorts International, a leading operator of Las Vegas Strip and regional casino hotels, found itself at the center of a cybersecurity crisis when its systems were infiltrated by the infamous hacking group known as "Scattered Spider" in early September. The breach threw the company's operations into chaos, rendering electronic room keys useless, causing slot machines to malfunction, and exposing sensitive customer and employee data.
Despite Scattered Spider's ransomware demand, MGM took a principled stance by refusing to pay the hackers, although they have not disclosed the exact ransom amount. Instead, the company revealed that the attack would result in a substantial hit to its third-quarter earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR), estimated at $100 million. Additionally, MGM incurred one-time costs of at least $10 million related to the cyberattack, which will be covered by a cyber insurance policy.
MGM's CEO, Bill Meister, emphasized that their decision not to pay the ransom was driven by a commitment to being responsible fiduciaries rather than a moral stance. He stated, "It's our job to be good fiduciaries, so if the right business answer was to pay the ransom, I don't think we would've taken a moral position. It was nice and easier that we were on the right side of morality."
Meister further explained that regardless of whether MGM paid the ransom, they would need to rebuild their cybersecurity and technology systems. This factor played a pivotal role in their decision-making process.
The cyberattack had a substantial impact on MGM's stock, causing it to plummet by approximately 35%. However, both analysts and the company believe that the worst of the financial damage is confined to the third quarter. Before the ransomware incident, the operator was expected to generate $1.1 billion in property-level EBITDAR for that quarter, indicating that the $100 million hit, while significant, may not be as severe as some market participants had feared.
Bill Meister remains optimistic about the company's recovery and the rebound of MGM's stock value. He noted, "MGM was a plus or minus $50 stock before this happened, so the stock's gone down about 35% because of this awful event. I promise you this: the effect this has on our (MGM) future cash flows is way less than 37%." He added that the $100 million third-quarter earnings hit would theoretically translate to a mere 20 to 25 cents of impact on the share price.
In the wake of the cyberattack, MGM Resorts International stands firm in its commitment to cybersecurity and its optimism for a resilient recovery, emphasizing the long-term outlook for the company's financial health.
By fLEXI tEAM
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