The gaming industry is a dichotomy of large and small. At one end of the spectrum is Las Vegas Sands Corporation (LVS) with a market cap of $45 billion, while at the other end is Gamehost, with a market cap $20 million.
Comparing industry behemoths to micro-caps is a difficult task at best, especially when it comes to executive pay. Compensation committees are challenged with determining executive pay for CEOs in the face of heavy shareholder and government scrutiny. The challenge is finding relevant comparable data. For example, should Sheldon Adelson of LVS and Steve Wynn of Wynn Resorts be compared to smaller operators such as David Will of Gamehost and Dennis McGlynn of Dover Downs Entertainment when it comes to pay? In most cases, comparable data is garnered from other, similar-sized companies, regardless of industry.
In an effort to analyze executive pay in the gaming industry, AETHOS Consulting Group has developed a proprietary pay-for-performance model that allows for the comparison of disparate data points to determine if a pay package was too large or small. In our tenth annual study of gaming industry pay, we have evaluated the performance of 35 public gaming companies to determine whether their CEO deserved his or her pay. The AETHOS pay-for-performance model compares significant financial metrics such as company size (market cap), stock appreciation (rise in stock price over three years), EBITDA growth (over three years), and total direct compensation (combination of salary, bonus, long-term incentive plan and other). Our findings are illustrated below in all areas of compensation.
GAMING CEO PAY
It comes as no surprise that the highest paid CEOs in the gaming industry work for the largest companies. Wynn Resorts topped the list this year, paying Steve Wynn over $20 million in 2015. Peter Carlino joined the list this year with a pay package of more than $16 million for leading the new casino REIT, Gaming & Leisure Properties. James Murren with MGM Resorts International ($13.2 million), Mark Fissora, the new CEO at Caesars ($12.8 million), and Sheldon Adelson at Las Vegas Sands ($12 million) rounded out the top five paid CEOs. In total, 24 of the 35 CEOs made more than $1 million in total compensation. The average CEO paycheck in 2015 was $4.9 million, rising $200,000 from 2014. Although the pay packages of these top-earning CEOs were significant, it appears that they generally deserved them. All five of them had an AETHOS Value Index (AVI) near 100, indicating that their pay was appropriate relative to their company performance.
Interestingly, the top performing CEOs based on our AVI were all running small cap companies. It appears that the large cap companies are doing a good job at paying their CEO correctly, even though the paychecks can get very substantial. The best CEO on a pay-for-performance basis was Erwin Haitzmann at Century Casinos. Haitzmann’s paycheck could have doubled and he still would have been worth it. Two of the top performers left their jobs recently—Gavin Isaacs at Scientific Games and David Baazov at Amaya. Baazov’s departure has been particularly controversial, due to insider trading allegations.
Fourteen CEOs in the gaming industry received a base salary of $1 million or more. Stephen Wynn topped the list this year with $4 million, while Melco Crown Entertainment and MGM Resorts gave their CEOs a $2.8 million and $2 million salary, respectively. The average base salary for 2015 was $890,000, rising $50,000 from last year’s average.
As most bonus programs are tied to base pay, it also comes as no surprise that many of the most highly paid CEOs also received the largest bonuses in 2015, with Wynn taking home an additional $8.75 million. The next largest bonus was Adelson at nearly $5 million, followed by Carnival’s Arnold Donald at $4.6 million and then Jim Murren and Ken Alexander at over $3 million.
The average CEO bonus in 2015 was $1.4 million, a $300,000 increase from last year. Eight gaming CEOs received no bonus at all in 2015, while 13 received over $1 million.
In addition to an annual bonus, long-term incentive plans (LTIPs) were a significant portion of overall CEO pay. Steve Wynn topped the list with his $8.75 million stock grant, while 17 CEOs received an equity grant worth over $1million. The average LTIP value in 2015 was nearly $2.1 million, a drop of nearly $400,000 from last year.
Who are the richest CEOs in the gaming industry based on their company stock ownership? Three billionaires include Lawrence Ho at Melco Crown, Dr. Lui Che Woo at Galaxy Entertainment Group and Sheldon Adelson at LVS. A dip in Wynn Resorts share price dropped Steve Wynn just below the billion dollar mark. That said, the gaming industry has been a very successful place to build a fortune for many entrepreneurial CEOs.
With the slowing of new casino development, what trends should investors be following? Sports betting with the likes of Fan Dual and Draft Kings will be interesting to watch. The VIP and Junket business will have a profound effect on Asian casino businesses and the advent of the casino REIT will change how casino real estate is capitalized.
In relation to CEO pay, investors should be following national trends that see a tighter link between overall pay and company performance. More CEOs should have their pay “at risk” in the form of short and long-term incentives and “claw-back” provisions in the event financial malfeasance is discovered.