How the Great Recession Affected Casino Staffing in Nevada Casinos

IntroductionShareholder wealth maximization is the main goal of many firm managers in the United States (Fatemi, Ang, & Chua, 1983). Many companies, both public and private, have company mission statements in which they state shareholder wealth maximization as a main goal. Boyd Gaming's corporate mission states, "Through teamwork, we strive to maximize shareholder value, to be among the leading companies in our industry and to provide opportunities for all while we support and enhance our communities" (Boyd Gaming Corporation, 2016). In their vision they state the company philosophy of "long-term, sustainable growth for our shareholders." In MGM Resorts International's 2015 annual report (2016), in the opening letter to their shareholders, they state that all .accomplishments reinforce management's commitment to deliberate financial improvement and position your Company for long-term sustainable growth" (p. 2). Jim Murren, Chairman and CEO of MGM at the time, notes that the company is recognized for building long-term growth for shareholders. These two examples show that maximizing or increasing shareholder value is true for many gaming companies.Even though companies report that shareholder wealth maximization is a main concern of their firm, researchers and the public often question whether this is really happening. This led researchers to the study of expense preference behavior to determine if managers are more concerned with increasing their own utility than trying to increase the wealth of shareholders. Increasing their own utility can take the form of additional pay, increased staff, luxurious offices, travel, entertainment, etc. (Williamson, 1963). There are many public examples of management doing things that are for their personal benefit and at the expense of shareholders. Readers have to look no further than the Great Recession and the government bailouts of some of the top banks to find examples of this (Blodget, 2009; Ross & Shine, 2008). During this time Lehman Brothers' CEO was asking for a government bailout while disagreeing with a suggestion that all executives give up their bonuses (Ross & Gomstyn, 2008). The company was denied a bailout shortly afterwards and eventually went bankrupt. Many may call this corporate greed, but these actions of maximizing personal utility instead of that of the overall firm supports expense preference behavior.Managers believed to exhibit expense preference behavior most likely spend more in payroll related expenses (Carter & Stover, 1991; Edwards, 1977; Lewin, Derzon, & Margulies, 1981; Williamson, 1963). In 2015, Nevada casinos averaged 32.1% of gross revenue for payroll and benefits. The gaming division average was smaller at 16.3%, due to the large amount of revenue earned from slot machines, which are low in labor intensity. Even at 16.3% of revenue, payroll costs were over $1.7 billion. Payroll expenses in hospitality are typically adjusted with changes in business volumes (Krakover, 2000; Repetti & Dalbor, 2014; Repetti et al., 2015) so when the Great Recession that started in 2007 happened, Nevada casinos almost immediately started adjusting employees and payroll. During the recession, Caesars Entertainment laid off 2,000 employees while MGM Resorts International cut over 1,000 full-time employees (Benston, 2008).Gaming has historically been a high profit industry. For example in 2007, the height of the Nevada gaming industry in volume and visitors, Nevada casinos earned almost $5.5 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA). EBITDA is the most commonly used indicator of operating profit in the gaming industry. This equates to a 22.9% EBITDA margin, which was not uncommon up to that point. At this time the gaming division was operating at a profit margin of 48.4%. Once the Great Recession hit, these numbers started to tumble. Now, eight years later they are still not back to those levels. …