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MGM Foresees $100 Million Reduction in Q3 Profits Due to Ransomware Assault

MGM's third-quarter profits suffered a $100 million setback due to a cyber attack.

MGM Grand on the Las Vegas Strip. Operator MGM Resorts said a recent ransomware attack will result...
MGM Grand on the Las Vegas Strip. Operator MGM Resorts said a recent ransomware attack will result in a $100 million reduction in its third-quarter earnings.

MGM Foresees $100 Million Reduction in Q3 Profits Due to Ransomware Assault

In after-hours trading on Thursday, shares of MGM Resorts International (NYSE: MGM) dipped slightly after the casino operator announced that it anticipates having $100 million less in third-quarter earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) due to a recent ransomware attack.

An intrusion on MGM's system caused a disruption in their domestic operations, including Las Vegas Strip and area casinos, lasting at least 10 days. Reports suggest that the perpetrators behind the attack were "Scattered Spider," a notorious hacking group also implicated in targeting Caesars Entertainment (NASDAQ: CZR) and other prominent companies across various industries.

In a filing with the Securities Exchange Commission (SEC) on the same day, MGM detailed $10 million in one-off expenses connected to the cyber incident during the third quarter. These costs mostly derived from legal fees, advisory services, and other charges from external providers. Hotel occupancy at MGM properties plummeted due to the cyber attack.

While the company experienced reduced occupancy rates because of restricted bookings through their website and mobile apps, the impact was mostly limited to September with an occupancy rate of 88%, as opposed to 93% in the previous year.

MGM CEO Bill Hornbuckle addressed customers in a letter, explaining that some patrons had their personal information – including names, addresses, genders, dates of birth, and driver's license numbers – compromised from activities conducted before March 2019. A smaller group experienced theft of their Social Security or passport numbers.

This is the first time MGM has unveiled the financial cost of the ransomware attack. Despite this revelation, the stock had already begun to reflect the downsides of the hacking event.

MGM's shares have dropped by 20% in the past month, marking a widespread bear market decline. The stock is currently 32.25% below its 52-week peak. It is generally presumed that any ransom paid to Scattered Spider was covered by cyber insurance. Some market analysts suggest that the stock's response to the news of the attack was an overreaction.

No matter when a corporation encounters a cyber attack, it's never a good time. For MGM and competitor Caesars Entertainment, this unfortunate incident occurred against a backdrop of growing concern about potential recession.

Should a recession occur, the gaming industry may be among the sectors hardest hit. This sentiment is widely shared among industry executives.

MGM plans to disclose its third-quarter earnings on November 1. It will be intriguing to see how the ransomware attack impacts these results and guide investors on future outlook. In its SEC filing, MGM expressed optimism about the fourth quarter despite the sizable third-quarter impact from the hack, expecting record results from the Formula 1 event.

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