Penn Entertainment Failing in Sports Betting, Should Consider Sale, Says Investor

In a letter to Penn Entertainment’s (NASDAQ: PENN) board of directors, the Donerail Group, which has long been an investor in the regional casino operator, said the gaming company is failing in online sports betting, is overcompensating CEO Jay Snowden, and should consider a sale to create shareholder value.

An image for Penn Entertainment. Investor Donerail Group said CEO Jay Snowden is overpaid and Penn should consider selling itself. (Image: Penn Entertainment)

Donerail Managing Partner Will Wyatt opined in the letter to Penn Chairman David Handler that the gaming company has spent four years and billions of dollars of shareholder capital in a bid to gain a foothold in the online sports betting space, but those efforts have proven unsuccessful.

Moreover, the growing pattern of guidance misses, alongside a demonstrated unyielding appetite to continue to invest in the Company’s fledgling Interactive projects, irrespective of past results and without a clear return framework, has significantly damaged the credibility of this management team and Board of Directors,” wrote Wyatt.

There’s something to those claims. Between January 2020 and February 2023, Penn shelled out about $551 million to acquire Barstool Sports in an effort to leverage that brand as a catalyst for its online and retail sportsbooks, but those dividends never accrued.

Last August, the regional casino giant sold Barstool back to founder David Portnoy for just $1 as it entered into a costly agreement with Walt Disney (NYSE: DIS) to use ESPN branding for the Penn-operated ESPN Bet mobile betting app. In addition to paying ESPN $1.5 billion over 10 years, the gaming company also granted the network $500 million in equity warrants. While ESPN Bet has performed better than Barstool Sportsbook, Penn has made little headway in terms of wresting market share from larger rivals DraftKings and FanDuel.

Penn Entertainment Sale Makes Sense, Says Donerail

The letter by Donerail, a Los Angeles-based, event-driven money manager, sparked a noteworthy rally by Penn shares with the stock closing high by 19.62% on volume that was more than quadruple the daily average. However, today’s showing was a departure from the norm.

As Wyatt pointed out to Handler, Penn shares shed 80% over the past three years. Today, the stock closed at $17.50 — a far cry from the all-time of $142 set in March 2021. That lengthy slump coupled with the aforementioned board and management missteps are among the reasons Donerail believes Penn should consider selling itself — a move that if executed could fetch more than double the operator’s current market value of $2.19 billion, according to Wyatt.

“Given our understanding of the Company’s assets, however, alongside an understanding of the industry participants’ current strategic appetite to grow inorganically, we do believe that a sale of the Company’s assets, if undertaken, could generate meaningful and certain value creation for equity investors,” he noted to Handler.

In the letter, Wyatt observed that Penn’s market capitalization represents a steep discount to the $13.35 billion average found among its peer group, but the Donerail partner didn’t directly identify potential suitors for the gaming company.

In recent months, Penn has been the subject of attention by professional investors. Last month, David Einhorn’s Greenlight Capital announced “medium sized” stake in Penn. Last December, HG Vora said it took an interest of 18.5% of Penn’s shares outstanding and demanded board seats in an effort to push for change at the gaming company. Despite that fanfare, the stock shed almost a third of its value since the start of 2024.

Donerail Decries Snowden Compensation

Wyatt didn’t hold back in his criticism of Penn’s compensation of CEO Jay Snowden, noting the board signed off on $99.3 million in total pay for the executive between 2020 and 2023 — a period that included significant declines by the stock.

Citing Institutional Shareholder Services (ISS), Wyatt said Snowden has the worst possible score issued by the firm in terms of his compensation being aligned with shareholder interests.

“In fact, Mr. Snowden’s compensation was deemed to be so gratuitous, As You Sow chose to use PENN as a case-study of wrongdoing in its report. Institutional shareholders appear to share our view, with leading institutional investors BlackRock, Vanguard, State Street Global Advisors, and CalSTRS all having voted against PENN’s executive compensation in the past, yet meaningful change has not been made by the Board’s compensation committee,” said Wyatt.

As You Sow, a leading shareholder advisory group, recently noted that Snowden was the third-most overpaid CEO among S&P 500 companies, but the stock was removed that index in September 2022.

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DraftKings Reportedly Eyeing Simplebet Acquisition

DraftKings (NASDAQ: DKNG) is said to be close to acquiring micro-betting provider Simplebet in a transaction that could value the target at $120 million to $170 million.

The Simpletbet logo. DraftKings is reportedly interested in acquiring the company. (Image: Simpletbet)

Earnings + More broke the news, citing unidentified sources familiar with the matter. As of yet, neither DraftKings nor Simplebet have confirmed takeover talks. The two companies have history. In 2021, they inked a deal in which Simplebet provided micro-betting services to DraftKings Sportsbook. Today, the prospective suitor is the rumored target’s largest client.

Micro-betting is an emerging derivative of in-game or live betting – areas operators are pushing into in an effort to boost handle and drive fan engagement. Whereas a traditional in-game bet might revolve around scenarios such as a baseball team scoring in their half inning, or other game-specific situations (point spreads, totals, etc.), the micro-betting concept offered by Simplebet goes even further.

Assuming Simplebet sells itself for $170 million that implies a significant discount to its $210 valuation following a 2021 Series C funding round valued at $28.6 million.

DraftKings on Buying Spree

Rumors that DraftKings is mulling a takeover of Simplebet arrived about two weeks after the former announced a deal for Sports IQ Analytics — a provider of analytics and data used by sportsbook operators to formulate odds for player prop bets.

Terms of that deal weren’t disclosed, but it’s believed to be in the $50 million to $70 million range. When adding the possible $70 million paid for Sports IQ Analytics to $170 million (potentially) for Simplebet, that implies DraftKings will have shelled out nearly $1 billion on acquisitions since the start of 2024 when factoring in the $750 million the operator paid for internet lottery provider Jackpocket. That was a cash and equity deal.

Providers of specialized odds, such as Simplebet and Sports IQ Analytics, have been favored targets of sportsbook operators over the past several years. Such transactions include PointsBet doling out $43 million for Banach Technology in 2021. PointsBet US was later acquired by Fanatics and operates under that brand.

Last year, Entain Plc (OTC: GMVHY), which controls half of BetMGM, paid $266 million in cash for sports analytics provider Angstrom Sports.

Why Simplebet Makes Sense for DraftKings

Simplebet products allow sportsbook clients to wager on in-game events, including balls and strikes in a baseball game. Seizing upon bettors’ desire for instant gratification, in-game micro-betting is appealing to gaming companies because it’s a high-margin segment.

Micro-betting is also technology-centric and it’s often more efficient for sportsbook firms to acquire to this effect rather than building the technology in-house.

Other Simplebet clients include Bet365, ESPN Bet, FanDuel, and Hard Rock Sportsbook, according to the company’s website.

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IGT/Everi Merger Could Deliver Vital Scale, Says Analyst

In what remains one of the largest gaming industry transactions to this point in 2024, International Game Technology (NYSE: IGT) announced in February the merger of its global gaming and PlayDigital units with Everi (NYSE: EVRI) in a $6.2 billion transaction.

Everi Venuetize
The Everi Holdings booth at the 2019 Global Gaming Expo in Las Vegas. An analyst is constructive on the merger with IGT. (Image: Getty Images)

Often, mergers are born out of a desire for cost efficiencies or combining research and development platforms, but Truist analyst Barry Jonas said the IGT/Everi combination could provide the scale needed to compete in the increasingly competitive gaming device space.

Both management teams were cognizant that 1 + 1 historically has not equaled 3 … However, both stressed this deal is not about cost synergies or saving R&D dollars. The importance of scale in slot-game and cabinet manufacturing is essential in order to maximize shots on goal,” wrote Jonas in a report following meetings in Las Vegas with several slot machine manufacturers.

Under the terms of the transaction, IGT investors will own 54% of the new company, while Everi shareholders will control the remainder. The merger is expected to close late this year or in early 2025.

IGT/Everi Merger Offers Some Synergies

While the marriage of IGT’s global gaming and PlayDigital with Everi isn’t rooted in cost savings, Jonas noted management expects $75 million in such benefits – an estimate that could ultimately prove conservative.

Other benefits include added slots scale and fintech, iGaming, and sports betting exposure under a single, vertically integrated umbrella. Under that scenario, the newly formed company could generate sales of $2.7 billion as soon as this year.

Importantly, the transaction combines Everi’s Class II gaming device exposure and footprints in regions in which IGT isn’t dominant with IGT leadership in Class III machines. That combination could be attractive to casino operator clients who are increasingly favoring one-stop shopping when it comes to fintech expansion and slot purchases.

“The companies believe they can have success porting each other’s more successful games across different markets/classes (including international),” added Jonas.

Potential Lottery Issue Lingering for IGT

The deal with Everi was seen as cleaning up the IGT lottery thesis and that may ultimately prove to be true, but Jonas said that management expressed some concern about the possibility of MegaMillions ticket prices being raised.

While management couldn’t directly comment on recent lottery trade reports that Mega Millions could increase its ticket pricing next year, (they) did say that the impact to IGT from higher ticket pricing could be significant,” observed the analyst.

That’s relevant because lottery accounts for 75% of IGT’s pro forma earnings. Upon announcing the deal with Everi in February, IGT said the merger would help the lottery unit become a “premier pure play.”

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Hard Rock, Others Rumored to Be Interested in Buying Star Entertainment

***UPDATE: In a statement issued earlier Monday, Hard Rock International said it is not involved in discussions with Star Entertainment. “Hard Rock International would like to address recent reports regarding a proposed purchase of the Star Entertainment Group Limited (Star) in Australia. We want to make it clear that Hard Rock International is not involved in, nor has it authorized, any discussions, activities or negotiations on its behalf in connection with a proposed bid for Star. Hard Rock International has similarly not authorized the use of the Hard Rock brand in connection with any proposed bid for Star by any third party,” according to the statement.***

Shares of Star Entertainment surged Monday amid reports that entities with ties to Hard Rock International and other gaming groups may be mulling acquisition bids for the embattled Australian casino operator.

The Star Gold Coast casino at night
The Star Gold Coast casino at night. The operator, Star Entertainment Group, is a rumored takeover target with Hard Rock International reportedly among the suitors. (Image: Star Entertainment Group)

The Australian Financial Review broke the news that a consortium led by Hard Rock, the gaming arm of Florida’s Seminole Tribe, and other unidentified groups have examined takeover bids for Star, but other media reports surfaced indicating that the Tribal gaming giant isn’t looking into the Australian firm. In a filing with the Australian Securities Exchange (ASX), Star said it hasn’t received an offer directly from Hard Rock.

The Company has received inbound interest from a number of other external parties regarding potential transactions including a consortium of investors, which includes the entity Hard Rock Hotels & Resorts (Pacific), which The Star understands is a local partner of Hard Rock,” according to the regulatory document.

The Star told investors that none of the advances it’s received from prospective suitors have led to discussions of substance.

Star Entertainment Could Be Risky Bet for Any Suitor

Amid a now lengthy anti-money laundering probe, Star is at risk of losing control of its flagship venue, The Star Sydney. That venue has been run by the Australian government since 2022.

Following the first inquiry, Star was stripped of its gaming license and slapped with a $65 million fine by Aussie regulators. The currently ongoing second inquiry is looking into whether or not Star has made progress in terms of bolstering money laundering controls. The New South Wales Independent Casino Commission (NICC) previously said it wasn’t satisfied with the company’s efforts. Last week, Star told regulators it still doesn’t believe it is fit to run the casino and that it wants to extend its arrangement with the government.

The final report on the second inquiry into Star is slated to be released on July 31, and Star’s other two venues, The Star Brisbane and the Star Gold Coast, are also run by the government. That could muddy the waters regarding exactly what any buyer of the company would actually be paying for.

The Australian Financial Review article noted Hard Rock is willing to work with Australian regulators and could be open to providing the Star with capital. The Tribal gaming entity is also interested in helping the Star reduce dependence on casinos while placing new emphasis on nongaming amenities.

“The Star remains focused on its remediation activities in New South Wales and Queensland and participating in the Bell Two Inquiry,” said the operator in the ASX filing.

Normally, Star Would Be Appealing Takeover Target

If not for the regulatory uncertainty, executive upheaval, and debt burden, Star would be an appealing takeover target for any number of suitors. It’s one of the largest gaming operators in Australia, a country known for attracting scores of well-heeled Chinese tourists who want to wager outside of Macau.

It’s possible that confluence of factors chases bidders away or broadens the list of prospective suitors thinking they might be able to exploit Star’s vulnerabilities.

As for Hard Rock, the company isn’t a stranger to operating gaming venues outside of the US. It currently runs a casino in Ontario, Canada, a casino hotel in the Dominican Republic, and is building an integrated resort in Athens, Greece.

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Gaming and Leisure Paying $105M for Three Nevada, South Dakota Casinos

Gaming and Leisure Properties (NASDAQ: GLPI) said Thursday it’s paying $105 million to Strategic Gaming Management, LLC to acquire the property assets of three casinos in Nevada and South Dakota.

A logo for Baldini’s Casino in Sparks, Nev. It’s one of three properties Gaming and Leisure is buying from Strategic Gaming Management. (Image: Baldini’s Casino)

The properties being purchased by the real estate investment trust (REIT) are Baldini’s Casino in Sparks, Nev., and the Silverado Franklin Hotel & Gaming Complex and the Deadwood Mountain Grand in South Dakota.

Simultaneous with the acquisition, GLPI and affiliates of Strategic Gaming Management, LLC  will enter into two cross-defaulted triple-net lease agreements, each for an initial 25-year term with two ten-year renewal periods. GLPI also provided $5 million in capital improvement proceeds at the closing of the transactions for a total investment of $110 million,” according to a statement issued by GLPI.

It’s the second deal announced by Pennsylvania-based GLPI this year. In February, the gaming landlord said it was paying $175 million for the property assets of Tioga Downs Casino Resort in Nichols, NY.

Acquisitions Fit Gaming and Leisure Mold

Prior to Thursday’s announcement, GLPI owned the real estate assets of 62 gaming venues in 19 states. The transactions with Strategic Gaming Management keep with the REIT’s penchant for avoiding volatile gaming markets while focusing on regions often overlooked by rivals.

For example, GLPI’s Las Vegas footprint is scant as it owns the real estate of the now-shuttered Tropicana on the Strip and M Resort in Henderson, but that’s it for the company’s Sin City exposure. The REIT also owns the property assets of Tropicana Laughlin, meaning the addition of Baldini’s will grow its Nevada holdings to four. That purchase gives the buyer its initial entry into the Reno-Sparks market.

With the purchases of the Silverado Franklin Hotel & Gaming Complex and the Deadwood Mountain Grand, GLPI enters South Dakota for the first time. Prior to Thursday, the casino landlord’s closest properties to the Dakotas were in Illinois and Iowa.

“Silverado has completed over $32 million of capital projects since its inception to maintain and enhance its offerings, including buffet renovations, new restaurant openings, and casino remodels. Silverado is expected to begin construction on a hotel renovation in 2024, using a portion of the $5 million in capital improvement proceeds funded by GLPI at the closing of the transactions,” according to the statement.

Other Details of Gaming and Leisure Deal with Strategic

When the three purchases are finalized, GLPI’s portfolio will increase to 65 properties and its tenant roster will rise to nine.

As part of the agreement, GLPI gains rights of first refusal on other gaming properties Strategic Management might up to sell “until Strategic’s adjusted earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) related to GLPI owned assets reaches $40 million annualized.”

Strategic’s initial annual rent payments to GLPI will be $9.2 million, representing a cap rate of 8.2%. A 2% annual increase goes into effect in year three and an inflation-linked escalator of “the greater of 2.0% or CPI capped at 2.5%” starts in year 11.

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Emmett Opposes PlayAGS Takeover Bid, Says Brightstar Offer Undervalues Company

Emmett Investment Management, a money manager focusing on mid- and small-cap stocks, penned a letter to PlayAGS (NYSE: AGS) investors on Tuesday telling them they should oppose the $1.1 billion takeover offer floated on May 9 by Brightstar Capital Partners.

A slide from a PlayAGS investor presentation. Emmett Investment Management is opposing Brightstar Capital’s takeover offer for the slot machine maker. (Image: PlayAGS)

The board of the Las Vegas-based slot machine approved the go-private bid from the private equity firm and if shareholders do the same, the transaction could close in the second half of this year. Brightstar’s offer values PlayAGS at $12.50, or a 40% premium to where the stock closed on May 8. PlayAGS shares are up 33.3 over the past week but have yet to ascend to $12.50.

In its letter to investors, Emmett questioned the timing of the offer becoming public, noting it arrived just a day before the target released impressive first-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) results.

The Brightstar transaction was announced just hours before the release of AGS’s transformational first quarter results,” wrote Emmett CIO and founder Alexander Rohr. “The Company’s first quarter results reinforce our optimistic view of AGS’s prospects, as organic adjusted EBITDA grew 21%, far outpacing the industry. Business mix is also improving at AGS: adjusted EBITDA from the Company’s interactive segment, to which the market assigns the highest multiple, increased almost 9x year-over-year and almost 50% sequentially.”

New York-based Emmett owns approximately 1.5% of PlayAGS outstanding equity.

Emmett Says Takeover Bid Overshadowed PlayAGS Earnings

It’s not uncommon for some investors to oppose acquisitions and there are recent examples of professional market participants resisting gaming industry takeovers.

Rohr noted that if investors had adequate time to absorb PlayAGS’ strong first-quarter numbers, the stock might be trading above the $11.40 area at which resides today. Rather, the Brightstar take-private bid overshadowed those results.

“If market participants had been given the opportunity to digest first quarter results absent Brightstar’s bid, we believe AGS shares would be trading well above the current market price of $11.40,” wrote the Emmett chief investment officer. “Any reasonable forecast of AGS’s 2024 adjusted EBITDA increased by ~15%, which on a constant enterprise value/EBITDA multiple—arguably conservative given improving mix—would imply a share price higher than $11.40.”

Rohr went on to write that PlayAGS investors are essentially being asked to accept a bid “that offers effectively zero—or negative—premium.” He added that the company’s first-quarter numbers don’t reflect the potential upcoming benefit to the company via possible disruption in the industry caused by the pending merger of International Game Technology’s (NYSE: IGT) global games unit with Everi Holdings (NYSE: EVRI). He said that transaction could actually help PlayAGS add market share, and that probably isn’t accounted for in the Brightstar offer.

Emmett Not Opposed to PlayAGS Selling, Sees Scant Value In Brightstar Bid

Rohr said his firm isn’t averse to PlayAGS being acquired, but he believes the Brightstar offer isn’t adequate compensation for investors given the progress the target has made and its potential to build on that over the long term. Rohr also outlined a scenario in which PlayAGS could create significant value for shareholders without the takeover.

We believe AGS would have a bright future as a standalone public company, with at least $225 million in 2026 adjusted EBITDA clearly achievable. Even on a multiple of 7x adjusted EBITDA — a significant discount to slower-growing peer Light and Wonder’s 9x NTM multiple — AGS shares would trade at $24.70, nearly 100% higher than Brightstar’s bid,” he opined.

Rohr didn’t mention other potential suitors for PlayAGS and some analysts have noted the target is unlikely to be the subject of a bidding war.

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Former Rank Group CEO Henry Birch Eyed for Entain Job

Online gambling giant Entain is considering the appointment of the ex-CEO of Britain’s biggest land-based casino group as a replacement for previous boss Jette Nygaard-Andersen, who resigned late last year.

Entain, Henry Birch, Dan Taylor, Rank Group
Henry Birch, above, addressing the Retail Week Live conference while CEO of the Very Group. He is believed to be one of a few names being considered by Entain for permanent CEO. The successful candidate may have to lead the company through a transformational chapter in its history. (Image: Retail Week)

Until 2018, Henry Birch was the head of the Rank Group, which owns the Grosvenor Casino chain, as well as the Mecca Bingo brand. After leaving Rank, he was CEO of online retail company The Very Group until stepping down in 2022.

Birch is among several top contenders for the job, according to sources who spoke to Sky News. Since Nygaard-Andersen’s departure, Entain has been led by interim CEO Rob Wood.

Private Equity Circling

The board is looking for someone to steady the ship after a few turbulent years for the company, which owns Ladbrokes, half of BetMGM, and numerous other international gambling brands. The new CEO may also be required to lead Entain through a partial or full acquisition.

Activist investors, including Eminence Capital founder Ricky Sandler, have built an increasingly prominent position in the company and have expressed frustration with its recent performance.

In March, Entain announced it was looking to offload several of its overseas brands so it can refocus on its core operations. The inference is that activists believe a leaner Entain would be in a better position to be sold or broken up.

Private equity giants Apollo Global Management and CVC Capital are rumored to be among those circling, and could be interested in acquiring some of its bigger brands should an extensive asset sale materialize, according to The Times of London.

Stock Slump

In 2021, Entain received takeover bids from DraftKings and MGM, its joint venture partner in BetMGM. Both proposals valued the group at a significantly higher price than its current market cap.

The company’s stock has halved in the last year, leaving it with a market capitalization of just under £5 billion ($6.2 billion). Some activists blame a series of questionable acquisitions for the slump. Under Nygaard-Andersen, Entain spent around $2 billion on largely misfiring regional-market brands, and the Danish executive’s resignation came amid rumors of “internal unrest.”

In addition to Birch, Dan Taylor, chief executive of Flutter Entertainment’s international operations, is also in the mix for the role. That’s according to Sky News sources, who added that a formal announcement on the appointment could be weeks or even months away.

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MGM Will Be Held to Host City Agreement in Possible Springfield Casino Sale, Say Officials

Nearly two months ago, reports surfaced that MGM Resorts International (NYSE: MGM) is mulling the sale of its regional casinos in Ohio and Springfield, Mass. Officials in the Massachusetts city said they intend to hold the gaming company to the terms of the host city agreement should a transaction materialize.

Chang Goo Yoon, physical therapist, casinos
MGM Springfield. City officials said the gaming company must abide by the host city accord if it opts to sell the casino. (Image: Boston Globe)

In March, it was reported that MGM could be evaluating the sale of MGM Springfield and MGM Northfield, a racino near Cleveland. MGM Springfield opened in August 2018 as the first traditional casino in Massachusetts. That venue, which generated $278 million in sales in 2023, hasn’t lived up to the operator’s expectations.

In a recent interview with Western Mass News, Springfield City Council President Michael Fenton, who also chairs the casino oversight committee, said MGM cannot unilaterally decide to leave the city.

I don’t think the public should be concerned because we have safeguards at the city and state level to make sure there’s no unilateral movement by MGM,” Fenton told the media outlet. “MGM doesn’t have the right to decide to move out on their own.”

The Massachusetts venue cost the operator $960 million to build. MGM sold the real estate assets to MGM Growth Properties (MGP) for $400 million in 2021. VICI Properties (NYSE: VICI) acquired MGP for $17.2 billion that same year, gaining control of the property assets of MGM Northfield Park and the Springfield casino, among other MGM venues.

How MGM Can Do Right by Springfield

While MGM has acknowledged that the Massachusetts and Ohio casinos haven’t lived up to expectations, it hasn’t publicly confirmed it’s shopping those venues. The topic wasn’t addressed on the operator’s first-quarter earnings conference call earlier this month.

The obvious avenue through which MGM can assuage Springfield’s concerns about a possible sale of the casino is to line up a buyer from the gaming industry, which would be likely assuming the operator is looking to sell. That’s also important because the property is zoned to be a gaming venue.

As for potential buyers for MGM Springfield’s operating rights, names haven’t been floated, but it’s probably fair to rule out Penn Entertainment (NASDAQ: PENN) because it runs  Plainridge Park Casino in Massachusetts.

It’s possible that tribal gaming entities in New England could be interested in MGM Springfield, but for now, that’s just speculation.

Springfield Wants ‘Same Pedigree’ as MGM

Fenton told Western Mass News that should MGM opt to depart Springfield, the city will require that the replacement operator be of the “same pedigree” as MGM. That’s a subjective term, but there are some hard details.

Under the host city agreement, MGM is required to deliver $25 million in annual payments to various groups in the city and book at least 12 acts per year at entertainment venues near the casino. Fenton said a new gaming operator of the Springfield casino would be held to the same standards.

A transaction involving MGM Springfield materializing over the near term is a possibility, but analysts believe gaming industry mergers and acquisitions are currently hamstrung due to high interest rates. That implies prospective suitors that need financing to buy the operating rights to the venue might be put off and eschew bidding, thus dwindling the pool of potential buyers to those that can pay in cash.

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Golden Entertainment Sees Buybacks Preferable to Nevada Acquisitions

Golden Entertainment (NASDAQ: GDEN) dramatically reduced debt while announcing its first-ever quarterly dividend. Such efforts, including share buybacks, could be the casino operator’s preferred avenues for returning capital to shareholders rather than acquiring gaming venues in Nevada.

Golden Entertainment
Golden Entertainment’s Arizona Charlie’s Casino. The operator prefers share buybacks over Nevada acquisitions. (Image: Las Vegas Review-Journal)

Last month, the Strat operator deployed $287 million to redeem outstanding senior notes, slashing its outstanding liabilities and leaving it with about $100 million in cash on hand and access to a $240 million revolving credit facility. That speaks to a strong liquidity position, but it appears unlikely the gaming company will pursue acquisitions in its home state over the near term.

At this time, it’s difficult to find an opportunity to acquire Nevada-based casinos with owned real estate, which would be more accretive than acquiring our own stock, which we intend to do over the remainder of the year with our current repurchase authorization,” said Golden CFO and President Charles Protell on the company’s first-quarter earnings conference call with analysts.

The Las Vegas-based operator has been rumored to potentially be acquisitive, particularly following its $260 million sale of the Rocky Gap Casino Resort in Flintstone, Md. last year. That deal made Golden a Nevada-only gaming company.

Golden Taking Pragmatic Approach to Acquisitions

The current macroeconomic environment, one hindered by persistent inflation and the highest interest rates in two decades, is seen pressuring gaming industry consolidation. Protell acknowledged as much in his remarks to analysts.

“While we continue to review actionable strategic opportunities, the current market environment and macro backdrop has made it less conducive to M&A for us,” he added.

Put simply, if Golden were to borrow capital to finance an acquisition, it’d be doing so at higher interest rates than it would have been subject to a few years ago. Additionally, the operator’s preference for buying gaming venues with owned real estate could be lauded by investors because should Golden strike such a deal, it would avoid taking on a new long-term obligation to a landlord.

To those ends, the number of Las Vegas locals’ casinos that feature owned real estate is high, but the bulk are controlled by Golden rivals Boyd Gaming (NYSE: BYD) and Red Rock Resorts (NASDAQ: RRR), neither of which have signaled they’re looking to sell Sin City properties. Red Rock never sells casinos or land to other gaming companies.

Bottom line: if Golden is looking for Las Vegas acquisitions, the current pickings are slim.

Golden Approach Could Be Validated

Outside of Las Vegas, Golden is the dominant operator in Pahrump and vies with Caesars Entertainment (NASDAQ: CZR) for the same status in Laughlin. That could imply the operator doesn’t need to go shopping in those markets. Additionally, the first-quarter earnings call represents yet another on which the operator didn’t comment on the fate of the Colorado Belle, its shuttered venue in Laughlin.

Golden currently does not own any casino hotels in the Reno/Lake Tahoe market and while some analysts have previously suggested that region makes sense for the operator to consider deals, Golden itself hasn’t said that market is on its radar.

Even without deal-making, the case for Golden stock could be supported by buybacks, debt reduction, and dividends — the three pillars of shareholder yield.

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