WSJ: "Las Vegas Strip Burns Brighter" ($MGM)

"Las Vegas as a whole has seen occupancy and room rates make strides since the depths of the recession, as average daily rates for hotel rooms increased 9.6% for the first five months of this year compared to the same period last year and occupancy rates are up an average 4.2 percentage points"

2010 Nevada Gaming Abstract Shows Casinos Are Getting Crushed

The Nevada gaming control board has released its "gaming abstract" for 2010 [pdf].

Revenues all over Nevada including the Las Vegas strip were lower in 2010 than in 2009. Where is the recovery?

Las Vegas Strip Gaming Revenue Down in November

In November, gaming revenue on the Las Vegas Strip [pdf] was down 4% versus November 2009, but up 6.8% ytd versus 2009.

LVRJ: "MGM Resorts targets Harmon Hotel for demolition"

MGM Resorts (MGM) may need to tear down the new Harmon Hotel (part of the City Center complex) due to construction defects.

Tons of Unsold Condos in Vegas

Including unsold City Center condos.

Followup On a Credit Bubble Stocks Post

On June 4, 2010, I wrote a post called Why Does the Squid Like MGM and Not VOD?:

Last I checked, GS rates MGM Mirage (not profitable, levered) a conviction buy; and rates Vodafone (profitable, high dividend, low EV/EBITDA multiple) a neutral.

Who are they kidding?

Since then, Vodafone (VOD) is up 37% and MGM Resorts (MGM) is up 2%.

Surprise: Cramer is Bullish on MGM Resorts (MGM)!

We have a saying at Credit Bubble Stocks, never short anything unless Cramer is bullish or it is on the Goldman Sachs conviction buy list.

I think the only reason that MGM is up today is Cramer was on teevee to say that "MGM is high risk stock play, whose gamble could pay big".

He blathered something about Las Vegas being close to a turnaround, but the latest data from Las Vegas McCarran airport would suggest that is not the case. Passenger traffic continues to be down 2% year over year from 2009. And there was a 6.4% drop from August 2010 to September 2010.

Is the Harrah’s Entertainment (CZR) IPO a Top-tick for Gaming?

Casino giant Harrah’s Entertainment said Friday that is increasing its planned initial public offering to as much as $610.9 million and will change its name to Caesars Entertainment. The company announced the commencement of its offering of 31.3 million shares, priced between $15 and $17 each.

Great Headline: "MGM Resorts: We Are Not MGM Studios"

"MGM Resorts (MGM) doesn't want investors to be confused, so let's all get this clear: It is not affiliated with bankrupt MGM Studios."

MGM Resorts (MGM) Sells $500 Million in Six-Year Notes Priced @ 10.25% Yield

These are not a very good deal:

MGM Resorts International, the biggest casino operator on the Las Vegas Strip, sold $500 million of six-year notes as bondholder interest in gambling company debt revives.

MGM will use proceeds to repay some lenders whose commitments expire next year, it said in a statement distributed by PR Newswire. The 10 percent debt yields 10.25 percent, or 8.74 percentage points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

So Far

This has not been a good earnings season for companies in the Credit Bubble Stocks short portfolio: so far MGM, HOG, WGO and GBE have all disappointed.

Still on deck: USG Corp (USG) on 20-Oct-10.

The U.S. Has a Glut of Casinos!

We are extremely bearish on casinos generally, not just MGM Resorts (MGM). The U.S. seems to have an absolutely massive glut of casinos. What a pathetic country, to invest so much capital in completely unproductive assets. And, shame on the elderly for spending their social security money at these places.

Here are some thoughts from a Credit Bubble Stocks correspondent who has been following the situation:

Casinos are everywhere.

Casinos have hotels and restaurants so they can keep control of suckers during multi-day stays. They have in-house entertainment for the same reason. So casino hotel occupancy rates ad room rates track gambling revenues. During down turns, the hotels are dead weight that helps sink the casino operation.

Ameristar's casinos are in obsolete and/or overbuilt locations. See the data below.

Chicago has at least 11 casinos, including the East Chicago Ameristar and two other nearby Indiana casinos. East Chicago is a rust belt town, but it is just across the border from Chicago. This probably cuts bribery costs. Cool Donald Trump has a new Chicago casino.

Jackpot, Nevada has 4 casinos. It is an obsolete casino location. It shows the pattern of putting a casino in a lawless area to provide illegal services to the less law-abiding residents of a nearby more law-abiding area. It is in the far northeastern corner of Nevada, right at the Idaho border and about 20 miles from the Utah border. It was the second casino boom town in Nevada, after Las Vegas. It is far from any freeway. It is as close as it can be to Utah and Idaho. It "serves" Boise and Salt Lake City.

Alas for Jackpot, Nevada. Idaho has now four Indian casinos.

Thoughts on MGM Resorts (MGM) Earnings Quality

"CityCenter expects net revenues of $413 million in the third quarter, including $166 million related to residential operations, of which $28 million related to forfeited residential deposits."

Proceeds from the sales of condos - and especially from forfeited condo deposits - are one time in nature, and are clearly not a recurring revenue stream. Once and done.

Steve Wynn's Comments on Share Repurchases and Offerings

This is an oldie but goodie on share repurchases and offerings:

"It is the job, and you can take this as a final statement on the subject going forward. It is the job of board of directors and especially of the CEO to take advantage of the market when that market movement is extreme. When a company increases its value by 100% in 60 days, that’s an unnatural movement of value and the market also goes the other way sometimes. These unnatural movements in value, no company gets to be worth twice as much in 60 days as it was before to any intelligent person, so when that happens, we take advantage of it. If everybody is so hungry for shares, we let them have some. If the shares go down, we buy them. And that, that is a statement of policy in this company, period."

Goldman Sachs put out a research note last night saying that MGM's "Capital raise and results support our bullish view".

Please. It is not a good sign when a company's largest holder starts dumping shares, or when a company needs to sell more equity to pay down debt because its businesses don't earn enough cash to cover its interest expense.

MGM Resorts (MGM) Also Pre-announces Terrible Third Quarter 2010 Results

From today's announcement of third quarter 2010 results:

Net revenue for the third quarter of 2010 is expected to be approximately $1.56 billion. Excluding reimbursed costs revenue mainly related to the Company’s management of CityCenter (approximately $89 million in the 2010 third quarter and $16 million in the 2009 third quarter), net revenue is expected to be approximately $1.47 billion, a decrease of 3% from 2009. Reimbursed costs revenue represents reimbursement of costs, primarily payroll-related, incurred by the Company in connection with the provision of management services.

Las Vegas Strip REVPAR was $97 for the third quarter of 2010, a decrease of 2% from the third quarter of 2009, with occupancy of 93% and an average daily rate of $105. Bellagio and Mandalay Bay both recorded REVPAR increases in the third quarter.

Third quarter total casino revenue was approximately 9% lower than the prior year, with slots revenue down approximately 3% for the quarter.

Operating loss for the third quarter of 2010 is expected to be approximately $206 million which includes the CityCenter investment impairment, the Borgata impairment and the Company’s share of the CityCenter residential impairment charge discussed further below.

Operating loss includes a variety of non-cash items which I have added back to come up with a third quarter adjusted EBITDA of approximately positive $271 million.

Unfortunately, the company's third quarter interest expense was $285 million, which EBITDA failed to cover, meaning that they burned $14 million. And, that's not counting the cash that needs to be invested (cap ex) to maintain the hotels, something that competitor CEO Steve Wynn commented on in last quarter's conference call.

Year-to-date adjusted EBITDA for 2010 has been $670 million, compared with $852 million for the first three quarters of 2009 - so it's down 22%!

Truly, the bulls' optimism regarding MGM is wildly inconsistent with the facts. See my comments regarding the massive stock offering by MGM and its largest holder Tracinda.

Awesome! MGM Resorts (MGM) Announces Massive Equity Offering

MGM Resorts International Announces Common Stock Offering

MGM Resorts International (NYSE:MGM) announced today that it is offering 40,900,000 shares of its common stock and that its largest stockholder, Tracinda Corporation, is offering 27,782,000 shares of its common stock pursuant to an effective registration statement.  Barclays Capital Inc. is the sole underwriter.

MGM Resorts International and Tracinda Corporation will each grant the underwriter a 30-day option to purchase up to an additional 6,135,000 shares and 4,167,300 shares, respectively, to cover over-allotments, if any.

MGM Resorts International intends to use the net proceeds from the sale of the common stock for general corporate purposes, including the repayment of debt.  MGM Resorts International will not receive any proceeds from the sale of common stock by the selling stockholder. 

This is a massive offering ~ 79 million shares and over a billion dollars if the over-allotment options are exercised, which is about 16% of the current market capitalization.

I have long thought that MGM should (and would need to) issue equity in order to grapple with its upcoming debt maturities.

This is fantastic for our MGM short. It is an implicit admission by the company and Kerkorian (via Tracinda, the largest holder) that the current level is an attractive selling price.

Retail Investors Confuse MGM Resorts (MGM) with Privately Held Metro-Goldwyn-Mayer Studios Inc.

MGM Resorts (MGM) is the Las Vegas casino company that is a favorite short of Credit Bubble Stocks.

Metro-Goldwyn-Mayer Studios Inc. is the media company that is owned by a consortium of private equity firms. It is financially distressed and is asking lenders to approve a "prepackaged" bankruptcy plan that would wipe out most of the equity in the company.

In the news today is a merger proposal that Lions Gate Films (LGF) has sent to MGM Studios. The deal is supported by Carl Icahn, who owns stakes in both LGF and MGM studios.

Judging by the Yahoo! message boards and other anecdotal evidence, there are quite a few people who don't realize that MGM Resorts (MGM) and MGM Studios are totally different companies.

A sucker is born every minute!

The Original Raison d'être of Las Vegas is Gone

From a Credit Bubble Stocks correspondent:

Bugsy Seigel and Meyer Lansky invented Las Vegas in 1947, when there was no TV, only radio, and air transportation was a DC-3 that took 16 hours to fly coast-to-coast.

So people were willing to drive from LA to Las Vegas to see the Rat Pack. It was the most exciting thing within reach.

Now the Rat Pack are dead.

All you can see in Las Vegas today is cheesy Wayne Newton, and it's easier to stay home and see him on HDTV. If anyone cares.

Meanwhile, gambling is everywhere. Today there are two casinos along the freeway from Minneapolis to Duluth. There are at least two other casinos in the Twin Cities area. There is even a casino in Morton, Minnesota, far from any freeway or big town. And this is just the casino count for Minnesota. It doesn't count Power Ball or pull tabs.

Every Indian reservation within a plausible distance of a big city has a casiino. They feature the same second- and third-rate entertainers that Las Vegas has. They have the same low-price, all-you-can-eat buffets. Every river has fake paddle-wheel steamers with gambling. Cool Donald Trump has East Coast casinos within easy reach of the whole Bos-Wash corridor. They border on bankruptcy.

So the gambling business is over-built, even without Depression II.

The Rat Pack is gone. Ol' Blue Eyes is dead. Nobody remembers startlingly ugly Sammy Davis, Jr. What's-his-name, the Italian-American singer who drank himself to death is gone, too. Now, it's up to weird Wayne Newton and odd Seigfried and Roy to attract the suckers.

I'm amazed at MGM's brand-new 76-acre addition. And even more amazed that even more hotel rooms are coming.

Construction in Las Vegas is finished for many years. So one of Las Vegas's two industries is essentially gone.

The sucker catchment area for Las Vegas is California, Nevada and Arizona, which - along with Florida - are the states worst hit by the burst real estate bubble.

How dumb can Paulson be?

Las Vegas McCarran Airport Reports August Passenger Traffic Down 0.4% Year-over-year

August 2010 passenger traffic at Las Vegas McCarran Airport down 0.4% from 2009.

I Guess Carl Icahn Missed John Paulson's Memo About How Great Las Vegas Will Be By 2012

So, now it's me and Icahn vs Paulson on the Las Vegas thesis. (Or, Paulson vs the world?)

After picking up the bankrupt Fontainebleau Las Vegas on the cheap, billionaire investor Carl Icahn is now holding a fire sale at the massive unfinished casino resort.

While the project, which is 70 percent complete, sits idle on the Las Vegas Strip, Icahn has started selling off beds, dressers, TVs and other furnishings, according to a source.