Penn’s sucker bet; Lack of Rappaport; Running scared

Although Penn National Gaming‘s scheme to split itself into a REIT and a casino-management company hasn’t received one regulatory approval yet, top brass is already taking a victory lap. Gloated CFO William Clifford, he would “be picking up the phone 10 seconds after the spin is effective and begin having conversations [with competitors], setting up meetings, and try to engage their interest in doing a transaction with us.” He might even find a few takers, too, especially cash-desperate Caesars Entertainment, which would dearly like to unload a slew of Midwest and Dixie casinos to fund expansions elsewhere … per the Gary Loveman rob-Peter-pay-Paul business model. Still, Clifford (above) must think the casino industry is chock-full of stupid people who’d rather have Penn for a landlord than be their own tenant. As J.P. Morgan‘s Joseph Greff sagely observed, most operators would probably REIT-ize themselves than capitulate to Penn. The ‘george’ terms Clifford is proposing are decidedly stiff. After you sell him your casino, he takes 50% of your cash flow and 4% of net revenue for five years, then renegotiates the terms (undoubtedly in Penn’s favor). All leases sunset simultaneously and, if you don’t renew, Penn confiscates all your slots and tables, plus your gaming license (for which you paid, by the way). “They can’t just take their gaming license and go down the street and build another casino and compete,” Clifford pouted. Anybody who agrees to such a “Mandingo” contract deserves to get fleeced.

Meanwhile, REIT Penn is sucking up cash, tax-free, paying 90% of income plus “earnings already accumulated” to investors. While Penn likes to brag on its lower cost of capital, good luck servicing those billions of dollars Clifford is planning to borrow when you’ve only got $0.10 of every dollar with which to service the debt, never mind repay it. Can you say “default”? I thought you could.

A great guy, a former Casino Executive columnist and current Mirage President Felix Rappaport is being eased out of MGM Resorts International, leaving at year’s end. At 60, Rappaport may well feel it’s time to stop and smell the roses. But his exit follows hard upon Bill McBeath‘s resignation from Aria, and I don’t believe in coincidences. McBeath is “[reassessing] his career goals” (like, Do I want to work for MGM ever again?) and Rappaport is “[looking] forward to spending more time with my family,” shopworn industry euphemisms for a forced retirement. CEO Jim Murren is playing Santa Claus by handing out coal and switches to top execs, not to mention offloading a couple of big paychecks. CityCenter CEO Bobby Baldwin is now personally responsible for Aria too and CMO William Hornbuckle has been bumped up to MGM prexy to ease Murren’s workload. If I were the top dog at an MGM casino, right now I’d be nervously eying my Christmas stocking, half-expecting to find a pink slip in it.

If you’re going to check out home-grown Strip productions Evil Dead The Musical and Legwarmers better do it now. Producer Sirc Michaels has slashed most ticket prices to $20 — yes, 20 dollars on the Strip for seats that normally start at $59 and $70 —  through the balance of the year. It’s a strong bargain play for 150-minute Evil Dead. (I can’t speak to Legwarmers‘ quality.) It does, however, make you wonder if Michaels’ Planet Hollywood shows are living on borrowed time. Although cast locally, they make a poor case for the Las Vegas talent pool, their rosters having been filled mostly from the lower echelons of the community-theater ranks. Evil Dead lead actress Nicole Unger probably has as many credits to her name as do all her cast mates rolled together.