Caesars gets bigger, Boyd gets smarter

Caesars Entertainment doesn’t have a great history with IPOs. But it also has a considerable debt load that isn’t going away without drastic measures. To that end, REIT Vici Properties is mulling a stock offering that aims to drum up $4 billion in cash. Of course, not all of the money will go toward retiring Caesars’ massive debts, incurred during the spendthrift Gary Loveman era. Some of the money would be dedicated to expanding the empire. As it stands, the REIT (ticker symbol VICI) owns some golf courses and 19 Caesars casinos, according to the Las Vegas Review-Journal.

However, it is worth remembering that Caesars is in dick-measuring contest with Penn National Gaming. Back when Loveman was embarked upon his catastrophic LBO of then-Harrah’s Entertainment, Penn National attempted to buy the company, which my editor of the time likened to “a flea raping an elephant.” Flash forward a decade and Penn has grown considerably and threatens to exceed Caesars in size. (According to one report, it has “41 properties across 20 jurisdictions operating approximately 53,500 slot machines, 1,300 tables, and having 8,300 hotel rooms.”) Vici clearly cannot let that happen, so look for some me-too acquisitions to follow hard upon the consummation of the IPO.

Vici has already been selling equity privately to finance its costly acquisition of dowdy Harrah’s Las Vegas. This has brought some interesting players to the table, including George Soros. At the head of Vici is preposterously over-compensated Edward Pitoniak. This untested casino owner is being paid $725,000 in base salary plus (and this is where the absurd part comes in) nearly $1.5 million in annual cash bonuses and stock compensation of $2.5 million. (By comparison, Caesars only pays Vici $630 million in rent.) Caesars continues to throw money around as though it learned nothing from Chapter 11 — and probably didn’t. Why not wait for Pitoniak to produce some results before showering him in dollars?

* Opting for a hackneyed metaphor, The Motley Fool opines that Boyd Gaming‘s recent acquisition of five casinos just before Christmas is its “latest wager.” Au contraire! In classic Boyd fashion, this is a low-risk proposition whose only real bet is that the company can turn around failing Belterra Park in Ohio. Boyd had Penn National between a rock and the Federal Trade Commission, netting it trophy properties in St. Louis and Kansas City, and along the Ohio River. It also made an opportunistic swoop into Pennsylvania, just as that state was embarked on a dramatic expansion of gaming that includes Internet gambling. Boyd’s not talking but it will be interesting to see if asks for special dispensation — not yet being licensed in the Keystone State — to bid on one or more of the new mini-casinos. Penn gets a huge share of the Lake Charles and Baton Rouge markets, Boyd enters Ohio, Missouri and Pennsylvania — so everybody’s happy.

Well, almost everybody. Moody’s Ratings Service frets over Boyd’s spending — modest compared to Vici’s — but senior veep Keith Foley admits “From a strategic point of view, however, there is a credit positive element to the [sic] these acquisitions in that they are consistent with Boyd’s geographic diversification plans, something Moody’s believes will be beneficial to the company over the longer-term.” Indeed.

* Who says the casino industry never gives back? Problem gambling hasn’t been studied in New Mexico in over 10 years so the Land of Enchantment’s tribal casinos are stepping forward to underwrite a new survey. Responsible Gaming Association of New Mexico is picking up the $292K tab, which will go to the National Center for Responsible Gaming. Per the latter, “The study will examine gambling behavior among adolescents and adults across New Mexico, with specific focus on racial and ethnic groups, military service members, parents of minor children, sexual minorities, college students and people with unstable housing.”

Eleven years ago, a comparable study pegged 39,000 New Mexicans as problem gamblers, with at least as many more at risk. Problem gambling has reached into the highest echelons of the state, bringing about the resignation of Secretary of State Dianna Duran, who used campaign contributions to cover gambling losses. The state could be doing more than it is, especially when you consider that it pockets $156 million from gambling-related activities. Its Compulsive Gambling Council routinely flouts the requirement that it meet at least once a year. Oh, the burden!