Cosmopolitan drinks its own bathwater

Late yesterday Bloomberg broke the news that Blackstone Inc. is shopping The Cosmopolitan of Las Vegas … for a $5 billion minimum price. What’s even more incredible is that apparently it has suckers, er, corporations already on the hook. Why is the asking price so absurd? Consider that the Cosmo was built for $3.9 billion back in 2010 and that Blackstone obtained it from Deutsche Bank for a fire-sale $1.7 billion. We’re talking some serious profiteering here, folks. (Ya ever hear of depreciation, Blackstone?) Consider also that the Cosmo has 3,027 rooms while $4 billion Aria has 4,000 and $4.3 billion Resorts World Las Vegas boasts 3,506. So Blackstone wants more money for a smaller property. They’ve got some nerve.

Even crazier is that Apollo Management, not yet having taken the $6.25 billion keys to Venelazzo, is already circling the Cosmo and that MGM Resorts International might splurge on the megaresort, perhaps with a view to augmenting CityCenter. Does Bill Hornbuckle light cigars with $100 bills? Between a $9 billion commitment to Osaka and a potential $5 billion-plus indulgence on the Cosmo, MGM hardly seems the epitome of carefully targeted investment. (Remember that the Japanese casino can only occupy 3% of the megaresort’s total square footage.) At Blackstone’s initial put, one would have to generate a near-impossible $600 million in annual cash flow to have a prayer of a 15% return on investment. In other words, it would have to be THE GREATEST GAMING JUGGERNAUT OF ALL TIME. And if you believe that, let me sell you this bridge in Brooklyn … Apollo may cover its ass by going halves with Vici Properties but we’re still talking a helluva heavy lift. Normally it would be cheaper to buy than build on the Strip but these are far-from-normal times.

A Cosmo-to-MGM ploy would be even stranger when you consider that Leo the Lion has already sold Bellagio, Aria, Vdara and half-shares of MGM Grand and Mandalay Bay to Blackstone. Why would Blackstone sell the cash cow to MGM when it’s already getting the milk for free? A dark-horse candidate is Tilman Fertitta, who may finance deal via an IPO of his Golden Nugget chain. He can’t spend the equity he got from DraftKings for Golden Nugget Online, as he’s pledged to sit on it for a year as one of the covenants of the deal. Penn National Gaming is also tipped as a viable suitor, although a $5 billion outlay would be very uncharacteristic for Penn, normally a bargain hunter, and that company got burnt on the Strip at the Tropicana Las Vegas. Besides, as Todd Shriber points out, Penn is leveraged to the gunwales already (over $9 billion) and investors might not be thrilled about going even more deeply into debt even for a shiny Las Vegas Strip object.

Going from boondoggles to bargains, the Eastern Band of Cherokee closed on Caesars Southern Indiana for a thrifty $250 million. They get a money-spinner and Caesars gets to continue its lucrative relationship with the EBC. As EBCI CEO R. Scott Barber said, “We knew that Caesars Southern Indiana has a special legacy of excellence which initially drew us to the casino. As we’ve discovered, Caesars Southern Indiana also employs an excellent workforce and has made meaningful investments in the community over the last two decades. We look forward to building on that success.” The 900 employees stay in place, as does Caesars Rewards, so there’s something in this deal for everyone. It’ll cost the Cherokee $32.5 million a year to lease the place from Vici, also a pretty good deal.

Missouri Attorney General Eric Schmitt has senatorial ambitions, ones which almost got derailed by a problematic casino campaign contribution. Seems that some gambling money remains toxic politically. In this case, Schmitt received $5,800 from Steven Miltenberger and his wife. What made this lucre so poisonous? Oh, simply the fact that Miltenberger runs illegal slot routes in the Show-Me State, much to the chagrin of the Missouri Highway Patrol (a group that Schmitt would doubtless like to have in his corner). You can’t run as a law-and-order candidate and be in the pocket of unlawful gambling operators, especially one who is being sued by the state. Accordingly, Schmitt refunded the tainted dollars. Had the St. Louis Post-Dispatch not inquired about this conflict of interest, the money would probably still be in Schmitt’s war chest. But he need not feel too badly: Miltenberger has many high-ranking Missouri politicians on the string, right up to Gov. Mike Parson (R). With nine other contenders in the senate race, we’re confident Miltenberger can find a candidate with more fungible ethics.