Seminole Tribe of Florida (with an Assist from Disney) Protects Florida Gambling Monopoly

Seminole

The Walt Disney Company spent $20 million in support of a ballot initiative that would give Florida voters the right to prevent the expansion of casino gambling within the state, a measure designed to protect their tourism interests and the state’s brand as a “family friendly” destination. Amendment 3 of the Florida Constitution passed on Tuesday evening, with more than 70% of the state’s voters backing the law that will require new casino projects to gain the support (60% must vote in favor) of the state-wide voting public prior to breaking ground; few (if any) projects are likely to meet the 60% benchmark. MGM Resorts International (seeks licensure in state), the Miami Dolphins and the Tampa Bay Buccaneers (both NFL teams are hoping to profit on sports betting) were among those that publicly opposed the measure; each of the 3 entities spent $500K on the proposed amendment’s “no” campaign.

Howie Long-Short: Disney (DIS) was invested in the amendment passing for its own selfish reasons, but there’s no bigger beneficiary to the “Voter Control of Gambling” amendment passing than the Seminole Tribe of Florida (spent $16 million on “yes” campaign). The Tribe dominates the Florida gaming landscape, operating in the state under a Federal gaming exemption afforded to Native Americans with little competition; the amendment’s passage ensures the moat remains around their business.

The long and costly battle for gaming company expansion into the state just became infinitely more difficult, but don’t expect casino operators to give up on Florida. Dan Alkins (Chairman of the committee opposing the ballot initiative) said should the measure pass “there’s going to be litigation just continuing on forever.” The state’s size/population, reputation as a tourism destination and abundance of retirees makes it a highly desirable locale for casinos to take up residence.

It’s worth pointing out the irony in the Miami Dolphins opposition of the amendment, while playing their home games at Hard Rock Stadium; a chain owned by the Seminole Tribe and the one that will pay the franchise $250 million over the next 18 years for naming rights.

Speaking of MGM Resorts International (MGM), the company is reportedly exploring a potential merger with Caesar’s Entertainment (CZR) to form a gaming behemoth (think: +/- 50% of all hotel rooms in Las Vegas and Atlantic City). While there’s no offer on the table (and it’s possible regulators could determine a merger would create “undue economic concentration), it’s known that “without a CEO, Caesar’s is in play” and that it’s CZR’s activist investors (own +/- 25%) driving the tie-up talk; a merger would allow the combined companies to eliminate redundant “overhead and marketing” expenditures. Wynn Resorts (WYNN) and the Genting Group (OTC: GEBHY) have also been names as companies that could have interest in a CZR (-25% YTD) take-over. With licenses in 13 states (49 casinos), the company is well positioned to benefit from wide-spread sports betting legalization.

Fan Marino: Howie mentioned Las Vegas and Atlantic City, so it seems like an opportune time to note that Eilers & Krejcik is projecting New Jersey sportsbooks will generate more sports betting revenue than those in the gambling mecca, as soon as 2021 ($442 million vs. $410 million). The boutique research firm (with a focus on the gaming industry) supported their thesis by pointing out NJ gamblers can make “sports betting transactions” on credit card (as opposed to being forced to make a deposit in a casino), that the state’s sportsbooks have created a highly competitive online/mobile market (think: pricing/promotions) and that state’s licensees have had “very high rates of black market recapture.”

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MGM Enters New York Market, Acquires Empire City Casino and Yonkers Raceway

MGM

MGM Resorts International agreed to purchase Empire City Casino and Yonkers Raceway for $850 million, including roughly $245 million in debt that it intends to refinance. Should the state award Empire City a license for live table games by 2023, MGM will pay an additional $50 million for the racino and racetrack. Located just 15 miles from Times Square, Empire City controls roughly 40% of gross gaming revenue in the NYC market and is considered one of just two profitable casinos in the area (Resorts World being the other). The transaction is expected to close in Q1 2019 pending regulatory approval.

Howie Long-Short: CEO Jim Murran can talk all he wants about how this deal enhances the company’s “free cash flow profile”, but MGM did this deal as a means of entering the New York market; they were shut out when the state issued four new gaming licenses about five years ago. MGM will want to cash in on the legalized sports betting craze set to occur, but they’ll need the state legislature to draft new legislation before they can take a sports bet; state law currently authorizes just four upstate casinos to take bets on sporting events. It’s reasonable to suspect that will occur – perhaps as early as this fall.

Adding a sports betting license would be a boon to Empire City Casino, but Alan Woinski (President of Gaming USA Corp.) was more concerned about the amount MGM paid for the property than the status of its sports betting license. Woinski believes it was “a very, very high multiple to pay for a casino that doesn’t have table games.” That’s important piece to consider if you realize that sports betting represents just +/- 2% of all gaming profits generated in Las Vegas. It should be noted that NY law would allow for full-scale casino licensing as early as ’21. MGM shares are up +2% (to $31.89) since the report broke.

Looking for a company that maintains a big presence in the state of New York, but lacks widespread name recognition within the U.S?  Check out Genting Group (OTC: GEBHY). The Malaysian company has been developing, marketing and operating casinos around the world for the last 50+ years. They own Resorts World New York City at Aqueduct Racetrack in Queens, the largest racino in the U.S. Unlike Empire City Casino, Resorts World currently offers table games.

Fun Fact: Yonkers Raceway will be the first horse racing track that MGM has ever owned.

Fan Marino: For the last 46 years, Yonkers Raceway has been owned by the Rooney family. If that last names sounds familiar, it’s because they also happen to own the Pittsburgh Steelers. Art Rooney founded the team in 1933 (as the Pittsburgh Pirates) and won four Super Bowls. His son Dan ran the team from 1988-2017 and won two more. Art Rooney II now maintains control of the franchise.

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