Casino stocks get boost

Billionaire Paulson Buys MGM Mirage, Boyd Gaming Shares in Bet on Casinos
By Beth Jinks - May 17, 2010

Paulson & Co. said it acquired 40 million shares of MGM Mirage and 4 million of Boyd Gaming Corp. in the first quarter, making the fund manger one of the biggest owners of the two Las Vegas-based casino companies.

Billionaire John Paulson's Paulson & Co., the hedge fund that made $15 billion betting on the decline in subprime mortgages in 2007, becomes MGM Mirage's second-biggest shareholder after founder Kirk Kerkorian and Boyd Gaming's fourth-largest owner, according to Bloomberg data. The investments were disclosed today in a regulatory filing.
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Personal Commentary

The news article does not disclose that the purchase was made 7 weeks ago. Everyone who is reacting to this news article by investing in MGM or Boyd should know that John Paulson may have already re-sold the shares.

I think it was an insider deal. I think he bought the shares knowing that (1) The Announcement a week later would be that the strip had increased 32.88% in gaming for Chinese New Year's. (2) He also knew that MGM was going to make an announcement that every one of their casinos on the strip had lost money for the first quarter. This announcement would come only a week after the boost from the good gaming news.

I think he bought the shares and then flipped them. MGM made out because they were negotiating their financing for upcoming years at the same time. This huge investment helped them with the negotiations.

30-Mar-10		MGM MIRAGE Hires Five Banks For Planned $500 Million Hong Kong Listing
31-Mar-10	0.0%	Paulson buys$480 million in MGM
1-Apr-10	0.3%
5-Apr-10	9.7%
6-Apr-10	13.0%
7-Apr-10	11.3%
8-Apr-10	22.8%	Announcement of record February increase of 32.88% on strip
9-Apr-10	23.3%
12-Apr-10	25.3%
13-Apr-10	28.4%
14-Apr-10	28.4%	MGM (early 1st quarter) announces every casino on the strip lost money
15-Apr-10	21.4%	MGM MIRAGE prices $1.0 billion In convertible Senior Notes
16-Apr-10	19.8%
19-Apr-10	16.9%
20-Apr-10	25.0%
21-Apr-10	25.8%
22-Apr-10	31.2%
23-Apr-10	32.4%
26-Apr-10	38.7%	All time peak in stock price since October 2008

What are the % in your table, increase in stock price?

When are you suggesting he sold the stock? Between April 9 and April 14? When the stock price was up. Or do you think he shorted the stock, and expected to sell post April 15 after the bad news was announced.

When you say "I think it was an insider deal" are you saying something illegal occurred?

I'm not sure how having a new 10% owner, especially one with the history of short selling, and is a financial investor not a strategic investor, helps with getting bank financing. If anything it might have hurt.

Quote: jburgess

What are the % in your table, increase in stock price?

When are you suggesting he sold the stock? Between April 9 and April 14? When the stock price was up. Or do you think he shorted the stock, and expected to sell post April 15 after the bad news was announced.

When you say "I think it was an insider deal" are you saying something illegal occurred?

I'm not sure how having a new 10% owner, especially one with the history of short selling, and is a financial investor not a strategic investor, helps with getting bank financing. If anything it might have hurt.

* The % in my table, is an increase in stock price.

* I think he sold between April 9 and April 14. Maybe not all of the stock since that would be too obvious. I think he made the Boyd purchase for $40 million to throw people off about the $480 million MGM purchase. It makes him look strategic.

* I think it is probably the illegal stuff that goes on all the time. John Paulson is heavily involved in the Goldman Sachs deals that are being investigated by the SEC. The pre-announcement was far in advance of the regular 6 May first quarter announcement made by MGM. Normally you would have to wait that long to find out how the company did. If John Paulson new about that he would know that there would be this good news/bad news only a week apart.

* In general I understand you comment about the type of investor. But at this period in time the purchase of 1/2 billion is helpful to MGM's image no matter who the investor should be. This initial investment of Paulson exceeds that of Dubai World, the business arm of the Persian Gulf emirate.

Once again the investment in Boyd Gaming throws people off the scent. MGM and Boyd co-own the Borgata in Atlantic City which is probably the most profitable casino in AC. MGM no longer has a management role, and they put their half in trust because they want to invest more in Macau. New Jersey is requiring public hearings about Pansy Ho (the daughter of the Chinese billionaire with ties to organized crime in China). The Boyd investment is also proving profitable and has made over $12 million for Paulson. But that is relatively small compared to the gain of well over $100 million in MGM made in just 2 weeks.

Paulson is not required to report when he sold his shares until next quarter.

Quote: pacomartin

* I think he sold between April 9 and April 14.

If he had the equivalent of a good crystal ball, he would have held on to the shares, past the announcement of the bad news, at least through the end of your table.

That's quite an accusation there. The insider trading you are talking about there would send people to jail if the SEC were to ever know of it. I don't see somebody like Paulson risking jail time to make a profit. That's just stupid when you are already a billionaire. You also have no basis for asserting that Paulson already dumped his shares. In fact, he would have been better off if he continued to hold them. Another option is he was running some form of hedged arbitrage through the CDS markets...buying the stocks long and shorting MGMs debt by buying insurance against MGM debt default. By the nature of hedge funds, we just don't know. I just think to assume illegal insider info was used is quite a stretch.

I've reviewed the Goldman/Paulson deal quite a bit, and though it kind of looks shady from afar, I don't see anything done there that even comes close to being illegal. Its becoming appearant that this was a solely political prosecution.

Quote: ruascott

That's quite an accusation there. The insider trading you are talking about there would send people to jail if the SEC were to ever know of it. I don't see somebody like Paulson risking jail time to make a profit. That's just stupid when you are already a billionaire. You also have no basis for asserting that Paulson already dumped his shares. In fact, he would have been better off if he continued to hold them. Another option is he was running some form of hedged arbitrage through the CDS markets...buying the stocks long and shorting MGMs debt by buying insurance against MGM debt default. By the nature of hedge funds, we just don't know. I just think to assume illegal insider info was used is quite a stretch.

I've reviewed the Goldman/Paulson deal quite a bit, and though it kind of looks shady from afar, I don't see anything done there that even comes close to being illegal. Its becoming appearant that this was a solely political prosecution.

Let me tone it down a little.

My objection to the news announcement on Monday was it was not obvious that the purchase was made 7-20 weeks ago. I spoke with the LVRJ reporter and he agreed to change the article to read:

The long-term intentions of New York billionaire John Paulson were unclear

While there is no evidence that Paulson dumped his shares, there is no evidence that he has made a strategic investment either. I was just saying the article should be changed a little to acknowledge that this was an old purchase.

I stand corrected. I shouldn't assume insider information was used. It may have been the result of very good analysis. It was pretty obvious to many people that February was going to be a good month. Baccarat had already set a new record in December for the strip. There was also analytical evidence that non-gaming was still going to be bad for the quarter. However, it turned out that February gaming was not just good, it was unprecedented, with Baccarat far exceeding any number in the past. It came within 1% of slots. A 17% win percent was totally unprecedented. At the same time the drop in EBITDA was much worse than anything predicted by any analyst. Furthermore it didn't spare any single MGM casino on the strip.

Change in EBITDA for 1st quarter 2010
Bellagio : -9.2%
MGM Grand Las Vegas : -15.2%
Mandalay Bay : -40.4%
The Mirage : -14.9%
Luxor : -34.1%
New York-New York : -11.6%
Excalibur : -11.2%
Monte Carlo : -70.4%
Circus Circus Las Vegas : -73.0%


The assumption that he would have been better off if he continued to hold them. so far only applies to the stock peak on 26 April. ARIA is still showing sever signs of distress. The stock may plummet by the next announcement.

The much smaller Boyd investment may pay off well in the long run. They still have investment capital available. They could purchase the Station Casinos properties, and they have first right of refusal on the other half of the Borgata property. There other properties are doing much better than the Las Vegas average.

The Boyd purchase represented 0.2% of the stock purchased that quarter.
The MGM purchase represented 2.3% of the stock purchased that quarter.

Quote: Doc

If he had the equivalent of a good crystal ball, he would have held on to the shares, past the announcement of the bad news, at least through the end of your table.

I wish I had that crystal ball. It does seem like it doesn't matter what you earn, now it matters as to when you invested and pulled out of investments.

Screen dump for Boyd Corporation

This list show the major investors of Boyd Corporation stock and the percentage of the stock they own
(1) William S. Boyd 18.8 million shares (#322 Forbes 400 in 2006 )
(2) Marriane Johnson Boyd - 9.9 million shares (daughter of William S Boyd, sister of William R Boyd)
(3) Legg Mason funds 4.2 million shares 4.88%
(4) Paulson & Co. 4.0 million shares 4.64%

The last two must remain less than 5% without being reviewed by the NJ casino review board. The first two are obviously family.

Quote: pacomartin

I wish I had that crystal ball. It does seem like it doesn't matter what you earn, now it matters as to when you invested and pulled out of investments.

Isn't that the truth. I would have pulled out my entire portfolio out of the market a couple weeks ago, as it appears we are entering a sustained correction/pullback period right now. After the run of stocks the last 12 month, i don't think a 15%-20% pullback would be a shock.

See number 2 on the list, Marianne Boyd. She was a kid when her father and her grandfather began putting the company together. She went into the family business in her 30's. Now that stock is worth roughly $130 million.

Her father (#1 on the list) was a billionaire five years ago. He's still pretty rich (he's in his mid 70's). He will leave this company to his two kids.