According to legend, infamous career bank robber Willie Sutton was once asked by reporter Mitch Ohnstad why he robbed banks. Sutton replied, “Because that’s where the money is.” Whether he actually said it or not, people do what they do because that’s where the money is. Corporations, or more accurately the executives in charge of them rubber-stamped by their shareholders, merge or spin off because that’s where the money is at the time. Where is the money now? It’s in free debt and equity mania. All that matters is the name. The bigger you make it, the more money flows into it. Nothing else matters.
And so we turn to a new year, and the massive mergers in the casino and gaming industry continue. Debt is free, equity is money, and there seems to be no limit to how big these companies can get. The latest merger on the docket looks to be MGM and Entain, AKA the financial engineering artist formerly known as, which is already a massive umbrella company of disparate gaming assets cobbled together with still more debt and equity.
Nevermind that the United Kingdom, one of Entain’s core markets, is shut down again until March, and who knows how long after that. Nevermind that Las Vegas, MGM’s core market, is a ghost town for who knows how long. Nevermind that Entain has suspended dividends indefinitely, and MGM has pared them down to a penny a share. None of that matters because the only thing better than a humongous company, is an even more humongous company. After this, what’s even going to be left of the U.K. gaming industry besides 888 and a smattering of other small players?
If anyone can make speculators just a bit wary of what’s going on here, it’s Carl Icahn. The man hasn’t maintained his position as a top dog on Wall Street for decades by being a lucky trend chaser. He’s done it by creating the trends, timing them with money flows, and then selling into them. He was able to fold Caesars into Eldorado and then immediately dump his stake in July once the deal was completed. I’d warned him not to push the deal, but that seems silly now, given that he apparently never had any intention of owning the massive company he helped create, but rather let someone else try to tame the beast. Icahn knew what he was doing the whole time, as he almost always has throughout his sensational career. And now, after his big deals are done, he’s sounding the alarm. “In my day I’ve seen a lot of wild rallies and a lot of mispriced stocks, but there is one thing they all have in common,” he told CNBC yesterday. Eventually they hit a wall…It’s always said it’s different this time, but it never turns out to be the truth.”
This time it’s not Carl Icahn who’s trying to massage a gaming merger. It’s Barry Diller of InterActiveCorp. Where is he getting all the money to get it done? Just look at the stock price of IAC. It’s quintupled since March, up 20x since pre financial crisis highs.
When you have investors throwing money at you to make any move you can think of, how can you do anything but? He’ll probably push the merger through, sell after it’s done, take the money and run. This is exactly how the 1% profit massively from inflation, leaving the middle class and salary earners holding the bag eventually having to pay much more for basic necessities once all the debasement has filtered through the system. Inflation always hits capital markets first, and only afterwards does it filter down to the consumer sector and make the middle class poorer.
Except this time the wealth transfer is happening on steroids, accompanied not just by funneling trillions in new money directly to Wall Street, London, and wherever else, but also by the wanton destruction of small businesses with forced closures so Amazon can swoop and in take up the last vestiges of market share it hasn’t yet absorbed.
This is what is happening in gaming, with these unprecedented mergers and acquisitions that concentrate capital but make no fundamental sense beyond causing short term euphoria that can sometimes give retail speculators a very ephemeral glimpse of what it’s like to be on top. By the time they catch that glimpse though, the ones who really are on top, are already out and on to the next thing.
When does this end?