June 19, 2010 - 11:00 pm
John Paulson is the gaming industry’s most talked about investor.
Through his $35 billion hedge fund, the New York City billionaire acquired large stakes of Strip casino giants MGM Resorts International and Harrah’s Entertainment, and locals and regional operator Boyd Gaming Corp.
But Paulson isn’t looking to become gambling’s next corporate titan.
“There is nothing mysterious about his objective,” said MGM Resorts Chairman and CEO Jim Murren. “He wants to make money and he is betting on companies that would benefit from an economic recovery.”
Murren knows Paulson. Both were Wall Street analysts. Murren went into gaming and Paulson started a hedge fund. The economy and opportunity brought them together.
In an interview last week following MGM Resorts’ annual shareholder meeting, Murren said he spoke with Paulson about the $480 million investment that gave the hedge fund 9 percent of the company. The transaction was disclosed in a securities filing in May that also revealed Paulson’s $40 million transaction for a 4.6 percent stake in Boyd.
Paulson will exchange $710 million of Harrah’s bonds this month for a 9.9 percent equity stake.
Murren said Paulson was “one of the purest analysts I know.” He also said Paulson usually invests for the long term.
“That’s my expectation, but I can’t speak for him,” Murren said.
Paulson is banking on inflation returning, which would drive up prices of hotel rooms quicker than increases in manufacturing products or commercial real estate. He also likes businesses that control large land holdings, such as the 670 acres of developed and undeveloped Strip property owned by MGM Resorts.
Paulson also believes Las Vegas will rebound from its economic meltdown. That means MGM Resorts, with 10 Strip hotel-casinos encompassing more than 41,000 rooms, is an attractive buy.
“He is betting on a recovery of Las Vegas, and we are the most leveraged bet,” Murren said.
The investment came at an opportune time.
MGM Resorts added $5 billion in liquidity to the company’s balance sheet, embarked on a companywide remake of its customer loyalty and rewards program, and renamed the corporation to reflect a global initiative. MGM Resorts is developing nongaming MGM-branded luxury hotels in Dubai, China, Vietnam, Egypt and Abu Dhabi.
Murren viewed Paulson’s investment as an endorsement.
“I’d like to think he feels strongly about management and the way the company is being run,” he said. “He has said as much.”
Howard Stutz’s Inside Gaming column appears Sundays. He can be reached at firstname.lastname@example.org or 702-477-3871. He blogs at lvrj.com/blogs/stutz.