The Future of Gaming in Maine?

Build it, but will they come? Maybe not, if the chart above is to be believed. While the new Hollywood Slots opened with considerable fanfare this week in Bangor, less attention has been paid to the sliding stock price of the parent company, Penn National Gaming, Inc. Notice the 50% haircut since the first of the year. Investors are apparently worried that revenues will dry up in the current recession.

Yesterday a leveraged buyout of Penn National was called off. The original offer, announced in June 2007, was $6.1 billion, or roughly three times annual revenues. This translated to $67 a share, a 30% premium at the time. The day after the announcement, PENN shares gapped up about ten bucks. But that was the high-water mark. In August credit markets began to implode (that was when MaineFail defaulted, remember?), and by mid-January PENN had retreated to its pre-offer price.

By the one-year anniversary of the offer, the deal had still not closed. Investors, sensing that the LBO partners wanted better terms, began dumping the stock, which got a one-third discount in just two weeks. Now the buyers have walked away, although it will cost them to do so: a termination fee of $225 million, plus the purchase of $1.25 billion of preferred stock with no guaranteed dividend before the 2015 redemption date. That adds up to a $1.475 billion cash infusion for Penn National, which says that it will pay down debt and repurchase stock. Oh, and if there is anything left after that, they might expand their business--maybe.

As Maine voters go to the polls on November 4, they should realize that the gaming industry is in trouble. Call up any stock chart you want. Pinnacle Entertainment was trading at 35 in February 2007; now it is under 10. Over the same period, Isle of Capri Casinos has gone from 30 to under 5. MGM Mirage, trading for 100 as recently as last October, is now under 30. It can be assumed that insiders are among those jumping ship.

Will the anonymous backers of the proposed Oxford County casino be the next to walk?

[update, July 10:]
The stock price of MGM Mirage fell another 22% to 23 today following news that Nevada's gambling revenue fell 15% in May. The drop-off was even more precipitous in Las Vegas, where "the decline in Strip revenues is worse than the period immediately following Sept. 11, 2001," according to a UBS analyst. Revenues away from the casino floor are also under pressure, forcing reductions in flights and room rates.