Long the Lion

Let me confide with you, I visited a friend two weeks ago, and we met up with some of his acquaintances for drinks.  The location was none other than MGM Detroit, the same brand new establishment MGM Mirage (MGM) was contemplating selling only a few months ago.

When we arrived, I was astonished by the number of people; it was a Wednesday, yet half of the slot machines were occupied.  When we went to the main floor bar there was no room to sit; we ordered our drinks between customers.  We then returned to the tables, of which half were running and fully occupied.

While playing some blackjack (my party walked away with a couple hundred of the casino’s dollars) I couldn’t help but be impressed.  I’m not sure if the casino has adjusted payout levels to more favorable odds, in an attempt to attract and keep customers, but based on the volume, I can’t imagine they weren’t at least breaking even.  I would even be astounded if they weren’t making money.

Curiosity compelled me to return last weekend, just to step in and see.  Sure enough, the floor was absolutely packed.  I started conducting some research.

Recent news has brought to light trouble with a $1 billion dollar write down on the CityCenter project.  A flood of class action lawsuits have been picked up by various law firms, all in the name of shareholders who initiated positions over the last two to three years.

I’m not too worried about the lawsuits, to be honest.  A verdict against MGM would open a Pandora’s Box against nearly every major player in real estate for the past decade.  It’s my impression that if the outcome seems over the top, it probably won’t come to realization.  Thus, I believe the dramatic nature of this write down has facilitated a unique opportunity in the name.

On Monday, I will be stepping into a starting position of MGM.  I’m exercising restraint, however, because of other conditions that lead me to believe MGM, in conjunction with several industries, could be experiencing a pullback in the next several months.  I will address this in my next post.

I am thus beginning the process of dollar cost averaging into this name.