To my mind Landcadia Holdings II (NASDAQ:LCA) stock is a poker game with a guy named Doc. It’s a special purpose acquisition company (SPAC) set up to buy the Golden Nugget online casino by that casino’s controlling shareholder, Tillman Fertitta.
Let me explain the reference to Doc.
“Never play poker with a man named Doc. Never eat at a place called Mom’s. Never sleep with a woman whose troubles are worse than your own.”
That’s from Nelson Algren . He was a novelist. His legend still burned when I was at Northwestern’s Medill School in the late 1970s, learning this trade.
If you’re an investor, rather than a rube or a mark, you will get more pleasure from reading the story about LCA stock than buying it.
Tillman Fertitta is Doc. He owns Landry’s, originally a restaurant, then a chain, then various chains, and now mainly a casino operator. The best known of these casinos is the Golden Nugget in Atlantic City, which has about one-third of New Jersey’s online casino market. Revenue for the most recent quarter came to about $29 million.
While the Supreme Court made online gaming, even sports gambling, possible everywhere in 2018, the action is still under the control of states. You can’t legally bet in an online casino, or with an online bookie, unless your state licenses the game. Todd Shriber, who owns stock in LCA’s primary competitors, DraftKings (NASDAQ:DKNG) and Penn National (NASDAQ:PENN), notes that election day was very good for the industry. It will soon add Maryland and Louisiana gamblers.
Fertitta wants your money so he can expand Golden Nugget’s operations, state by state, game by game, when they’re legalized. The plan is to merge the SPAC with the operating company by the end of this month. Investors will hold stock in Golden Nugget Online Gaming, or GNOG.
Watch the Lady
You won’t learn much about the proposition by looking at LCA stock’s published numbers. They show the company with $1.1 billion in cash in June, burning through about $300 million/quarter, mostly in SG&A, general business expenses.
The miracle of a SPAC is there’s no S-1. You’re taking the promoter’s word on things. As Chamath Palihapitiya of Social Capital, one of the best-known promoters, put it recently, he just goes on CNBC and sells the deal.
SPACs are not profitable when they come public. They’re operating companies that have exhausted venture capital’s patience, like Virgin Galactic (NYSE:SPCE). In this case, it’s even worse, because the company you’re buying is controlled by the SPAC promoter.
Fertitta didn’t get to be the owner of the Houston Rockets by making other people rich. Landry’s doesn’t have partners. He feeds his ego with a CNBC show called Billion Dollar Buyer. If he’s looking for you to partner with him, you need to ask why.
In this case, Fertitta wants capital he can put to work lobbying and advertising online gaming. He’s worth $4.4 billion. If this were a great deal, he’d be funding it himself. He doesn’t need your help.
The Bottom Line on LCA stock
Most InvestorPlace writers who have looked at LCA stock have said buyer beware.
They have been polite about it. There are better deals out there, wrote Will Ashworth. Now may not be the time to buy, wrote Chris Markoch. Don’t ignore the warning flags said Larry Sullivan. The narrative is more complicated than what you’re seeing, added Josh Enomoto. It’s not great governance , wrote Ian Bezek.
After taking a second look at LCA stock, Will Ashworth recently write he detected a stench. As a journalist who likes Algren, I think this comes closest to the mark.
Keep your money in your pocket and make it your front pocket.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn.