Thanks to a favorable Supreme Court ruling in 2018, interest in online gambling surged in the U.S. One pure-play company to enter the arena is Landcadia Holdings (NASDAQ:LCA). Landcadia is a special purpose acquisition company (SPAC), which has a purchase agreement to acquire Golden Nugget Online Gaming. Once the deal closes, Landcadia intends to change its name to Golden Nugget, with a ticker symbol of GNOG. Until then, it trades as LCA stock.
SPACs have been generating headlines this year, largely due to the electric vehicle craze. In similar fashion, trading enthusiasm for LCA stock has been wild. After skyrocketing to $16.35 on June 30, Landcadia shares tumbled to below $12 by early August. But another wild run saw shares close at $15.20 to end last month.
Nevertheless, the volatility in LCA stock may give investors pause. While the economy is gradually improving, we’re still not out of the woods. In addition, social fractures threaten to undermine our steady march toward a recovery. Thus, the idea that speculative names like Landcadia will outperform more relevant names stretches credibility.
Just to show what kind of symbolic challenges LCA stock has ahead, Hurricane Laura touched down in Lake Charles, Louisiana, causing pieces of the roof of the Golden Nugget hotel located there to disintegrate.
I’m not one to suggest that investors should take a superstitious approach to their strategies. Rather, it’s just a crazy coincidence, an event that speaks to my bearishness toward the organization.
As I’ve mentioned in prior articles, I love the online gambling and sports betting sector. Once we get through this crisis, this market will explode. I just don’t like Landcadia. Here’s why.
Who’s Really Benefiting from LCA Stock?
Mainly, there are better alternatives to Landcadia, either from a direct play or an indirect one. While LCA does provide a direct channel to online gaming, the structure of this SPAC may not be favorable to the shareholder.
That’s the argument that Timothy Collins of Real Money posed. As Collins noted, Landcadia is a SPAC co-sponsored by Fertitta Entertainment. Both Fertitta Entertainment and Golden Nugget Online Gaming are owned by outspoken billionaire mogul Tilman Fertitta.
Further, Fertitta managed to keep his hospitality empire afloat during the worst of the novel coronavirus pandemic by securing a $300 million private loan, all at a steep interest rate of 13%. On a side note, he furloughed 40,000 employees when the Covid-19 pandemic accelerated sharply in March. Thus, don’t expect much positive PR.
But to Collins’ point, the SPAC structure here is incredibly cynical. The aforementioned $300 million loan will be absorbed by the new entity. As Collins wrote, “Half the loan will be paid with the cash in the SPAC trust while the other half will be assumed by the merged LCA and Golden Nugget Online Gaming.” As well, Fertitta will have a controlling voting interest in the combined companies.
Yes, the online gaming industry should explode higher. Some experts predict that it could reach $95 billion by the end of 2025. But what Collins is warning about is that we have two separate elements at play: the viability of the online gaming industry and a businessman’s personal motivation.
Conflating the two could get you into trouble, which is why LCA stock is a tough sell. At the back of every buyer’s mind, they’ve got to wonder if they’re about to hold the bag.
More Opportunities on the Way
Because of the wild nature of this year, I wouldn’t be surprised to see LCA stock rumble higher for whatever reason. But in the long run, you’re better off spending your money on organizations that are truly interested in this space.
To me, this SPAC sounds too much like an ego play. I’m interested in the future growth of online gaming, which I firmly believe in. But investing in LCA stock is selling yourself and your portfolio short.
On the date of publication, Neither Matthew McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.