On April 9, HG Vora Capital Management attended a hearing in its honor at the offices of the Nevada Gaming Control Board. Parag Vora testified on behalf of HG Vora, which owns Penn Entertainment stock and has nominated three people to serve on the board of Penn.
Vora’s appearance at a licensing hearing is confusing. Vora himself is not going to be on the Penn board of directors. HG Vora owns only 4.7 percent of Penn stock, below the licensing threshold. But there he was in Carson City seeking to register HG Vora as a holding company, to be found suitable as trustee, beneficiary, and general partner of HG Vora Management, to register HG Viora as an intermediary company, and to be found suitable as the manager of that company.
HG Vora is a registered investment advisor and manages capital investment for institutional investors. Its corporate website says that it “specializes in investing across performing credit, stressed, and distressed special situations, as well as value-oriented equities that may benefit from potential catalysts.” That is what brought the company to Nevada. HR Vora saw an opportunity in Penn Entertainment, which has gaming properties in Nevada. The company has been investing in Penn since 2017, but in 2022 started to increase its position. As the corporate policy says, Penn appeared stressed and distressed.
Penn has been around in one form or another since 1964. It began with racetracks, but today operates 43 gaming properties in 20 states. Additionally, Penn has sports betting operations in 17 states and igaming in five. The stressed and distressed that attracted Parag Vora’s eye was sports betting. When sports betting started to spread across the country, dozens if not hundreds of companies jumped in with both feet. Very quickly, two trends developed. The first was the reality that retail sportsbooks were small potatoes and could not support major investment. The second involved online or mobile wagering. Mobile wagering was extremely profitable, but two companies, FanDuel and DraftKings, controlled the market.
The second trend came with a kicker: To play, you had to pay; both FanDuel and DraftKings knew their way around television advertising and spent liberally. Keeping up with those Joneses was a losing proposition. Most tried for a while, but eventually threw in the towel and retired to other pursuits. Penn made two rather expensive investments, Barstool and a partnership with ESPN. The efforts produced a minuscule market share, never enough to generate a profit. That is the weakness that Vora saw. HG Vora quickly moved from a passive to an active investor.
Active investors always have an agenda. Number one on the list is usually a management change, accompanied by changes in the corporate board of directors. With those changes, the investor can demand a reduction of expenses and a plan to increase profit and improve the stock price. Active investors solicit the support of other major investors and can frequently achieve their goals. The classic case in gaming was Carl Ichan and Caesars. Ichan bought a bundle of Caesars stock at $9 a share. When he had enough stock, he demanded the changes. It happened as he wanted, including monetizing the assets, selling the company. The stock of the new company went up dramatically, hitting $100 a share; Ichan was a happy investor.
It is a model that wets the appetite of many investors. But it is easier said than done. Frequently, the existing management fights back, as Penn did. That leads the two sides to court. Penn and Vora have come to a compromise. However, it is not likely that either is satisfied or will be as long as the other is still standing; any resemblance to events in other parts of the world is purely coincidental. This battle has one more element, licensing. Nevada not only has standing in this dispute, it has a degree of authority and control. That is not an issue that active investors often face.
Back to Carson City, now we have members of the Nevada Gaming Control Board going head to head with VG Vora in the person of Parag Vora for 80 minutes. The situation is tense. Vora feels misunderstood, mistrusted, and insulted. George Assad feels the board is equally insulted, and Assad is annoyed by the attempts to pull the wool over the board’s eyes. The two sides are at cross purposes, pursuing separate and seeming incompatible agendas. The meeting ended in a standoff of sorts. Vora will be back next month for another round.
For the state of Nevada, the situation is unique. HR Vora is not an average applicant. Vora is an investor seeking to maximize its investment, not a gaming operator. Nevada licenses casino operators seeking to offer a gaming product that the public wants, while promising to follow the regulatory guidelines. There have been other investors licensed in Nevada and elsewhere, but none so blatantly following another path. In my mind, there is no way to adjust the positions and compromise. The differences are irrevocable and grounds for divorce.