Four Gaming Companies With Intriguing Shareholders

A friend of mine is getting married in Las Vegas at the end of June, and that got me thinking about the gaming industry. I'm not a gambler, and so the business doesn't hold much appeal for me. But that doesn't mean there aren't good investment opportunities available. As I look around, I realize some very intriguing shareholders are in the casino business. Here, then, are my four picks, which I've made based on the quality of their businesses combined with a shareholder or two that stand out in a crowd. I think you'll agree it's an interesting group. IN PICTURES: 20 Tools For Building Up Your Portfolio

Micro Cap - Full House Resorts (NYSE: FLL)
None other than Lee Iacocca, the savior of Chrysler and Ford, owns 7.6% of this small-cap casino management company. He's been on the board since 1998. Iacocca has assembled a veteran group of operators that seem to be taking this little company to bigger and better places. It currently has three main revenue streams, which include owning and operating Stockman's Casino in Fallon, Nev.; a 50% interest in Gaming Entertainment Michigan, which operates the FireKeepers Casino in Battle Creek, Mich.; and a 50% interest in the management of Harrington Raceway & Casino. Together, the three casinos generated $19 million in revenue and $8.6 million in operating income in 2009, up 96% and 139%, respectively, from a year earlier. It was definitely a breakout year. With the Michigan management contract in place until at least 2016, as the economy picks up, business should only get better. This looks like a comer, and with Iacocca involved, you just never know.

Small Cap - Churchill Downs (Nasdaq: CHDN)
Everyone knows Churchill Downs, home of the Kentucky Derby. But who is the largest shareholder of the grand dame of racing? The Duchossois Group of Elmhurst, Ill. The family-owned, privately run conglomerate owns 24.1% of the holding company that operates the racetracks and gaming/online wagering operations that make up Churchill Downs. In 1986, Dick Duchossois purchased the ArlingtonPark racetrack property, which had burned down in July 1985. Within a few years, a new track was born. In 2000, it merged with Churchill Downs and The Duchossois became the largest shareholder. Today, the Duchossois' assets total well over $2 billion, yet most investors probably don't know who they are. I sure didn't. One thing is for sure, Churchill Downs will be around long after I'm gone.

Mid Cap - MGM Mirage (NYSE: MGM)
I've been to Las Vegas twice in my life, and both times I stayed at the MGM Grand, now part of a larger, merged company. Its biggest shareholder is Kirk Kerkorian who still owns 37% of the company he partially founded. Most people know who he is through his past obsession with the Big Three auto companies. He has held stakes in all of them at one time or another. What you might not know is that hedge fund billionaire John Paulson owns 40 million shares, good for 9.1% of the company. He picked up MGM and Boyd Gaming (NYSE: BYD) in the most recent quarter ended March 31 and looks to be placing a big bet on casinos and an economic recovery. It's hard to argue with his logic.

Large Cap - Melco Crown Entertainment (Nasdaq: MPEL)
This is probably the most intriguing of the four. The company is a joint venture between Crown Asia Investments (it owns 33.45% of the company) and Melco Leisure and Entertainment, which owns an equal 33.45% interest in the company. Crown Asia is part of Australia's Crown Limited (controlled by James Packer, the sixth-wealthiest person down under), which in addition to this investment owns casinos or parts thereof in Canada, the U.S., Australia and the United Kingdom.

Melco Crown operates casinos, hotels and general entertainment facilities in Macau, one of six companies licensed to do so. Melco Crown's first quarter revenues grew by 162% to $567 million, and more importantly, it generated an operating income of $6.2 million, much better than the $33.5 million operating loss a year ago. Give this one time. It'll produce in a big way.

Bottom Line
Each of these businesses has a future, probably more so given the quality of its shareholders. Always consider this when placing a bet. (Learn more about sinful investing, see: Sinful Investing: Is It For You?)


Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!