Turmoil for M Resort owner Penn could affect Las Vegas-based Boyd Gaming

The investor, The Donerail Group Managing Partner Will Wyatt’s six-page May 31 letter to Penn board chairman David Handler could also have implications for Boyd, a Penn rival in the domestic regional casino market and a possible buyer of the M if it were sold.

Wyatt’s letter noted Penn’s lackluster stock price performance and criticized Penn CEO Jay Snowden’s strategy for trying to become a market leader in sports wagering nationwide.

“At the core of our investment thesis, we believe that the company’s current stock price is significantly below the intrinsic value of the company and that Penn’s suite of highly strategic casino assets alone could be worth more than double the company’s current market capitalization,” Wyatt’s letter said.

“After four years of effort, attention, and billions of dollars of shareholder capital invested, the company has been unable to disintermediate the online sports betting landscape, as it had forecast,” the letter said. “Moreover, the growing pattern of guidance misses, alongside a demonstrated unyielding appetite to continue to invest in the company’s fledgling interactive projects, irrespective of past results and without a clear return framework, has significantly damaged the credibility of this management team and board of directors.”

A Penn representative on Friday said the company had no comment on “rumors and speculation.” Boyd officials did not respond to a request for comment.

The M Resort is one of three properties Penn operates in Nevada. The other two are rural properties perched on the Nevada-Idaho border.

New M tower

Penn is investing $206 million to build a 384-room tower to bring the resort’s capacity to 774 rooms and to provide additional convention space. The construction project is underway and is expected to be completed in mid-2025.

The resort is the official team headquarters hotel for the Las Vegas Raiders, whose Intermountain Health Performance Center headquarters and team training facility is less than three miles away.

Wyatt’s letter ripped Snowden’s ability to lead the company and criticized the company’s failed efforts to dominate the sports wagering market.

“Penn’s casino operations have been well run over the years, and we understand the consensus view to be that CEO Jay Snowden and his team are good casino operators,” the letter said. “We applaud that success, but regrettably, it is now overshadowed by what we believe to be continued and significant strategic failures.

“The company eschewed its tried-and-true strategy of expanding its brick-and-mortar casino operations in lieu of a ‘bet the house’ focus on constructing an online sports betting business to compete with market leaders DraftKings and FanDuel.”

Penn first attempted to dominate sports betting in a partnership with Barstool Sports and its controversial founder, David Portnoy — a person one former Nevada regulator said would have a difficult time being licensed over suitability issues.

In 2020, weeks after Snowden took over as CEO, Penn announced it would invest $163 million to acquire 36 percent of Barstool and its database of customers.

In early 2023, Penn paid an additional $388 million to purchase the balance of Barstool shares it didn’t own. Six months later, Penn announced it was giving up on Barstool and sold everything back to Portnoy for $1.

New ESPN Bet deal

Late last year, Penn pivoted to partner with ESPN Bet, a better known brand, but the companies have been slow to generate any return on investment.

Wyatt also complained about Snowden’s compensation being too high, but most of his criticism was leveled at Penn’s stock performance.

“Today, Penn’s stock trades at the lowest level since early 2017, excluding a four-week period at the onset of COVID,” the letter said. “Given the repeated and significant losses from the interactive strategy, one could reasonably ask whether Penn’s directors are really just riverboat gamblers, content with doubling down after each loss – of shareholder capital, of management confidence, of board credibility — as the highly valuable stream of cash flow.”

Penn shares did have one recent uptick — and it apparently came as a result of an announcement Boyd made.

On June 10, Boyd announced the appointment of Michael Hartmeier to its board of directors.

Hartmeier is the former group head of lodging, gaming and leisure investment banking for Barclays, and previously served as group head for hospitality and gaming for both Lehman Brothers and Credit Suisse First Boston. During his 25-year career in investment banking, Hartmeier completed more than $125 billion in financing and advisory assignments, including work for numerous gaming companies.

Hartmeier is a member of the board of directors for DiamondRock Hospitality Co., a self-advised real estate investment trust with a portfolio of premium hotels and resorts nationwide. Hartmeier also previously served as a member of the board of directors of Las Vegas-based Full House Resorts, Inc., a regional casino operator.

In response to the appointment, Seeking Alpha issued a report speculating that Hartmeier was brought on board to guide Boyd in the purchase of all or part of Penn’s portfolio.

Penn shares rose 1.2 percent following the Hartmeier announcement.

Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on X.