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Rod Smith

Gaming Insiders Unload Stocks

16 April 2004

NEW YORK -- Gaming industry insiders sold more than $500 million of stock in their own casino companies in the first quarter of 2004, cashing in on bonus stock option programs and peak stock prices, U.S. Securities and Exchange Commission filings show.

"We saw a significant increase in the number of shares sold -- almost 13 million -- to one of the highest levels we've seen over the last eight quarters in terms of insiders selling," said Deutsche Bank analyst Marc Falcone.

However, given the strong fundamentals in all segments of the gaming industry, the insider sales do not indicate any kind of alarm or profit-taking by company owners, he said.

"It's mainly opportunistic selling and exercising low-priced options. Historically, gaming insiders have been very good buyers and sellers of their own stocks, but I think in this environment of strong corporate governance, gaming insiders are not top-ticking their stock sales, not selling shares in the face of potentially bad news," Falcone said.

After the cost of selling the options, the 10 gaming executives who sold the most shares realized $165 million in net proceeds. And at the 10 gaming companies that recorded the most insider transactions, executives selling off shares realized almost $300 million in profits.

"It's the pig factor. They could have paid more in taxes, could have paid workers more or could have invested in better properties," University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said. "On Wall Street, the bears can be winners, the bulls can be winners. But the pigs are always losers, and this kind of activity will move Las Vegas into the loser category.

"One of the great things about our companies (in the past) is they haven't paid dividends (historically), but have reinvested in the city. Now, it's time to take the money and run."

Station Casinos had the largest volume of insider sales, 2.6 million shares, with Station Casinos Chairman Frank Fertitta selling the most shares, 1.5 million.

Station Casinos Chief Financial Officer Glenn Christenson explained Fertitta and his family sold off portions of their holdings for liquidity and diversification reasons.

"He still owns more than 7 million shares, so he has more than a rooting interest to come to work in the morning," Christenson said.

Mandalay Resort Group Chairman Mike Ensign and Vice Chairman Bill Richardson sold the second and third most shares, respectively, almost 1 million shares each, mostly to resolve remaining options that have vested since they sold all their shares in the company last year.

Although the two realized more than $50 million from the most recent sales, a company spokesman declined to comment on the transactions.

Terry Lanni, chief executive officer of MGM Mirage, sold nearly as many shares, 700,000, and realized more than $17 million from the sales.

MGM Mirage spokesman Alan Feldman said that as a general rule, his company does not comment on the personal financial transactions of its employees.

However, he said stock options are granted to employees as part of their compensation packages and they were able to exercise them as a substantial number of options vested.

"Coincidently, the stock was near a 52-week high and it was also tax time. Those events all connected and there were several executives who exercised their options, even though any of them could have had their own reasons," Feldman said.

Paul Rubeli, chairman of Aztar Corp., owner of the Tropicana, narrowly trailed Lanni with sales of 670,052 shares from which he realized more than $7 million.

However, in line with other corporate spokesmen, Aztar spokesman Joe Cole said Rubeli's sales were part of his normal portfolio and estate planning.

Harrah's Entertainment executives were also heavy sellers, although no single executive stood out.

Harrah's spokesman David Strow said the sales were mostly the result of company executives exercising stock options that are part of the their compensation packages.

"From time to time, they'll exercise their options to realize value. That's all that's been going on here," he said.