Melvin Capital Reveals Stake in MGM Resorts

Posted on: May 17, 2022, 10:37h. 

Last updated on: May 17, 2022, 10:48h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Gabe Plotkin’s Melvin Capital Management — one of the hedge funds burned by the early 2021 rally in shares of GameStop (NYSE:GME) — is trying a different type of gaming equity.

Melvin Capital
Melvin Capital CEO Gabe Plotkin. The hedge fund bought MGM shares in the first quarter. (Image: Bloomberg)

The firm’s 13F filing with the Securities and Exchange Commission (SEC) confirms MGM Resorts International (NYSE:MGM) is one of several  new additions for the hedge fund, which is aiming to become leaner after it lost almost $7 billion last year, as bearish bets on stocks like GameStop soured.

As of the end of the first quarter, Melvin owns 3.57 million shares of MGM — a stake valued at nearly $150 million as of March 31, according to the regulatory document. 13F filings don’t indicate exactly when during a quarter or at what price a professional investor acquires a stock. However, it’s likely that if Melvin is still holding MGM shares, it’s down on that position because the stock entered today down 15.7% over the past month and off 21.46% year-to-date.

News of Melvin’s stake in the largest operator on the Las Vegas Strip comes as at least one hedge fund is paring exposure to the gaming stock. Earlier this year, MGM and investor IAC/InterActiveCorp (NASDAQ:IAC) partnered to buy $405 million worth of the casino equity from Keith Meister’s Corvex Management. Corvex remains an MGM shareholder.

Melvin Mauled by GameStop

Plotkin and his firm rose to infamy last year after an army of retail traders, many of whom were armed with government stimulus cash, banded together on Reddit’s notorious WallStreetBets forum to force a short squeeze on GameStop.

Melvin had been short the downtrodden video game retailer since 2014, wagering that online and in-console purchases of video games would decimate brick-and-mortar game retailers such as GameStop. The thesis was accurate for a while, and it might ultimately be validated anew. But Plotkin and other GameStop bears were helpless in stopping the epic rally in the retailer’s shares.

In January 2021 alone, GameStop shares surged 2,500%, burning shorts, including Melvin. Plotkin’s hedge fund tumbled 39% last year, owing in large part to the GameStop fiasco.

Following a rough March, it’s rumored that Plotkin is looking to shrink Melvin to $5 billion in assets under management from the March 31 tally of $8.7 billion. He reportedly believes the fund shouldn’t manage more than $6.5 billion to $7 billion. Reportedly, there’s a plan in place to return capital to investors if Melvin holds more than $7 billion for 90 straight days. But those changes haven’t officially been implemented.

Another Gaming Bet for Melvin

The 13F also reveals that Melvin owns call options on Lawrence Ho’s Melco Resorts & Entertainment (NASDAQ:MLCO) – one of this year’s most battered gaming equities.

Shares of the City of Dreams operator are down 48.62% year-to-date as the stock is hammered by multiple headwinds.

Investors are dropping Melco as China maintains a zero COVID policy, preventing many gamblers from visiting Macau, and amid fears the gaming equity could lose its US listing because of violations of the Holding Foreign Companies Accountable Act (HFCAA). The latter point hasn’t been proven in court, but Melco is on a list of potential HFCAA offenders.

Melco and MGM are the only gaming stocks in the Melvin portfolio at the end of the first quarter.