Longreads + Open Thread

Radio, Startups, History, Bally's, Dead Internet, Caesars

Longreads

Books

In last week's Longreads, we reviewed Monday Starts on Saturday, a book in which magic is real—by reciting the right incantations, particularly skilled wizards can literally manipulate the state of reality and bend it to their wishes, a power many such wizards abuse. This week: The Caesars Palace Coup, which is a story of a case where that's literally true: distressed debt.

The book tells the story of Caesars, the casino conglomerate, which turned into a money-printing machine by carefully tracking its customers, identifying the exchange rate between free perks and gambling losses, and then exploiting the gap aggressively. This made them a big, profitable business, with a theoretical growth path. (They're also a very rare case outside of biotech, non-bio tech, and finance, where an academic researcher's work is so impressive that he's literally put in charge of the company: the CEO who led this initiative was Gary Loveman, who'd gotten connected to them through consulting projects he undertook while teaching at Harvard Business School.)

The basic plot is that Caesars got taken private, and the economy almost immediately went into a recession that made it unlikely that they'd be able to meet their obligations. The PE firms that owned the company did a series of transactions that 1) gave the main business a bit more liquidity and breathing room, and 2) moved more of their key assets outside of the main entity where bondholders could get at them. There were some pretty egregious-looking deals, but the company was also pretty distressed at the time, and when a company doesn't have many alternative sources of capital, it will end up signing some lopsided deals with whoever is actually willing to inject more cash.

Compared to other finance books, this one spends a lot more time with lawyers than bankers and operating executives. A company is more than a big pile of contracts, but in some legal sense it is a big pile of contracts. There's alpha in interpreting those creatively, though that alpha often comes at the cost of all of the intangible, non-contractual assets that make a business worth more than whatever capital has been put into it and whichever assets that capital acquired.

Open Thread

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