We originally established our position in MGM (MGM, Financial) during 2016. At that time, we believed its valuation did not reflect the improving fundamentals of the Las Vegas Strip, which was recovering from years of overbuilding. The market had also failed to recognize the quality of MGM’s assets and its potential to dramatically reduce a bloated cost structure. A long history of private market transaction activity further supported our view that the stock was materially undervalued. However, choppy execution by former management and a profit growth plan that failed to live up to expectations made this a bumpy (yet rewarding!) investment for Oakmark. Perhaps the biggest surprise relative to our initial thesis is the momentum and excitement surrounding the online sports gambling market. The company’s BetMGM platform has quickly staked the third-largest market position in online sports betting with plans to capture up to 25% of this $30+ billion market, which continues to grow rapidly. The exuberance surrounding digital gaming, coupled with expectations for a strong post-pandemic recovery in Las Vegas, has lifted the stock price to our estimate of intrinsic value. Therefore, we sold our shares in favor of more attractively priced alternatives.
From Bill Nygren (Trades, Portfolio)'s Oakmark Fund second-quarter 2021 commentary.
