Yet Another Value Podcast - Philosophy Capital's Jacob Rubin on legacy brand names: Caesars $CZR and Gannett $GCI

Episode Date: June 7, 2024

Jacob Rubin, Portfolio Manager at Philosophy Capital, joins the podcast for the third time to share two theses: the first - Caesars Entertainment (NASDAQ: CZR), the second - Gannett Co., Inc. (NYSE: GCI). For more information about Philosophy Capital, please visit: https://www.philosophycap.com/ Chapters: [0:00] Introduction + Episode sponsor: Santangel's Review [4:20] Overview of Caesars and why its so interesting to Jacob + why focus on $CZR and not all the other gaming-type companies [12:28] In gaming, how much does scale matter [16:26] Fear of the consumer vs. results of the cashflow [23:06] $CZR what happened in Q1 2024 / catalysts on the upside / capital allocation [34:30] Digital (online gaming) ramp [39:20] Sum of the parts / $CZR valuation [45:07] Carl Icahn investment in $CZR [49:01] Overview of Gannett $GCI and why it's so interesting to Jacob [54:44] Two legs to the thesis: AI and lawsuit against Google / undervalued - what's more of the play for Jacob with $GCI? [1:02:05] $GCI valuation / Apollo involvement Today's episode is sponsored by: Santangel's Review Finding the right hedge fund cap intro event isn't just about the size; it’s about the value it brings to your time. This month's sponsor, Santangel's Review, offers something unique for fund managers and allocators. Founded in 2010, Santangel’s hosts three Cap Intro Roundtables each year - two in New York City and one at Fenway Park in Boston. These events stand out for their focus on quality over quantity, attracting some of the most prestigious endowments, foundations, and family offices worldwide. The secret sauce: Santangel’s spotlights undiscovered talent. Managers you don't necessarily see at other industry conferences. Attendees take part in eight one-on-one meetings, intermixed with ample networking opportunities. In an industry built on relationships, Santangel's fosters some of the most valuable connections. Just go to Santangels.com— S-A-N-T-A-N-G-E-L-S dot com to learn more and request an invitation. If you’re a manager or allocator who is serious about maximizing your time, you'll want to be a part of the Santangel's Roundtable. Click here: https://santangelsreview.com/

Today's episode is sponsored by Santangil's Review. Finding the right hedge fund cap intro event isn't just about the size. It's about the value it brings to your time. Santon Joel's review offers something unique for fund managers and allocators. Founded in 2010, it hosts three cap intro roundtables each year,

two in New York City and one at Fenway Park in Boston. These events stand out for their focus on quality over quantity, attracting some of the most prestigious endowments, foundations, and family offices worldwide. The secret sauce, Santon Jules, Spotlights, Undiscovered's talent. managers you don't necessarily see at other industry conferences.

Attendees take part in eight one-on-one meetings, intermixed with ample networking opportunities. In an industry-built-on relationships, Santangels foster some of the most valuable connections. If you're a manager or allocator who is serious about maximizing your time, you want to be a part of Santangil's Roundtable. All right, hello, and welcome to the Yet Another Value podcast. I'm your host, Andrew Walker. If you like this podcast, we mean a lot if you could rate, subscribe, review wherever you're watching or listening to it. With me today, I'm excited to have all. on for the third time, the only man who I let pit, well, for the most part, the only man

who I let pitch two stocks on one podcast, my friend and the founder of philosophy capital, Jacob Rupin. Jacob, how's it going? Yeah, good. Thanks for having me back. Look, I'm really excited to have you back. Before we get started, I'll give a quick disclaimer. Nothing on this podcast is investing advice.

That's always true, but particularly true today. Not only were we talking two stocks, but we're talking two stocks that both have in very different ways, quite a bit of leverage and some hair on them. So people should just keep all of that in mind. Jacob, I'm really excited to have you back on. It's been too long. We obviously talk offline, but it's been too long since we've had you on. I think the stock we want to talk about today, they're both very interesting and they're

diametrically opposed in one of them is, I think, the most popular stock among, like, value investors and a vet investor because there's such an interesting, some of the parts angle and it's visible and there's lots of cash flows. And then one of them, you are the only person who's mentioned it to me. So the first one was, the former was Caesars, the latter was Gannett. Do we want to start with Caesar's? Gannett, how do you want to do this? Yeah, Cesar's is good, but I do want to double click, zero in, underline the disclaimer.

We always just speed date over it. But like, do your own work. I make mistakes. I'm fallible. I'm try my best. I'm also biased. I own both stocks in the fund. I believe my cooking, but I'm not going to remember to tell everybody if I learned

something new, changed my mind, whatever. So it's just pitching an idea. It might work. It might not do your own work. I like that disclaimer. I believe my own cooking, but I really like that way of phrasing it. I mean, you know, eat your own cooking, whatever. Like I first came on your pod and I tried, I really tried to optimize for a fun, different high risk, high return situation. And I landed flat on my face. It was a disaster. I lost money. Anyone who listened to me lost money.

And that was sort of a lesson learned. I came back, like you said, tried two very high conviction ideas. Fortunately, they both have worked very nicely. So I don't know. Maybe I'm batting two out of three. But going forward, I don't know the outcome ahead of time. So I'm going to try my best. I'm open to being wrong.

We take pride in exiting losers and moving on. So yeah, really take the disclaimer to heart. please. Just one thing, I wouldn't think of you as like a, like on-based slugging percentage where it's like either everything's either like a 5x or a zero, right? But the names you pitch, like I mentioned with Vosey's and there's hair, there's leverage. And like sometimes if you pitch a name with hair or leverage, like it goes against you. But, you know, when the names work, you said you were two for three and I'm looking at the stock chart of one of them. And again, past performance is an indicative, not a recommendation. Like, it's up over 100%. And guess what?

When one of the names goes up over 100% and the other one goes up pretty nicely as well, it all does kind of balance out. Yeah, what sucks is it lives forever on the internet. And so you can just look like a clown forever. And not everybody's going to build a thoughtful portfolio with offsetting risk long and short and size appropriately. And they're just going to listen to one idea. And so I just wanted to nail that disclaimer because I really believe in it.

And then we can all sleep at night. So yeah, we could go into Cesar's. Disclam out of the way. Let's go to Cesar's. I'm sure everyone here, Everyone listening probably knows Cesar's. It's the gaming company. We actually, we planned this podcast over a month ago. And Carl Icon, you know, two days ago, front ran us and announced a position. But I'll turn it over to you. You know, why is Caesar so interesting right now? So at its core, this is a levered value stock. The common through line between the two names today is they both have debt and they're both sort of in the classic value category. You know, we see core brick and mortar half. owned half-lease, roughly rough numbers, with massive value, resilience in the regional's,

great strip assets in a transformed Las Vegas. We see digital being completely ignored, and we like stories where the bar is really low. The bar on their digital effort is quite low, being sort of after the Fandual Draft Kings, that MGM, sort of down on that list. But they're just turning from burning half a billion dollars to being EBITDA positive and then trying to put up some nice EBITDA going forward. We like that transformation and at least stemming the cash bleed. And then there's a great catalyst path. And as Einhorn and others have said, if you want to be a value investor these days, you have to have a way sort of making your own luck because you're not going to get re-rated just by the market gods. You're going to have to make it happen. And for that we have catalyst. So that's

sort of the core, like you said, all a gaming is attractive right now. There are some reasons why I think it's worth going into at some point how we got to Cesar's and not any of the other handful of really cheap ones. If you want to start there, I'd actually love it because

I think I actually said that to you offline, but I had one friend who emailed me was like, gaming right now reminds me of tech in like October, November, 22. They're all so cheap. And, you know, just the past week in gaming, we see Dona rail sends a letter to pen. We see icon Cesar's. Like, clearly value investors are looking to these and seeing cheap assets, something to pull. But I'd love to discuss gaming overall and why you chose Cesar's. Okay. So, I mean, to answer that question, I at least have to set the stage of what Cesar's is for those that aren't that familiar. So, you know, if you open up the 10K,

you'll see 52 properties, 18 states. You'll see a split of owned and leased properties. So, for example, in Las Vegas, they have six owned three leased. You'll see names like, obviously the Caesar's name, but you'll see names like El Dorado or Haraz, or, you know, the Paris Link, several others. So primarily we're talking hotels and food and beverage and entertainment augmenting the core gaming business. And you're also seeing at least half of that or around half of that business. being underpinned by sort of like a propco, real asset values. So that's what they're doing. And in recent years, with legalization in various jurisdictions,

they've been growing into the digital space. Now, Flutter, which owns Fanduel and Draft Kings, which is the pure play, they get all the love. It's been a really tough, competitive environment the last few years. But Cesar does have a business. And we have some hopes for it. But that's basically in a nutshell what Cesar's is. Now, if you go back in time, there was El Dorado, there was Cesar's.

There were several others that all got cobbled together. At one point, Cesar's went bankrupt pretty famously. There's a book written about it. The CEO, Tom Reed, came from the Eldorado side. That was a monster home run over a long period of time. So he runs this business now. And so they emerged. They do have a lot of debt.

So this is around a $7 billion market. market cap, but then you've got 10 or so of net debt, and then you've got another 12 and change, almost 13 of balance sheet lease obligations. So it is a levered debt and lease structure with some asset value and the operating income streams that I mentioned. That's Cesar's. Okay. So then the question is, why focus on Cesar's and not all the other gaming type companies? So we have a comp table, and at one point, I can share some materials with you and maybe you can put it out there. But there are lots of comps tables out there as value guys will gravitate toward the highest free cash flow yield to equity stories. We also looked at things like inflecting free cash flow conversion.

So in other words, looking at where it's been, say, last year, where it is this year and where it might be in one or two or three years, sort of max. And we like the ones where that's changing dramatically. And as I'll get into, Cesar's has a CapEx Cliff, basically where a couple of major projects, specifically in their case, Virginia, Danville, Virginia, and New Orleans. These big projects are going to be done in the fourth quarter this year. You know, you're speaking to New Orleans boy. And I noted on the Q1 call, they're finishing up Heras this year. And I think New Orleans hosts the Super Bowl next year.

So you want to talk about some good comps next year. I'd appreciate it if you went to the property, gamble a lot and lost a lot, that would be perfect. I have an LP of ours is pretty close to the Virginia location, and I recently had to call with them, and I said the same thing. I said, go, get the sweets, lose all your money, like, let's do it. But these things are opening, and that's a two-pronged sort of a double whammy. It's CAPX drops. They're not replacing that with new projects, so that's falling. from the cash out the door number, and they're turning on. I mean, these, and the beautiful thing,

unlike many industrial projects that we look at in value land, where you have to ramp it up slowly and then up, downtime, there's a problem. I mean, these are hotels. When they're, when they're beautiful and they're ready, you turn the lights on, and there's a little bit of ramp, but mostly you turn the property on and open the doors, and they're going to start contributing. So we get as far as they even talked about, New Orleans, I think there's like a 75 million minimum tax that they have to pay. So right now, they're getting, like, it's either minimum or it switches the variable over 75 million. They said we're below the minimum, so we're paying 75. So as we ramp up, like, we're going to have huge operating leverage as we kind of go over that 75 million. So to go back

to the comps, it's a really nuanced comp set. You've got guys, you know, say Las Vegas stands, they got heavy exposure to Asia. You've got guys who are stripped versus regional. You have running sort of Opco asset light versus owning your real estate versus a mix in our case. So it's hard to get apples to apples comparisons we've found. But when we screen for inflecting free cash flow conversion and a sort of 2025 or 26 free cash yield to equity, we really stand out. Now, you mentioned the Donorail letter. Penn also has a very good forward free cash flow yield.

Interestingly, Bally's jumps off the comp table. Now, that's, that's, I'm familiar. You're familiar. So each one has its own story, right? And so ultimately, the combination of asset quality, liquidity, so Bally's much smaller, super lever, doesn't trade that much. You know, in the case of Penn, I saw the Greenlight letter, you see the Donna Rao letter.

what they're getting involved in with ESPN right now and trying to fix that. Some of the missteps they made with Barstool and ESPN and others, I was outlined in that letter, the lack of some of the real estate coverage that we have, we just, Cesar's ticked all the boxes for us of the kind of things we liked. But honestly, people want to take a look at the gaming space.

I think there are plenty of ways to win. Let me ask you two questions on the gaming space just in general. First, Caesars, right? I know when IAC made their investment in TM, there was this thought about scale, right? And this happens a lot when you go offline to online. Scale in terms of the brand, scale in terms of the player management scale in terms of getting your users online, all this type of stuff. Caesars, I would say, you know, as you mentioned, they have stripped.

They have assets all across the country. They're more scaled than a regional like, what is it, Boyd or Penn or something. How much do you think scale matters? Am I kind of over-exaggerating this? Does Caesar kind of fall on the right play there? Or does it not really matter that much? So I think for their digital effort, for example, the fact that they have such a comprehensive footprint

means that their ability to offer certain incentives through the app, certain loyalty plans, comp nights, whatever, actually has some value all over the place. You can go to Vegas and get a free night. You could do it regional. And so their footprint can allow their digital business maybe to have a place in this world as opposed to a winner take all. And so we think a spread out pretty large-scale offering of lots of interesting and great properties means that their digital can survive without a constant marketing blitz, which is really important right now as they basically ramp down the marketing and try and put up profitability. And people worry that, oh, is this winner-take-all?

And we think, no, because they can cross-sell into this large installed base of people who frequent their properties. And without that, it would be trickier. I think the second thing is that Vegas and regionals have somewhat different characteristics. So regionals through the GFC, they've been very resilient. I mean, there's a certain sub-segment of the population that just gambles. And it's something to do. And in their areas... You're talking about my grandma right now.

Your grandma, and you know, you read the 10K and you realize that most of the money comes from slot machines, right? It's not the movie stars at the craps table. And so regionals is a lower multiple business, but it's also steadier, and it's nice to have. And then Vegas is its own thing, and historically way more consumer discretionary sort of runs hot, runs cold. And we think that's a big reason it's down right now is everyone's worried about the consumer and Vegas has been running record high occupancy for a while. So people think it's peak. But what's interesting is Vegas got the Golden Knights hockey team.

They got the Raiders football team. The A's are going to go there. They got the sphere turned on. And recently, just last month, I believe it was the Tropicana, just right next to Caesars, is closed down. That's where the A's, you know, theoretically would be building this baseball stadium. Allegedly, theoretically. Yeah, one day, you know, TBD will see. But I think that the lights turned off there.

And then now we're also getting the Mirage closing down for three years, starting, I think, July 17, right on the strip to turn it into a hard rock. Hard Rock bought it a while ago. So that's 4,500 rooms out of 100,000 strip rooms. So 4.5% supply coming out. And it's right now, like last month and next month. So it's not like this is stale news. This is happening right now, which I don't know how much protection that offers if the consumer rolls over. we're probably all going to lose money if the consumer rolls over for mark to market at least.

But it's pretty nice. And if you think structurally, Vegas as a place is becoming a world-class destination. If it wasn't already, it's got a lot more than just gambling. You go do Adele. You can do this. Go see a show at the sphere. I mean, there's all this other stuff. The magic shows, you know, that's what my five-year-old son would like.

Me, your five-year-old son and me would like that. Let me build off that in two ways. I want to ask two different questions there. Number one, when you see, like, the fear of the consumer is not lost on anyone, right? There's been this fear of the consumer since everybody remembers 2022, 100% of economists say we're going into a recession. Like, how do you think about the fear of the consumer that's just like ever present, ever lingering? And I guess I'll roll that into my second question, which is, again, the fear of the consumer has been there for two years, but all of these stocks have really taken it on the chin over the past two to three years.

while they're all producing, for the most part, record results. So, like, how do you marry the stock charts, which are just kind of like down into the right and the sphere of the consumer versus the results of the cash flow, which is up? Do you worry, you're missing something? There's, like, some inflection coming. I think that makes sense. So, yeah, to answer the question, let me just talk about why Sears is cheap. So broadly speaking in Value Land, the way we look at it is when something is screaming

on the numbers, we get very paranoid we're missing something. And for us, job number one is just figure out what's going. on? Who's on the other side? What are they thinking? Is there, A, a world where they're right, and we can be right to just different maybe mandates, time horizons, and maybe they're hedged in a way, and they can move on and have made money, and we suffer for a period of time, but now we're loaded up, and then we make a lot of money and everybody, Kumbaya. Or is there just, they have a view, and we have a view, and I make a bet that I'm right. I mean, but what is it? So in the case of Cesar's, we have spent a lot of time. First of all, is a leverage.

just as a factor. So everybody who's investing should be aware that it's all about rates, macro, feds, CPI, PMI. That's everything right now. We all know that. So recently, we came into the to the year thinking three cuts, thinking me, I'm not saying that. I didn't, I didn't think that. The market thought that. That was consensus expectations per Bloomberg. CPI came in hot. It's, it's being a bit stubborn. PMI also stubbornly high. We've seen it high in other jurisdictions as well, and we've seen hawkish comments from the Fed. So now, consensus is like maybe we get a cut in September, something like that. So that means levered equities suck, and they've all gotten their asses kicked.

And then you go to factors to watch on Bloomberg. There's TLTS function, yeah, I think tilts for stocks, and you can run what factors are a part of any given security. leverage as a factor has been smacked. Caesars has a huge leverage factor, obviously. So just first and foremost, and we see it. On certain days, we have unrelated sectors in our book where the only common ground is leverage, and they're all smoked at the same time, whether it's Algo's momentum funds, pods. You do better work than me, because I just say the only common factor is I own them,

and so they're all down is kind of what I assume. So you do more detailed quant work than me. We've looked at Caesars, and this is part of the opportunity that we're trying to grapple with, is so Cesar's leverage, momentum, totally negative. There's a factor sort of for low volatility, which we do not have, so we're high volatility. And then on, which I would call it, short interest, and what's another one? Oh, and then size, just big companies versus little companies. All our factors are the worst. They're the worst.

So the ones were long smoked, the ones we're sort of short or don't have up. So year to date, we've looked at this. We've also run correlations with treasuries and two year, five year, ten year, whatever. And it's obviously negative. And it just, we have charts on it. Rates go one way and we go the other. So we're in kind of a death spiral. on factors so that's one reason why we're cheap to the consumer we talked about like right now

people are worried about the consumer fading we've seen charts for example that um a huge surplus of savings was created after the stimulus money from covid and consumers have spent it all um so now if there's slightly wiggly data on jobs or on spending or you see a lulu lemon print or a a Nike print and everyone starts freaking out about the consumer. Then, in addition to all the macro stuff with Caesars, we're thinking that we keep hearing of people piling into some kind of pair trade, long the winner, short the loser. So for digital, if you're long draft kings and you run a long short

strategy, you might want to be long draft kings and short Caesars long. Maybe go ahead. Like 10% of the stock is short. And I tried to pay more attention than probably my earlier, more arrogant days I did to the short interest. And 10% is not the end of the world. It's not like... No, but it's the movement in it. It's the movement in it from 6 million shares short to start the year to 17 million shares now.

And we'll see the next reading. I mean, it's... I think that's largely paired against the, like, long online gaming short. It could be, it could be just outright shorts, but I've definitely heard that. Definitely have heard. And again and again, this idea. that, you know, if you have a long winner short loser, then this is a funding short for that. And by the way, it's been working. I mean, because this would be a case of if you had that trade

on, you're getting short leverage, short consumer, you're getting all that great hedging benefit while you go along the pure play digital growth story. I mean, you could totally see how people would do that. And then, you know, as the nuances will get into, the various catalysts that we think we have for the upside, you know, might be lost on that audience that might not be on their horizon. Today's episode is sponsored by Santangelo's Review. Finding the right hedge fund cap intro event isn't just about the size. It's about the value it brings to your time. Santon Joel's Review offers something unique for fund managers and allocators. Founded in 2010, it hosts three cap intro roundtables each year, two in New York City and one at Fenway Park in Boston. These events stand out for their

focus on quality over quantity, attracting some of the most prestigious and down. foundations, and family offices worldwide. The secret sauce, Santangels spotlights undiscovered's talent. Managers you don't necessarily see at other industry conferences. Attendees take part in eight one-on-one meetings, intermixed with ample networking opportunities. In an industry-built-on relationships, Santangels foster some of the most valuable connections. If you're a manager or allocator who is serious about maximizing your time, you want to be a part of Santangil's roundtable. Let's go to Catalyst in one second.

I just want to ask one more thing. So, again, I said at the beginning, I know a lot of people who've been long Cesar's, for a while now on this thesis, from 50 to 45 to 40 to 35 today and maybe 32 before Carl Icon came in. Like, you and I are both members of Vic, and there was a very popular Vick post that said, buy Caesar's call options. And people should remember call options very risky, all that type of disclaimer. But they were saying, this stock's super cheap. It's going to be. And the reason I'm asking all this is because when I'm prepping for this podcast, I read the Q1. earnings call and the CEO who I generally like comes out and says a direct quote is we're not in

the habit of delivering quarters that look like this. So I guess my question is like what happened in Q1 and what were people kind of missing that, you know, kind of resulted in. I had one of those little slides that we've made for ourselves that maybe we'll put out there. And there were four things. And we got through three of them. And the fourth was what happened in Q1. Beautiful. Let's hear. So like like minds here. Q1 was a bad hold. And hold is sort of, you know, what they make probabilistically as the house and it varies i mean if a big better comes in and nails it takes down a huge you know wind you might not do great um they had a really bad hold uh particular multiple standard deviations worse than normal we don't expect that to continue

proof will be in the pudding i really don't want to see that repeat um in callbacks with the company and in all their public comments i mean they don't think it's going to happen again and two um particularly with the regionals, January was a really rough month for weather. And I believe them because I've seen it with hotel companies, airlines. Like I've seen that commentary about January, and we saw them come out of it quickly. So that was telegraphed. Pretty much anyone around Caesar's new Q1 was going to suck. I mean, we were fully braced for it, ready to add if the stock pulled back as it did on what was a clear, obvious one-timers type quarter. But it only further push them into the show me category. And if you think about long only zoning this

or people wanting to gain confidence in this, it's got a lot of leverage. So that rules out plenty of folks. It's got negative momentum that'll rule out others. And people just want to see them stack some wins. And Q1 did not help. But we're not worried about it. The negatives and everything. So I really want to talk about, look, people can look, it's levered. There's a lot of cashier, but there are a lot of, you know, the CEO even talks about it. I've got a lot of assets that I can sell that don't do a lot of earnings. There's a sum of the parsory here. There's the put of, I think it's Centaur, Tevici, but I'd love to talk about all the different catalysts and upside scenarios you see to pull. Yeah, so maybe I have a habit of this of bashing

the things I love, but it's because I'm so obsessed with knowing what's on the other side, and then can you get over it or not? So if leverage and consumer and one bad quarter, that's just going to make you run for the hills and okay, don't invest. But we think it's the very reasonable, very rational explanation for the price and the valuation, which we think is fantastic. And we're getting in right now because of what we see coming. So the specific things we see coming, we think they're through the worst on that quarter, but also on some of this digital stuff, which is inflecting from being a money loser to they're turning off various brand partnerships and the space is growing. Their market shapes.

that it's pretty small at about 6% market share. It's holding steady in a 30% growing industry. So we think earnings are going to be ticking up lots of cash flow generating, which leads into a few things. First of all, they have a poker brand and others. They own many acres on the strip of unused real estate. I want to say 20 acres. Don't quote me. I might have heard that somewhere. But they own a significant amount of strip acreage that I think goes for, I don't know, 10 million an acre or something. It's worth a good amount of money. They have things they can monetize. And then there's this VC transaction, which is a publicly traded reet that basically these guys engage backs with where some people have speculated that it could be a real catalyst. Because essentially what

it what happens is we have a property a regional property called centaur that um can be uh put uh or called between caesars and vc at either 12 and a half or 13 times ebit da or you can quote it in cap rates and ultimately there's a little bit of game theory i think both sides we'd like to say they don't want to do it so the other side takes the option and there's a half turn evaluation difference so first of you should be aware of the very obvious i don't think i'm blowing up any negotiations by saying like obviously both sides will want to play it cool and then we'll see at the end who really really wants it um and there are other outcomes too this this this option expires this year and and one potential eventuality would be that um if vc's cost to capital where the stock's trading um it's

adjusted um funds from operations multiple and where this create um the option are too close, like maybe you negotiate an extension, but maybe if, you know, whoever wants the extension more has to give something up for it. But I think it's a good property and Cesar is in a really good position with that. And if it were to be essentially called away from them, it would be at 13 times and we believe would generate something like $2.3 billion. And when you're this levered and your stocks trading seven times, least adjusted EV to EBITDA, which we'll get to in a minute. That's quite accretive, especially if some amount of that could go into buybacks, you know, and money's fungible. Maybe

that money goes into leveraging, but then the next asset sale or the next quarter free cash flow immediately goes into buybacks. And if the stock's in the 30s, as much as you might not want to enter into that lease, if you're Cesar's, that comes out of the transaction, if you go buy back your stock at these prices, we actually think the math works nicely. So everything's opportunity costs. And just you said their put is at 12 and half times and they're, they're trading at about seven times. So even if you're like, oh, I hate to enter this long term lease, like the opportunity costs, sell it at 12 and a half times, pay down some debt, buy back some shares, like it frees up a lot of capital. Yeah, look, it's, if we're speaking with the

company right here, they probably would have some lines of pushback. I think it's not completely black and white. That lease has inflation escalators on it. And now you're entered into that forever. So maybe it's not perfect. But we think that the multiple delta, if you can put that money to work somewhat aggressively and quickly, and if the stock stays in this area, it pays off. I agree. Though, as the company might say, like, look, you guys, we're looking at a screen. It sounds nice. We enter into what would be a 20 year lease with CPI. If we, and maybe we can't buy back $2 billion worth of stock at seven times. Like, what if our stock goes to 14 times tomorrow? A, nice problem for Jacobs fun to have. But, you know, then we're

sitting with this CPI lease and we can't buy back stock. It's like, what did we do this for if we actually believe the lease should have been struck at 10 times? And as a shareholder is suffering through where the stock is right now and we're underwater at this point in time, you know, that's a problem for us to solve at $75 or $100 or whatever. Right now, here, the math works. But look, it's not even fully in our control. If the other side wants it, it's just a catalyst that could happen this year. And so what I'm saying is the path going forward is operations we think are getting better,

are hanging tough or hanging in a sweet, great spot in Vegas, hanging resilient, regionally, digital getting better off a low bar. Then there's this VC thing that could throw a couple billion in our coffers. There are other assets we could sell that could throw several hundred million in our coffers. And then we see this KAPX cliff in the fourth quarter. And by our math, around the time KAPX falls and digital is ramping. And the cash generated between now and then through free cash flow and divestitures, We think the leverage targets here of getting sort of in that low to mid four times will be achieved,

at which point we think they not only can announce a buyback authorization, but it's not going to be small. Our belief on the totality of everything we've read here is that it's not going to be some trivial thing. We think they're pissed off. These are insiders who own a lot of stock. they are not happy with being in this death spiral of factor selling. They're getting no credit for hard work. They're going to announce something, and I would put the over under it, I don't know, I mean, pick a number. 20% of the market cap would be $1.5 billion.

I mean, that's just me picking a number out of the sky, but 20% is a round number, and they could afford it. And it'd be an authorization, maybe $2 billion over a couple of years. I mean, it's not that it would all be within 12 months, but we think something sizable in the buyback world around the end of the year, when the CAP-X obligations have rolled off and they have total visibility. Our cash flow is inflecting. Our leverage is where we want it to be.

We gain credibility points with the street for doing what we said on de-leveraging. We feel like we're being financially prudent because we have visibility on the free cash flow per share inflection. Our growth spend is over. boom, hit it. And then next year is all about digital's EBITDA positive all year. Free cash flow per share is awesome. And you got a bid in the stock, you know, from Jan 1 to the end of the year or something like that. So that's where we are. And then there's this other thing, which is the macro. And it can go both ways. So obviously, if the consumer rolls over, we're going to take a bath. And I mean, I'm a long short fund. So you can rest assured I have a few consumer-oriented shorts.

And that would suck. I think this company, because they have plenty of liquidity, all sorts of levers, no imminent maturity problem, no covenant issues, which means I think they can survive. Equity people sometimes don't fail to appreciate the nuance of debt. Like, it's not going to cause you to go bankrupt. If you don't run out of money, if you don't have a maturity coming up that you can't pay, and if you don't like trip covenants, it's not going to mean bankruptcy. It might mean the equity goes down, but you'll survive it and come back. So we think their balance sheet and their asset base means it's okay. It'll be painful.

It can go the other way. If the consumer hangs in and CPI moderates at some point, maybe it won't. But if it does, and you get a hint that rates are going to cut, we think it's off to the races. And that's one more way to get paid. I quickly want to ask, I want to go to some of the parts, but I want to ask one thing. Again, the company was pretty clear on the call. they talked about people asked them about capital allocation in four different ways and all they said multiple times as soon as we hit our leverage target our stock looks great we want to buy back stock

but i did want to ask on the digital ramp because you talked about a few times and they have said multiple times we're on pace for 500 million in 2025 now maybe it's not full year 25 maybe we exit 25 at a run rate of 500 million but i think there's a lot of skepticism there oh my god 100% skepticism so here's the i'll give you the bridge as we understand it and then we can debate so first of all, I don't think any of it's in the stock. And everyone's pessimistic. And so I don't know. If they do everything else we say and come up short on digital, what happens?

I mean, I hope it still goes up a lot because at some point it's just silly. Having said that, I think we were using something like coming out of last year, some run rate of 60 as a baseline, not much. And Q1 was then very weird with the hold, even though seasonally Super Bowl, everything should be strong. It was messy. But if you start with 60, I want to say it's just shy of a billion, a top line, like 973 million or something, 30% growing industry on the back of just, first of all, a secular

growth area, more interest in it, more partnerships, it's growing as a niche industry. And then you have openings, state by state, jurisdiction by jurisdiction, 30% a year times two years, for our math, that would just be mathematically 670 of incremental revenue. And at this point, the cost structure being what it is and their plans on marketing being what they are, we think it's 50% incrementals. So 670 at 50%, 335, starting from 60, right around 400. And then the rest is that they're doing these things like Madison Square Garden and other marketing deals that cost a ton of money. They were multi-year deals entered into when this whole space was hyper-competitive that are rolling off. A lot of skepticism on this point. We're not sure how to

take it. We've wondered when they roll off, what do you lose? They will explicitly say we lose nothing. Like these things, these banner ads on the side of a building or whatever, they're not adding to any profitable business for us. 2012 was a crazy time for everything. So what they say is you know, a hundred million bucks a year or so of money out the door turns off and they don't really suffer. So that seems too good to be true, but they also can explain it in a way where you say, well, they do just kind of sound like not the best deals and they're going away. Online gaming is just very interesting, like the whole space in general, because you can look at Europe and a lot of people do and they say look at the UK, look at everything, those

have gone down to about six player markets and they're pretty profitable. And here, everybody's losing money, but I think as they mature, you know, you looked at seizures or dressings, as Americans get more used to gambling, parleyes and everything are going up like crazy, and parley's carry much better margins. I'm so glad you mentioned that. First of all, parleyes are really fun, although I'm in California, so I'm very limited in what I can do, but parley's are great. The way they're going to get a lot of their growth and turn this business, or I wouldn't

say turn it around, they're already epitaph positive, but keep it going to some extent, is their hold is really low on digital. God, I don't want to get this wrong. I want to say they're in the sixes or maybe sevens as a percentage, and the comps are over 10, like draft kings and the like. And I think they can make it maybe halfway, target getting to say eight, maybe eight and a half. And that hold, plus just maybe maintaining some semblance of their current market share

and a growing sort of rising tide with brand deals rolling off. and I don't know if they get 300, 400, 500. They're pretty confident. They keep reiterating it. But if you take a draft kings multiple and slice and dice it because we're not draft kings and apply any kind of reasonable, you know, multiple for what could end up being a pretty sort of capital light, high margin digital business, it's worth a lot of money. The interesting thing about digital is just, as I said, the CEO came out and said,

we're not in the habit of delivering quarters like this one in Q1, right? It was a very bad quarter. 2025 is around the corner. If they didn't have a lot of confidence in the 2025 outlook, you think they would have just kind of like rip the Band-Aid off and said, hey, you know, we don't, 500 million dollars is no longer a 25 into 26 thing. That it's going to be 28, 29. Let me ask two more questions on the Seizers and then we need to go.

Yeah, we got to discuss what is the sum of the parts? Like, how do you look at the same parts of the fair value here? Okay, so I think we covered sort of what Cesar is. is why it's so cheap and to fully understand how it got here, what will make it change, which is digital inflecting, sustaining the core, asset sales, de-leveraging, and then shifting to buybacks. That's what's going to change it. And then the question remaining, if there are sort of four things to cover, the last thing would be, what's it worth? Just like, what are we playing for? And that's, we, I mean, I really think it could be worth 100 bucks, and that maybe seems

crazy when it's in the 30s, and I want to, like, maintain some credibility here. It was 100. Three years ago, though, it was over 100. I remember personally hearing when it faded from 110 or 120 to like 90, I first heard the pitch and thought it was actually kind of interesting. By the time I got to 60, I was sharpening my pencil. And, you know, and now here we are in the 30s. So this, we think, really could go all the way back if they prove it out, if it all comes together. The way we do it is we value the strip, the regional's digital and some of those other little asset sales. we take pretty conservative multiples. So you could do something like for a bit, take digital since we're just talking about it.

I mean, Draft Kings is like over 30 times EBITDA and on a forward basis, it's growing fast. So maybe high teens. But if you're thinking somewhere around a blended 20 times or low 20s on a sort of current year forward year, we only use 10 times. And we only put 10 times on 400. So we're giving $4 billion a value. I think you could argue all day long that that's too cheap. cheap and it's worth more. And if they prove it, great. We like to sort of haircut everything.

There's no real science behind what I just did. And I know some people would be like 10 times, are you crazy? But, you know, thinking it's too low, like why would it be 10 times? But then other people think it's worth nothing. So let's just say they do progress to a nice clean 400 EBITDA, then it's worth something. And if it's not, they'll do something about it, we think. We think they could sell it. They could spin it. They'll do something. They're not going to to stand there forever once it's really producing if it gets no value. Vegas, again, the comps are really hard. So I believe Vegas, we put around strip EBITDA or $2 billion.

And then the question is, what's $2 billion of Las Vegas strip EBITAR worth? We think given the blend of owned and leased, you can get to 10 times pretty easily. and then regionals again owned and leased we end up using six and a half times and that's way too cheap because of and i'll get to this in one second the owned element but regionals to trade trade cheaper so if you do like this conservative some of the parts of regionals Vegas digital and the other stuff we get like 70 to 100 bucks so that's sort of what it's worth but there's one last thing i really want to harp on which is leases are not debt first of all they don't have hard money maturities, you don't have that risk of having to go into the market, subject to market conditions, and refi it out. They're not debt. It's better than debt. What's interesting is the sell side will take their rent and slap like an eight times on it and call that the obligation. On the balance sheet, what we're using for our least adjusted enterprise value is actually at 10 times the annual rent. It's around 1.3 of rent and around a 13 billion obligation.

And that's just from the balance sheet. So you can calculate the implied multiple. And then we're taking the income streams, and we're putting these, like, in the case of regional, I'm saying six and a half times. So you're immediately hiving off a ton of value from this enterprise by capitalizing at eight or ten times the obligation, but only giving credit for sub seven times on what they're making, which to us seems not fair. It doesn't make sense. And then, and furthermore, if you look at transaction comps tied to real estate, tied to the Propco deals, there is a history here, especially in Vegas, where you can point to 17 plus times as an average multiple for these things. Now, some of those are trophy assets. Some of them were done in a lower interest rate environment. So I'm not claiming that should be 17, 18 times. But if you take 15 times, 14 times on property value in strip, And, God, what do we use? On regional, we did, you know, as an exercise, we used a regional 12 and a half times, propco. And then you put pretty crummy opco, meaning the actual operating, gambling businesses, let's assume a sale leaseback.

We did this exercise. Assume they sell everything that's owned and entered into sale leasebacks. and then we apply the appropriate multiples for property and operating. That alone, forget digital, forget everything. Exorcise shows you more than two times the current stock price. So it shows you that they're being heavily penalized for how people treat the lease obligation relative to how they capitalize their earning stream, which they have levers. They can sell properties.

So there was just a ton to go to. And I want to make sure we get to GCI because we've got to. So I just want to, there's so much I want to say. But we'll ignore it. Maybe I'll do a follow post or something. The last thing, I just think because this is such a headline, we should mention it. You know, Carl Icon announces he's bought a ton of stock. I don't think he's filed a 13D here.

And I don't think he's going to get quite that big. But he caught the CNBC reports he's bought a ton of stock in Caesars. I will just say, like to me, I think if you look at, icon's history. He's obviously controversial. He's had some misses. He's had some hits. I think his history in gaming is outstanding and not just in terms of picking, but in terms of the timing of getting out, of getting into things. So you can correct me if you think I'm wrong, but I just turned over to you, what do you think about the icon investment and what do you, he did say he's not going to go activist. He loves the CEO. He's

got history with him from El Dorado. What do you think about the icon investment and what do you think like he kind of pushes them to do? Yeah, we think Tom Riggs great. So when when he clarified Friday that he's not thinking activists I that was part for the course for us because we actually like tom rig a lot and we think they know what they're doing and not every decision in the last several years it's been 100% perfect maybe they spent more money than they wanted to on digital but they're making the right calls now they have a long history in the business and a lot of credibility so we don't think activism is really needed they just need to execute on this game plan we love the game plan so let's just execute um

I don't know, Carl Icon, I actually, to the extent we know lots of people, lots of funds across the country, I don't know anyone there, had no idea where that was coming. But it's not really surprising if you do the math and you study why it's so cheap and all the catalysts, it's a name brand situation too. This is not, you know, some off the run situation. So we in our diligence thought someone might come along and develop a serious position here. We didn't know who or what or when or how. So not surprising at all. In fact, I would be surprised if that's the only big name person to get involved in this because it's crazy. We think the valuation here is kind of bonkers and it's about to happen unless we're wrong than the consumer and then we'll have to white knuckle it.

You know, I just two more points on icon. I was a little surprised because he's got a great tracker record with gaming. But if you look for the past like 10 years, his hedge fund has like famously been kind of net short. So I surprised he'd take, you know, $100 million plus position in Caesar is when he's been kind of bearish consumer. And I think that just shows you like it rolls into the second point I was going to make. One of my questions was going to be, hey, Jacob, like don't all these go into bankruptcy or distress at some point. Why not just wait for that? But then you look at the stock chart and you're like, hey, this is down 70.

over the past three years, like maybe that's not full out distress, but Jacob walked through the asset math, the stock prices way down, like, you're kind of getting to the levels where you could say, hey, it's already approached distressed issue levels. So, you know, there's a ratio of sort of draw down. How much is it down? How much is it derated versus how much has gone wrong? Not that much has gone wrong here. They were supposed to sell a strip asset that was rumored.

They were going to do it. And then it didn't happen. That was like a year or two ago. Digital, they spent too much money and they lost some money. Them and everyone else in gaming, though. It's not like these guys were out on an island. They haven't done some epic screw-ups everywhere. Vegas has been crushing it.

And they've been de-leveraging, paying down debt. Nothing crazy has happened here. Rates are higher. They've maintained this wildly high Vegas occupancy for a while, so people are worried at a rollover. Consumer, there's some nervousness. but that ratio of drawdown to what's gone wrong is we think just out of whack so i'll leave it at that well i will just let you know i was there for a conference at the end of april and i won two hundred

dollars playing craps so just built and it was at the paris which is a caesar's property so just go ahead and build that into it's your fault let's quickly go to ganette which i yes the ticker there is gc i'll just reiterate the disclosure levered this is a lot more e-liquid though you know it is liquid for just about everyone who those things to this podcast. But I think this is an absolutely fascinating story, but it's also a quicker story. So I'll just turn it over to you. Why is Ginnett so interesting these days? Okay. Yeah. Same disclaimers apply to the extent anyone's just jumping in here and miss the Caesar's part of this. Do your own work. And I, again, might make mistakes. I have a position. If it goes up, I do well. And I may not reveal one.

I change my mind if new stuff comes out. I just want to be really, really, really up front. So this is my best work and estimates, and I don't know how it's going to play out. And this is, you know, a hairier one. They tend to be. But we really like this one. It's just right up our alley. I mean, not only is it a levered equity, it's got debt.

Not only is it a misperceived melting ice cube because it's legacy print media, that kind of thing, classic value, that's up our alley. But it's got a couple other fact patterns we really like. Okay, one, I call it sort of like crossing lines. So if you have a segment in decline, as it declines, if it's one of a few segments, its mix of your total tends to get smaller and smaller. I mean, if it's shrinking faster than the overall rate of shrink in your company, then yes, it's getting smaller and smaller. If at the same time you have a segment that's growing, it may start on a small base, but it gets bigger and bigger and snowball rolls down the hill. And there is a point of inflection where the growth area now dwarfs the declining legacy piece.

And if you are in that position, your overall consolidated top line might inflect from negative to positive. That's a fact pattern we look for sometimes. That's going on here. They have guided explicitly to achieving that in the fourth quarter. So it's taken years to get here because you need that small piece, in this case, the digital subs, that we'll get to New York Times. That has to take a while. It has to get big enough, and we're there, almost.

We're on the doorstep. What I like about GCI, just to, yes, and what you just said, a lot of times I'm sure you have the same temptation, but I definitely do. I'll buy it when it's like the declining segment is 70 and the growing segment is 30. And I'll be like, oh, three years from now, they'll get the credit for this.

Here with GCI, I mean, I'll just say, it never works when you say three years from now. You always need to get that. You need to get on the door. You don't get the credit until it happens. Maybe, and so you start playing iterative game theory of like, okay, if everyone knows it's, it already happened, then maybe it's in the stock. So maybe let's back up like one quarter.

And if everybody's, it's just too far, right? Three years is too far. Nobody believes it. One quarter to maybe like nine months, I think is this. Yeah, I was going to say, I think a year is even too far because I, I can be too early on these things. And then you get very frustrated, but this is really close. But this is really close.

But exactly, that's where I was going with. And to wit, in Q1, digital grew at the best growth we've seen in a while. It was like 8.1% growth in that segment, such that the overall revenue growth, which had been double-digit declines. I think I have to double check. I think it was minus five last quarter. Let's make sure I got my numbers right. It sounds rough or right, because they were talking about minus five to minus eight and something from memory. Yeah, yeah, yeah. K1 consolidated was minus five. because the digital piece was plus 8.1.

So we're almost there, and they're guiding it. And so if we're right and they do what they say, that inflection is coming. Okay, so we have the crossing lines fact pattern. We have a refinancing fact pattern. We think there's a runway extension major global refi that's right in front of us, and I can go through that. We do equity and credit in our fund. So we tend to sort of see when those are coming and ascribe a lot of value to

runway extension, optionality, making sure there's no question of survivability for a long time, etc. We think that's coming. I can explain why. That's a fact pattern we like. And then we love free call options. And the Google ad tech abuse litigation with the Department of Justice in 34 states is one. We have our own. Gannett has its own related lawsuit in that vein. but we're watching carefully sort of the alphabet Google ad tech abuse legal development

and then two AI so there are actually two ways AI goes one is backward looking damages oriented think of New York Times suing open AI and Microsoft for violating copyright etc etc and they want to get paid for all their content that was used to train up the algos

or two forward looking which literally just a week or two ago News Corp apparently signed a 200 $50 million five-year deal looking forward to licensed content for AI. So you have two, and maybe you put them together and you say, look, we'll resolve all our damages, we'll cut a deal looking forward. Like, I don't know how it plays out, but it's a lot of money. AI is the biggest gold rush ever, and it's real, and we make content and have made content

for a long time, and it is used for AI training. So I think there's money there. And it's free. Like, we're not paying for it. So AI, Google litigation, those two things are just, we don't believe in the stock at all. And they're really exciting and they're timely, you know, ref crossing lines and then just a cheap company. So that's why we're in Ginnett. I mean, so I can back up and say what it is and all that.

So I think there's two legs there, right? There's the call option leg, which is the AI and the lawsuit against Google leg. And then there's the undervalued leg. Like what, what's you is this more of the play up? Is it more the undervalued or is it more of the call? option. So for us, it's the reason to get involved is both. We're looking for both. If it didn't have all the free upside, let's imagine it just that didn't exist. Then, you know, our math would say, okay, we're creating this at five times EBITDA. Free cash flow is resilient and good, actually

growing. They're guiding it to grow 40% kegger going out several years. That's real free cash flow growth. So maybe better than resilient. It's growing. EBITDA is solid. So it's perceived to be a complete, you know, going away type thing, but it's not. We have the revenue inflection story, digital subs, New York Times trades 17 times EBITDA. We're at five. If we could be like, I think the crazy bull case here would be. And what they tried to do, and I think they backed off a little bit, they're going to different

strategy would be they pull the New York Times, right? where, hey, New York Times, five years ago, seven years ago, maybe people thought they were dying, and now people look at that as a subscription, online business. And I think your bull case here, Gennett, their major property is USA Today. Your bookcase here would be, we can pull in New York Times. And I don't think that's critical to the thesis, but I do, like, my pushbacks would be, hey, New York Times had crossword. New York Times, they bought Wordle.

You know, I got to do my word all every day and send my score to my dad. But USA Today just doesn't quite have that brilliant. The athletic's good. I mean, I like the athletic. I don't know if there's a lot of value at the athletic. But it does add to subscription revenue. But when I look at USA Today and I went on their website, and if you go on their website,

it looks like a 2008 website. And I just don't know if USA Today has like that subscription poll that New York Times had. And as you said, it's five times EBITDA and not that it doesn't have to be New York Times for this to be successful, but I just don't know if that's fully in the cards. Does that make sense?

Yeah. digital only they have a lot and it's growing so it's working regardless maybe of what the landing page looks like it's working it's a big property and I'm just staring at I don't want to get it wrong but this must be in millions right so a hundred twenty one million digital only 2022 going to 142 digital only in 2023 So plus, you know, it 22, 21 and a half year on year. So around 20% growth in USA Today digital only. And it's the biggest, I mean, out of all their circulation, so I'm just this 10K disclosures. So it's growing, it's big, it's working. And just for those who don't know, Gnett is a collection of regional, local properties all around the country. hundreds of them, and then this sort of crown jewel in USA Today.

And what's interesting is some of the history here, there was a fortress-owned new media, which was over Gatehouse, that was cobbling a lot of these together. They bought Gannett. There was a bankruptcy a long time ago, I want to say 2013. But some of these players have been here for a long time, putting a lot of this together and going back now several years part of the story has been not only right size and cost structure obviously there's sort of cost outs in industries like this

but integrating various software ERP type systems getting it under a more unified system and because when you operate with this much debt you can't just do it all at once you have to be prudent do a bit by bit and spend the money as you you can. Fortunately, they make a lot of cash flow, so all the while they've been able to afford it, our understanding and talking with the company is, many years of hard work are coming to a head where their systems work. And this is the not so sexy stuff. When you go to USA Today.com, you don't see it. But on the back end, their margin improvement story is really solid because of years of work getting to this point. So we think you have five times EBITDA, very strong cash flow

conversion, a huge cost and back end multi-year effort nearly behind us with all these properties that are, they're not all bad. I mean, some are really good. They've got a thing in Palm Beach that is read widely. They have all these little gems in the portfolio when you start going through it with core readership and yeah overall print declines are tough but we think there's there's stuff offsetting it today's episode is sponsored by santangelo's review finding the right hedge fund cap intro event isn't just about the size it's about the value it brings to your time sandton jules review offers something unique for fund managers and allocators founded in 2010 it hosts three cap intro roundtables each year two in new york city and one at fenway park in boston these

events stand out for their focus on quality over quantity, attracting some of the most prestigious endowments, foundations, and family offices worldwide. The secret sauce, Santangels Spotlights Undiscover's Talent, managers you don't necessarily see at other industry conferences. Attendees take part in eight one-on-one meetings, intermixed with ample networking opportunities. In an industry build-on relationships, Santangels foster some of the most valuable connections. If you're a manager or allocator who is serious about maximizing your time, you want to be a part of Santangil's roundtable. It reminds me a little bit of, like, the CEO was at, I think it was city in September and he was talking. And the two things that jumped out to me, he said, hey, we have

a top five by audience from Comscore every month, which I could not believe, but it's top five by Comscore. And he said, our peers are getting about $14 per month. I guess is it per month per quarter? In Arpoo, I can't remember. Probably per month. And we're getting seven. And it reminds me a little bit of the cable affiliates, you know, like the Nexars and stuff, the grays where they say, hey, we've got all this I share. I'm not going into cable with you. Those are the cable affiliates. But they're saying if we can just capture one of the value.

But the difference is like a next star, you know, that's all, it's tied to the video bundle. Whereas here, because they are generally direct and online, like you don't have that quite that same terminal risk of the bundle just going away here and you're paying five times I even I like that. Let me ask about the Google litigation. Sure. litigation. You know, they, it's not piggybacking, but the case is very similar to the DOJ's case against Google. Hey, Google, you're a monopoly. We're on digital advertising because of that. You've harmed us.

And I just want to ask, like, look, this is a 1.5 billion market cap with, um, sorry, I don't have my market. No, no, 560 with a 560. Yeah, yeah, 560 market cap. I mean, if they get anything from Google, you know, it could be treble damages, any settlement. You mentioned 250 million news corp from AI, like any tens of millions could be a huge number for actually the market gap here. So I just want to ask, like, what's the case here? And what do you think it ultimately could be worth? Okay. But then we got to go back to the refi, because for us, that's really important.

I think we covered some of digital. Okay. The important thing is you have DOJ and then a bunch of, I think, 17 states. First, it was plus nine states and then later another eight joined. So DOJ and 17 states, they are going to trial September 9. This is the Rocket Docket that's Eastern District of Virginia. There have been various delay tactics employed. Some delays worked, but no more, we don't think anymore are going to work.

It's going to trial in September. Whether any settlement happens or this, you know, maybe the DOJ really wants Google to break up. Part of the case is all around sort of what they've done post double click, which I think was 2007. they have really taken over the advertising digital advertising ecosystem so the complaint you know goes into detail of how that's harmed um all sorts of players and been anti-competitive then texas led its own case and 16 states joined them so there's the texas case and the doj case in aggregate 34 states i might have these facts wrong but i'm pretty sure that's right um and it's all coming to a head, and it's all around abusive, anti-competitive, alleged behavior. I'm not a lawyer. I don't

know. But, and I, God, God knows I get litigation stuff wrong. We're not going to go there. You and I both have experience in that world. But it seems compelling to me. And there have been interesting gambits in trying to make it go from a jury case to a bench trial. Google did this thing where they said they sent in a cashier's check for the full amount of what the DOJ is claiming and damages plus trebling. And point is, like, Google's got over $100 billion of cash. They made over $25 billion in cash from operations last quarter. Like, money doesn't matter. They want to stay together. If the DOJ doesn't care about money either and they just want to bust them up, I mean, maybe there's no settlement. So we'll see. But if there's a settlement, we have our own lawsuit,

Gannett. And there is a law firm that took it entirely on contingency. I don't know how these things work. I think it's tens of millions of costs to the law firm and sort of lost billable hours. I think this is a serious case involving a lot of cost. When I say free call options for Gannett, in this case, it's totally literal. We're not paying for it. We get a big split of any eventual findings in our favor, any settlement or findings. I've done a lot of work in the lit financing space, Burford, the Argentina YPF case and everything. And if your lawyers are taking this on contingency, you know, that's the tell to me here, right? It's not a guarantee, but it's the tell that they see a big payoff and they

see a reasonable likelihood of payoff. Yeah, a strong case, a good size payoff. I think we're asking for north of one and a half billion. I think trebling is automatic in damage finding. So, you know, the general idea is this could be worth up to say a $5 billion kind of thing in the max case. So if your bookends are zero and $5 billion, you know, what does it take to settle? Well, when you have a $560 market cap, honestly, anything that this management team would ever sign off on. And I would hazard to note that the CEO is the number 12 largest shareholder of Gannett. He has bought a ton of stock in the market. You know, go do GPTR on Bloomberg and you'll see it.

He wants the stock to work. So he's not going to take a crummy deal. Any deal he would take, it's going to be meaningful relative to today's market cap, I believe. That's certainly our contention. And then on AI, I have absolutely no way of scoring it. In the New York Times case, they referenced, quote, billions in damages. Then I mentioned the $50 million a year for five-year news court thing. that's just from news articles.

What is Gannett going to get out of AI? I don't know. I don't even think they've really gone all the way down that path yet. This is early days for Ginnett with regard to the AI upside. But they're not asleep at the switch. They see the News Corp deal. They see the New York Times lawsuit. Their law firm is aware of all that as well.

They can find a way to do it on contingency as well to go pursue deals. And we think there's a lot of value there too. cool look i think we call it refi is what you wanted to go to yeah i got to do it so in 2019 this this company with the fortress deal um they all came together with this big apollo lead debt deal in 2019 i believe and then if you go to bloomberg and you just search the holders you will see apollo's a big holder of the convert i mean i think it shows up as a fiend and then on Bloomberg, punch up HDS, you will see Apollo as an equity holder. You will also note, if you look at their position over time on Bloomberg, that in fourth quarter they added and they added again in first quarter.

And I just want to say, I don't want to go too far into it. And there are lots of things said about Apollo. It's a big organization all around the country. When a lender is letting you not do required amortizations on the term loan and instead, buying back at a discount other parts of your debt in open market purchases, when they are moving down the capital structure into equity, I mean, usually there's only one reason to do that. You are really bullish the stock, and you see it as the wippiest, highest return part of the structure. Everything I've heard, I just want to say on this team at Apollo is nothing but

positive. That's not true of the entire firm. That's not true of any entire firm. But in this case, these people, from what I gather, are really supportive, really smart. They're in it to win it. And I mean, I'm just looking at this public disclosures on Bloomberg. They are moving down, buying, you know, stock. And I can't think of an alternate explanation. And so I think they have assets for sale. They talk about asset divestitures. They've been selling real estate. You could always sell a crown jewel little local newspaper. If someone wants to, you know, I don't know, get involved in media. They could buy their local paper. So you sell an asset. You've been selling real estate. They still have a little bit left on that front. To choose your free cash flow, you get your

say 1.1 to 1.1 billion of net debt. Get that down to something like 900. Your first maturity now is at 2026. We're staring at 2025. You want to be proactive. Probably also like to deal with some of this, including the five-strike convert before the litigation plays out, let that stock have just uncapped upside. We think it's all there. And keep in mind, people should go look at how much debt they've been paying down over $100 million a year for like the last three, four, five years. I can't remember. But certainly since COVID, it's been debt pay down, debt pay down, debt pay down. So they are now in position to pay down a bit more, work with their lenders, work with the big investors. You know, you've got really smart people in this

equities. I mean, we didn't even talk. Like, Fortress is there. Lee Cooperman's there. Like, smart people are here for such a small company. Lee Cooperman hops on. I'm just every call. He hops on some of the calls and he asks some questions. And he has to walk them through like advanced and basic stuff on the company. And he has them walking through it, which it's great to seem to. I just want to, my favorite part of the story is you get the business. As you said, you add a low multiple with the free cash flow inflection. But then you, you get that free call option on. I love the lawsuit. And I would just encourage anybody who's interested, June 20, 2003, Gannett files a Google frequently asked that questions 8K,

which has all the questions that you want answered on the lawsuit, including Jacob mentioned the legal team here. And they say, look, I don't know it. It's Kellogg Hanson. I believe Kellogg Hanson is the firm. I don't know them. I'm not a lawyer. But they say, hey, this firm secured both the largest and second largest antitrust verdicts in history. and defended the verdicts on appeal. One was a tobacco case where they got $1.3 billion and one was a urethrin antitrust case where they got $1.2 billion of price fixing.

Like, if they're taking on a contingency, nothing's guaranteed, but I feel pretty good that there's some odds of success on that case. And, you know, their past cases were $1.3.1.2 billion. This is a $500, $560 million market cap. Like anything would be really big here. Yeah. Yeah, I mean, we just think by the time we even get, you know, some of the, we could have all sorts of good things happening here.

So that would be hopefully fuel on the fire. Perfect. Well, Jacob, this has been great. We're going to have to do the podcast four before too long because it's been like several years since the last one. But we'll, you know, maybe for the fourth one, we'll focus on one stock or maybe we'll go the other way and blow it out to four. We'll increase exponentially. But I think both these are super fascinating. I appreciate you coming on and looking forward to chatting soon.

Perfect. Sounds good. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.