Red Rock Resorts is a Second-Class Gaming IPO

Investors who buy Red Rock’s second-class shares on offer will gain a minority (33%) stake in the once-bankrupt Las Vegas casino and tavern operator, Station Casinos. The terms of the offering beg questions about company insiders’ confidence in its long-term prospects. Prospective investors should ask management the following questions

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The Tax Receivable Agreement of the Red Rock Resorts IPO

The IPO’s tax receivable agreement requires Red Rock to pay out a substantial (and potentially unlimited) amount of cash to the pre-IPO owners for years after the IPO. TRA payments will not be subject to the approval of outside investors, can negatively affect free cash flow (not EBITDA) and Class A stockholders’ equity, and will be in addition to quarterly tax distributions payable to the pre-IPO owners.

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What is the Red Rock Resorts IPO?

As currently proposed, the Red Rock Resorts IPO will result in the Fertitta family taking substantial sums from the company, retaining control for the long term through super voting rights, and shifting risks in its current structure to new public investors. The complicated IPO thus presents prospective investors with an unappealing proposition.

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