Even prior to the completion of Eldorado Resorts' $17.3bn acquisition of Caesars Entertainment more than two years ago, executives emphasized they were working on a potential sale of a Las Vegas Strip property to pay down debt, but that plan has now been scrapped.
But in August, CEO Tom Reeg stressed that any deal would have to make sense for Caesars.
On Tuesday (November 1), Reeg said that Caesars now intends to keep all its Las Vegas Strip casinos and is no longer looking at selling one of its resorts.
“We ran into a market where the cash flow of the asset continued to increase and the ability of buyers to raise financing made it a very easy decision for us to keep,” Reeg said. “I know that despite us talking about how this was a discretionary process for us, it created an unnecessary overhang on the stock.”
Reeg apologized to shareholders, saying his comments were “a self-inflicted error.”
Caesars operates nine casinos in southern Nevada, which includes eight on the Las Vegas Strip, as well as the off-Strip Rio All-Suite Hotel and Casino, which it still operates through a lease agreement.
“We will be keeping our Vegas Strip assets as we move forward,” Reeg said.
As this stands, Caesars has net debt of $12.36bn, down from $13.25bn at the end of 2021.
Reeg told analysts that the company expects about $1bn in free cash flow in 2023, and that VICI Properties has a call option on the Centaur Holdings properties in Indiana acquired by Caesars in 2017. He said should VICI take advantage of its option by the 2024 deadline, the company could realize $2.5bn.
“The inflow would be quite substantial,” he said. “If we do both, the vast majority we expect to use to pay down debt.”
Caesars has also joined a growing list of operators expressing interest in one of three licenses for a casino-resort in downstate New York.
Caesars and its partner, developer SL Green Corporation, have announced a plan to put a casino in a skyscraper at 1515 Broadway in Times Square near West 44th Street.
SL Green already owns the building, and the Caesars Palace Times Square proposal calls for incorporating the Broadway theatre that hosts “The Lion King” musical into the development.
“It will obviously be a very competitive process and we look forward to putting our best foot forward when the RFP process begins,” said Caesars CFO Bret Yunker of a process due to be kicked off by a recently appointed Gaming Facility Location Board by early January.
“Given the inherent sensitivity around the bid process, we aren’t in a position to go into details around project costs at this state, however; we can tell you now that the project starts with an existing building and will be financed with a new joint venture that is not on our balance sheet,” Yunker said.
Caesars will brand and manage the asset under a long-term agreement, and “any equity investment into the joint venture will be very manageable relative to our free cash flow,” Yunker told analysts.
Several casino companies, including Las Vegas Sands and Bally’s Corporation, have expressed an interest in competing for the three downstate licenses being awarded by state gaming regulators.
Wynn Resorts, in partnership with developer Related Cos., is also seeking to build a casino at the Related-developed Hudson Yards project on the western edge of Manhattan.
MGM Resorts International’s Empire City Casino in Yonkers and Resorts World New York City in Queens, which both operate racetracks that feature casinos with video slot machines, are the expected frontrunners for two of the three available casino licenses.
When asked Tuesday about other greenfield opportunities in domestic or international markets, Reeg stressed that he would “never say never” when it comes to expansion opportunities internationally, but it is “highly, highly unlikely.”
“In the U.S., if you see a major market open like say Texas, you should expect that we are going to look for a way to participate there,” Reeg said.
“You’ve seen us in Danville, Virginia, where the temporary casino will open next year. Columbus, Nebraska, which is smaller, a temporary casino will open next year,” he added. “We will pick and choose but you should expect us to be domestic-focused.”
Caesars on Tuesday reported third-quarter revenue of $2.9bn, compared with $2.7bn for the same period last year. The Las Vegas segment accounted for $1.07bn, a 5.9 percent increase from the $1.01bn in the third quarter of last year.
Reeg noted that its Caesars Digital arm posted $212m in revenue for the quarter, which was up 120.8 percent from the $96m reported last year. The division’s loss also declined 66.8 percent to $63m from $190m in the same quarter last year.
In terms of adjusted EBITDA, Caesars Digital loss was $38m, compared with $164m last year.
“Caesars Digital reported strong revenue growth in the quarter and a smaller than expected EBITDA loss driven by improved operating efficiencies,” Reeg said.
Looking out to 2024 and 2025, Reeg noted that the current digital business is dominated by sports betting, but the future could belong to igaming.
“We have a significant opportunity in front of us with internet casino,” he said. “We think that will grow from what is a fairly small contributor today in a much more meaningful contributor. This is not unique to us; it is through the entire industry.”
In terms of betting partnerships and sponsorship agreements, Reeg told analysts Caesars spends north of $200m annually.
“That is a fixed expense for us, but you should expect that for as long as these contracts are in place,” Reeg said.
“You should expect some of them may live on in a form that is not quite as expensive as today. A fair amount of them will go away entirely.”