US casino operator Caesars Entertainment performed significantly worse than rival (and new owner) Eldorado Resorts in the second quarter of 2019.
On Monday, Caesars announced that its revenue had risen 4.9% to $2.22b in the three months ending June 30, largely due to the company’s acquisition of two Centaur Gaming casinos in Indiana and record hotel occupancy at its Las Vegas properties.
However, operating income fell 4.6% to $269m thanks to ongoing struggles at its three Atlantic City casinos and other regional operations, as well as a bad run of luck at Caesars Palace’s gaming tables, which also suffered from lower volume (excluding baccarat). The company also booked a $50m impairment related to gaming rights at its UK properties.
It wouldn’t be a Caesars results story without some reference to its outstanding loans, and sure enough, the company took a $323m hit from its latest attempt to kick that debt can down the road. The net result was a loss of $315m for the quarter, nearly $100m higher than the company lost in the first quarter of 2019. But hey, at least that debt will soon be Eldorado’s problem.
ELDORADO’S REGIONAL STRUGGLES
Before discussing any updates regarding Caesars integration into Eldorado, it’s worth pondering the latter company’s own Q2 numbers, which were released Tuesday. Eldorado reported total revenue of $637.1m, operating income of $102.5m and net income of just under $19m.
Comparisons with Eldorado’s Q2 2018 are largely pointless, given the wholesale transformation the company underwent following last year’s acquisition spree, which saw the company add seven Tropicana Entertainment properties plus the Grand Victoria Casino in Illinois.
However, if one includes Eldorado’s bolt-ons into its Q2 2018 numbers, the overall revenue figure dips 6.2% year-on-year, with declines across all of Eldorado’s geographical segments. Operating income would have been down 6.9% but adjusted earnings would have risen 2.2%.
SPORTS BETTING, ONLINE CASINO SPINOFF POSSIBLE
On Tuesday, Eldorado CEO Tom Reeg said the expectation was that his group’s acquisition of Caesars will receive regulatory approval sometime in the first half of 2020, and Eldorado was busy crafting “a detailed plan to marry best of breed practices from both entities.”
On Caesars’ analyst call, CEO Tony Rodio talked up his company’s sports betting expansion plans, including seven in-development sportsbooks at Caesars’ Indiana casinos, as well as plans for rollouts in Iowa and Illinois (although the latter market might take a while).
However, Eldorado’s Reeg said Tuesday that one of the results of his company’s integration plan could be the spinoff of not only Caesars sports betting operations but also its online casino business, Caesars Interactive Entertainment (CIE).
Reeg said CIE was “a material business that I think really gets little to no value.” Reeg said his current thoughts were along the line of “is there a way to structurally put something together that shines a light on that business in more of a pure-play fashion that would be recognized by the market? …. If I can find a way to spotlight that value you should expect that we’re going to look to.”
Of course, Reeg’s post-integration mission critical is wrestling both companies’ combined debt into something not resembling the 16-ton weight from Monty Python, so looking for stuff to sell is a no-brainer. Reeg confirmed Tuesday that he’s “strongly considering” unloading one of Caesars’ Las Vegas Strip properties and federal regulators may force him to sell more regional properties to avoid market concentration concerns. For example, the combined entity will control four of Atlantic City’s nine casinos, and most of those four are currently underperforming the rest of the market.
Eldorado has been busy preparing for the merger by trimming its own portfolio in recent months, including selling properties in Mississippi and Missouri, and another three venues in Missouri and West Virginia.
