Caesars CEO Reeg: Relationship with Icahn on solid footing as company considers digital spin-off
Last week, Caesars Entertainment CEO Tom Reeg appeared at a prominent gaming conference as the multi-billion dollar company continues to race toward a potential crossroads.
In recent months, Caesars has expressed a willingness to consider a spin-off of its digital business, one armed with loads of growth potential surrounding the expansion of the company’s online casino ventures. In March, famed investor Carl Icahn garnered headlines when he reached an agreement with Caesars to expand the size of its board. Within the agreement, Caesars consented to the appointment of two directors who serve as executives with Icahn Enterprises LP, the investor’s multi-billion dollar conglomerate.
“He wants to be involved in the conversation and I welcome him to join us,” Reeg told iGB on the sidelines of the East Coast Gaming Congress. “We have a great relationship.”
Long-term profitability on the digital side?
While Caesars posted overall net revenue of $11.2 billion (£8.4 billion/€9.8 billion) in 2024, approximately $1.2 billion came from its digital arm. The online segment gained approximately 20% from the previous year.
Caesars also reported adjusted EBITDA of $117 million on the digital side, more than tripling the amount of $38 million in 2023. The favourable results prompted Caesars Digital to reiterate long-term EBITDA targets of $500 million annually.
Caesars management also hinted at a potential spin-off last December at a Truist investor summit. At the time, there were strong indications that Caesars’ online gaming brand grew at a faster rate than the broader market, while its standalone Caesars Palace online app demonstrated signs of improved slot mix.
While analysts believe a divestiture may “crystalise” its value, the entity would need to be profitable to have investment on a pure-play basis, Truist analyst Barry Jonas wrote in a research note.
At Caesars’ last earnings call in February, Reeg emphasised that “operationally, it made the most sense to keep everything together as one”. Still, he believes the timing is right to consider the digital business as a pure play.
Caesars’ multi-billion case study
Before Caesars evaluates its next steps, Reeg indicated that the company has to prove it is “scalable” with the underlying digital business.
If the online arm makes the proper strides, then Caesars has to determine if it is reflected in the share price. If not, Reeg noted there are tools at the company’s disposal to realise the value.
A key figure to watch this year centres around analysts’ consensus estimates for Caesars Digital revenues at $352 million. If Caesars can top the projections, while trading at an EBITDA multiple of 12.5x, the digital unit will trade at a deep discount relative to DraftKings, according to a January note from Deutsche Bank analyst Carlo Santarelli.
At the time, it translated to a standalone valuation of approximately $4.4 billion for Caesars’ online business. Most pure-play, digital-only gaming operators trade in a range of 15x-25x.
A rapport with Icahn
Icahn is no stranger to Caesars. The financier began accumulating shares in Caesars seven years ago, building a stake that eventually reached 25%. Icahn won three seats on the Caesars board, then pushed vigorously for the sale of the company. After Eldorado Resorts completed a $17.3 billion acquisition of Caesars in 2020, Icahn exited from his position.
The investor re-emerged last August when he disclosed in a Form 13F filing that he owned more than 2.4 million shares in the “new Caesars”. As of 31 December 2024, Icahn’s position remained unchanged. Then, last month, Caesars added two independent directors to its board – both with ties to Icahn. The appointments of Jesse Lynn, general counsel of Icahn Enterprises, and Ted Papapostolou, the CFO of the company, boosted the number of directors on Caesars’ board to 12.
Icahn, in a statement, wrote that he looked forward to working with Reeg and the board to maximise value for all shareholders. The efforts, Icahn added, include exploring strategic alternatives for the company’s digital business, one he described as “underappreciated”.
Speaking to iGB, Reeg noted: “Carl sees the same thing we see in an undervalued equity and an opportunity to change that through digital.”
In the past, Reeg and his finance team have been lauded by Icahn for their ability to reduce debt. Caesars faces some obstacles considering the company ended 2024 with a considerable debt load. As of 31 December, Caesars had $12.3 billion in the aggregate principal amount of debt outstanding, according to company filings. At the time, the company also had total cash and cash equivalents of $866 million, excluding restricted cash of $150 million. Caesars is eyeing a target leverage ratio of 4x by the end of 2026.
Q1 earnings near
Despite spiking 7% in Tuesday’s session, Caesars is among a number of gaming stocks that have come under pressure due to macroeconomic concerns from a prolonged global trade war. Caesars shares are still down nearly 20% year to date.
Investors will receive more colour on Caesars’ long-term digital plans at next week’s quarterly earnings call. Caesars is scheduled to report earnings on 29 April, one day after BetMGM. The company will also release 2025 first-quarter earnings, a day before MGM Resorts is scheduled to address analysts on a quarterly call. MGM Resorts collaborates in a 50-50 joint venture in BetMGM with Entain.
Caesars Entertainment is expected to post a quarterly loss per share of $0.18 according to Zacks Consensus Estimate, an improvement of 67.3% from the year-ago quarter. For the first quarter, analysts project revenue of $2.79 billion, an increase of about 1.8% from the same quarter in 2024.
Reeg did not provide a timetable on when Caesars plans to make a decision on the potential spin-off. Nevertheless, he appears encouraged by the future prospects for the digital unit.
“Our goals are in our windshield,” Reeg told iGB. “Now we just have to get there.”