Caesars CEO refuses to rule out digital spin-off

| By Robert Fletcher
Caesars Entertainment chief executive Tom Reeg said the operator would consider spinning off its digital business if this would help drive further growth and shareholder value, but said it would be his preference that the segment remain 100% owned by Caesars.
Caesars Palace Las Vegas

Reeg was speaking in an earnings call shortly after Caesars posted the results for its third quarter, during which the digital business experienced significant year-on-year growth, following two successive quarters of loss.

Reeg said, since launching the digital business, Caesars has been able to monitor verticals and identify what type of customer is playing to adjust spend based on what is getting a return on investment. This effort has been led by Eric Hession, the president of the Caesars Sports and Online Gaming business.

“We made some significant changes in the last 60 days that have flowed virtually entirely basically shutting off particular segments and that cash has flowed immediately to the bottom line with no degradation in market position,” Reeg said.

“So, we feel very, very good about where we’re at. What we’ve done on the brick-and-mortar side is figure out how to invest more in your best customers and less in your less profitable customers, and that’s really the basic blocking and tackling that we’re doing in digital that has led to these results.”

With new digital sportsbook launches planned for Massachusetts and Puerto Rico – the latter expected late this year or early 2023 – as well as plans to pursue online casino in a range of markets, Reeg was asked whether this could lead to Caesars spinning off the digital operations.

Reeg did not rule out the idea but said there are no plans to do so at present.

“I’d say that our competitive advantage here is tying it to the existing brick-and-mortar business and our Caesars Rewards database, and it would be my preference that that remains 100% owned by the parent company,” Reeg said.

“If you get to different shareholder bases for the two businesses, there’s a complexity introduced. You can see that in some of our peers in terms of when you get to different shareholder bases in the same business.

“But I’d tell you, you know that we’re constantly focused on how we drive shareholder value. If you get into a market where that ultimately makes sense, and that’s the way to increase the pie for shareholders in total, certainly that’s something we would consider. In the recent market environment, there hasn’t been much value placed on digital assets. So, it’s a very easy decision as we sit here today.”

Caesars results

Looking at Caesars’ performance in full for the third quarter, total revenue for the three months to the end of September was $2.89bn (£2.51bn/€2.92bn), up 6.4% year-on-year.

The operator’s regional casino business contributed $1.53bn to this total, while Las Vegas revenue came in at $1.08bn. Digital revenue rocketed 120.8% year-on-year to $212.0m and managed and branded revenue reached $70.0m.

In terms of how this revenue was generated, casino and pari-mutuel commissions was responsible for $1.61bn, with food and beverage revenue at $411.0m, hotel $544.0m and other operations $327.0m.

Turning to costs, total operating expenses were 3.5% higher at $2.23bn, while Caesars also noted $598.0m in additional finance costs, though this was 29.6% lower than in Q3 of last year.

Pre-tax profit was $61.0m, compared to a $317.0m loss in 2021, while after paying $8.0m in income tax and accounting for a $1.0m loss from non-controlling interests, this left $52.0m in net profit, a significant improvement on a $233.0m loss posted last year.

In addition, Caesars reported that its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 15.0.% year-on-year to $1.01bn for the quarter, representing a new quarterly record for the business.

“Our third quarter results reflect a new quarterly record for consolidated adjusted EBITDA,” Reeg said. “Results in the quarter also reflect a new quarterly record for our brick-and-mortar properties led by a new all-time high third quarter EBITDA performance in our regional segment and continued strength in Las Vegas.

“Caesars Digital reported strong revenue growth in the quarter and a smaller than expected EBITDA loss driven by improved operating efficiencies.

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