Caesars CEO ‘Cautiously Optimistic’ Digital Past Last Negative Quarter

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Caesars CEO Tom Reeg said he is “cautiously optimistic” its online sports betting and casino business has seen its last quarter of EBITDA losses.

The third quarter is “probably a coin flip as to whether or not we are slightly positive or slightly negative” because of promotional push prior to the start of NFL betting, Reeg said on the company’s first-quarter earnings call Tuesday evening.

The digital segment reported a loss of $4 million in adjusted EBITDA for the first quarter. That is a significant improvement over last year when Caesars reported an adjusted EBITDA loss of $554 million on the back of launches in New York and Louisiana.

CZR stock on Wednesday opened 4.3% up compared to Tuesday’s closing price.

Caesars digital paying for itself?

From an EBITDA perspective, the digital segment is “roughly breakeven” because of its scale and can cover the costs of its technology, said Eric Hession, the president of digital.

The digital segment is positive as of Tuesday’s call and is performing better than expected, Reeg said:

“In Digital, I told you last quarter we anticipate that we will generate positive EBITDA for the year 2023. I can tell you today, we’re already there on a year-to-date basis and the amount of EBITDA that I was expecting, when we announced that we’d be positive for the year about 90-days ago versus where we are today, we think we’ll do considerably better than where we thought we were even 90 days ago.”

Reeg said Caesars could have been positive in the first quarter, but Super Bowl betting did not break its’ way, on or off the field. Removing the Super Bowl or one of the state launches in Massachusetts and Ohio would have turned the quarter positive, he added.

Promo cutback proves positive

Caesars is already EBITDA-positive in Ohio as of March, three months after launch, Reeg said. Cutting back on promotions is a big part of the company’s improvement so far, he added.

Caesars took $96.4 million in online bets and reported $10.9 million in gross revenue, good for 4% of handle and 2.9% of gross revenue. But Caesars has also spent just $5.6 million on promos in the state, or 1.3% of all promos since launch.

Compare that to market leaders FanDuel and DraftKings, which spent $196.7 million and $113.6 million on promotions since launch, respectively. The company’s promotional spend as a percent of handle was around 1.25% in the quarter, which Reeg said is “dramatically lower” than peers.

“Our cost of acquisition has come down considerably,” Reeg said.

Caesars three-piece digital approach

The company is still on track to generate $550 million in EBITDA, or 50% of the $1.1 billion lost to date on digital, by 2025, Reeg said. That run rate should be hit by the fourth quarter of 2024.

That EBITDA will come from three areas and should be split fairly evenly, Reeg said:

Standalone casino app could drive engagement

Right now, Caesars online customers tend to skew younger and male, which means the company is missing its core slot customer.

“When you think about the business that we have here with the regional players and the hub-and-spoke model with respect to Vegas, that core slot player is really valuable on the casino side,” Hession said.

That core slot player is the core customer of the land-based business, he added. Giving the option to go directly to a casino app should attract a higher percentage of those slot players, Hession said.

Reeg said more information on the standalone app will come in 60 days. When asked about whether that app will be branded Caesars or could include multiple brands for specific casino names, Reeg responded, “I like the way that you think.”

Tech improvements coming

There are other tech upgrades coming along with that standalone online casino app coming in the third quarter.

Caesars will test its in-house player account management system later this year. That should lead to a shared wallet by 2024, Hession said.

The company is also migrating all of its Nevada operations to the improved Liberty tech stack ahead of this football season, he added. The company suffered a hit on Super Bowl Sunday this year when its app and its William Hill-branded app crashed during the big game, and remained down for days after.

Digital growing land-based business

Many dissenting voices around the nationwide expansion of online gaming are concerned that the in-person casino business would be negatively impacted.

That has not been the case for Caesars, which continues to see growth in land-based revenue and reactivated customers.

“The last time we told you [the incremental business], it was about $200 million on an annual basis. Without getting into a specific number, I’d tell you, it’s more than 50% larger than that today,” Reeg said.