Caesars Earnings Preview: Did CZR Stick To Prudent Promos In Q3?

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Caesars already saw what can happen when spending big money on promotions, only to find out the resulting market share was more rented than bought.

That is one big reason why the company’s third quarter results will be so interesting. In a quarter where most companies expect to see red, Caesars shareholders will want to know the company did not overspend on promotions like it did when New York sports betting launched.

Promotions are up in most states to start the 2023 NFL betting season. Some states also deserve extra attention, like recently launched Kentucky, or Maryland and Massachusetts, both in their first September with mobile sports betting.

It does not help that there are three new operators fighting for their share of the action this year, with Fanatics and bet365 are already in the mix while ESPN Bet should launch in November. Caesars (CZR) closed at $38.76 on Thursday.

Caesars spending efficiently in Kentucky

If Caesars treated all of its Q3 marketing and promotions like it handled the Kentucky sports betting launch, that digital EBITDA might be better than expected.

Management explained to Steve Wieczynski of Stifel that its average cost per new customer in Kentucky was $100. That compares to some operators spending more than $1,000 to acquire customers, according to Caesars estimates.

Hold increase incoming?

Caesars also told Barry Jonas of Truist that they expect sports betting hold to grow in the near-term.

Management forecasts hold of around 6.5% for 2023, which should grow to about 9% or 10% by the end of 2024.

Will iGaming help profit?

Caesars offered online casino in the third quarter of 2022, of course, but it took until August this year for its own bespoke app. Caesars Palace Online launched in mid-August, meaning the company will have half a quarter of results to share.

Daily average online casino revenue was up a third or better compared to the prior year, management told Jonas at G2E.

Improving hold on the sports side and maximizing its online casino product are crucial to hitting that annual adjusted EBITDA target of $550 million in 2025. CEO Tom Reeg said he expects at least one or two quarters to see adjusted EBITDA at that run rate next year.

Previous Caesars performances

Caesars digital segment saw significant improvement in its third quarter 2022 adjusted EBITDA, though it was still a loss.

The business lost $38 million in the quarter compared to a loss of $164 million in Q3 2021.

Of course, Caesars is a much larger company than just its digital segment. Its Las Vegas and regional retail casinos generated more than $1 billion in adjusted EBITDA in Q3 2022.

As for quarter-over-quarter growth, that might be tough for Caesars. The digital segment reported its first $11 million in positive adjusted EBITDA during the quarter.