Caesars saw a significant step up in digital adjusted EBITDA in the second quarter because of improved products across the board.
Hold improved for both iGaming and sports betting, which helped drive total net revenue up 27.8% to $276 million, the company reported Tuesday evening. Adjusted EBITDA jumped more than 3.5 times to $40 million for the quarter.
Caesars CEO Tom Reeg is still confident the digital segment will hit $500 million in adjusted EBITDA run rate next year, telling analysts “you’ll believe it at some point.” The company stands at $45 million in adjusted EBITDA for the segment through the first half compared to $7 million last year.
The market certainly appears to believe in the Caesars story. The stock jumped 8.3% to $39.95 at Wednesday‘s close on more than 2.5 times its average trading volume.
Caesars iGaming pacing digital
The iGaming business saw total handle jump 33.2% to $3.537 billion during the second quarter. iGaming handle of more than $7 billion is up 38.8% for the first half.
The Caesars Palace app is fueling growth, as it is growing at a faster than 50% pace, Hession said.
That business gets another growth catalyst when the Horseshoe-branded app launches in Michigan this September. It will launch state-by-state with the final launch coming scheduled for Ontario in the first quarter of 2025.
Horseshoe brand should ‘resonate’ with Caesars customers
Eric Hession, the president of sports and online for Caesars, was bullish on the opportunity for the Horseshoe brand, which he said should “resonate with a lot of customers.”
That said, Caesars Palace will remain the flagship app, he added.
The company bought WynnBet‘s online operations in the state, signing a long-term extension with the Sault Ste. Marie Tribe of Chippewa Indians.
Caesars has not broken out how much it paid Wynn but its 10-Q may offer a hint. The report included a new investment line item, “Acquisition of gaming rights and customer relationships,” that cost $26 million.
Higher parlay mix boosts flat sports
Caesars has not chased sports betting market share at the same pace as competitors for years, which has led to lower sports betting handle growth than some peers.
Hession said the company previously took a “peanut butter spread approach” to marketing and has since cut down on investments in customers at the bottom of the database.
The second quarter saw just a 0.3% increase to $2.5 billion in handle, but hold was 7.2% instead of 6.4% last year thanks to an improved product.
“Our product on the sports side continues to improve and our customers are reacting positively to our increasing mix of parlay and in-game offerings,” Hession said. “We continue to drive growth in our parlay wagers with the percentage of that type of wager growing 380 basis points year-over-year, consistent with the trends we’ve observed throughout the year.”
Sports bettor acquisition costs falling
Hession did note that the cost of acquiring new sports bettors dropped “fairly significantly” in the last two to three months. That is across the board, he added, including in affiliate contracts “a little bit.”
Costs of getting a new online casino customer, however, have remained constant. Caesars will not go above its established limits for acquisition costs, Hession told listeners.
Pure marketing dollars will go up in the third and fourth quarters, especially in August and September for the ramp in marketing around the start of NFL betting. At this point, though, there is nothing that would indicate a change from trends over the last few months, Hession said.
Sponsorship costs falling off, too
Caesars saw another $29 million in sports sponsorship costs fall off in the quarter, according to its 10-Q.
Obligations stood at $537 million at the end of the quarter compared to $605 million at the end of 2023.
There are “significant pieces” that will come off the books in early 2026 with those dollars flowing directly to EBITDA, Reeg said.
Caesars not involved in Penn talks
When asked about the headlines concerning M&A lately, Reeg took the opportunity to end any speculation of whether the company is interested in buying all or some of Penn Entertainment.
“I’d say we’re just reading the same headlines you are,” Reeg said. “We’re not even tangentially involved in whatever’s happening at Penn which I know that’s where your questions going.”
The deals that have had the best returns for Caesars have come using stock as a significant portion of the payment, though, and Reeg said he is not interested in doing that at this share price.
“I think all things equal we’ll drive more value if we continue to execute external opportunities but I’m not going to give our stock away, so that’s where we sit today,” he said.
Not changing behavior in Illinois
No tax increase is positive, but the graduated tax rate implemented in Illinois is “certainly favorable” to the alternative of a higher flat tax, Reeg said.
He expects about $5 million in annual impact.
Caesars will not change what it is doing based on that additional cost but it could benefit if others, like DraftKings and FanDuel, change their promotion levels or odds because of the increase, he added.
