Carl Icahn found a suitor for the Caesars Entertainment acquisition he shopped for several months.
Reuters reported over the weekend that Caesars agreed to merge with Eldorado Resorts in a debt-laden deal valued at $17.3 billion. Eldorado confirmed the “transformational” union Monday via a press release.
The combined portfolio of the two companies will include around 60 properties in 16 states, plus Caesars’ operations in five other countries.
“This merger is the quintessential example of how an activist shareholder, working collaboratively with the Board, can greatly enhance value for all stockholders,” Icahn wrote in a statement. The 83-year-old investor stands to make a fortune from the sale, having actively sought out a buyer while accumulating 28.5% of Caesars’ stock.
Any transaction of this magnitude is complex, but this one involves myriad details tied to sports betting and online gambling.
What does Caesars bring to the table?
Caesars owns 34 properties across nine US states, primarily under the Harrah’s and Horseshoe brands. It also holds a nationwide database of casino customers, an invaluable asset for a company expanding into new markets as aggressively as Eldorado.
A good chunk of the press release centers on the benefits of the Caesars Rewards loyalty system. Between that and Eldorado’s program, the combined company will have a database of some 65 million people.
Unfortunately, Caesars also brings with it billions of dollars in outstanding liability. The company only emerged from bankruptcy in 2017, the result of a previous takeover attempt that saddled it with debt during the financial crisis a decade prior.
Caesars currently offers legal sports betting in four US states.
Sports betting out the wazoo
Caesars’ appetite for sports betting is insatiable. After hiring Scientific Games to power its products outside Nevada, the company forged high-value partnerships across the spectrum:
- Leagues: NFL
- Teams: Baltimore Ravens, Las Vegas Raiders, New Jersey Devils, Philadelphia 76ers
- Broadcasters: Turner Sports, ESPN
- Operators: DraftKings Sportsbook
Some of those deals are especially significant. Both broadcast agreements will spawn new studios inside of Caesars sportsbooks, for instance, while the league-level partnership grants the use of NFL logos and other assets.
In addition to its own sportsbooks, Caesars also has access to the New York market via a partnership with the Oneida Nation. A Caesars-branded betting lounge is under construction at Turning Stone and on target to open in the coming weeks.
While that NY sports betting deal remains limited to the retail setting, many of Caesars’ customers elsewhere gamble via the internet.
The company offers online sports betting (and online poker) in Nevada and New Jersey, plus an eponymous online casino in the latter. The World Series of Poker is a significant asset in its own right — both the live product and the interstate online poker site.
Eldorado assets in the mix
No casino group has shaken up the US landscape like Eldorado in the last five years. From its modest roots in Reno, the company’s portfolio has grown to include 26 properties in 12 states.
Eldorado reverse-merged with MTR Gaming Group in 2014, kickstarting its expansion with access to Ohio, Pennsylvania, and West Virginia. It bought Isle of Capri Casinos for $1.7 billion in 2017 after expanding in Reno, then added Tropicana Resorts operations for another $1.85 billion in 2018.
With the Caesars deal apparently in the works for several months, however, some pre-acquisition consolidation was in order.
The company exited Pennsylvania in 2018, shedding operations for both Lady Luck Nemacolin and Presque Isle Downs. Eldorado more recently agreed to sell off assets in West Virginia and Missouri to Century Casinos, which will shrink its footprint to 11 states. Still, its standalone portfolio is worth around $4 billion.
The makings of a sports betting empire?
Like Caesars, Eldorado seems to have big ambitions for sports betting.
In September 2018, the company acquired 20% of William Hill US in exchange for market access across its portfolio.
While William Hill powers its existing retail operations, Eldorado subsequently entered into another big partnership with The Stars Group (TSG). TSG has since taken on an investment from Fox so that the merged company will control the deployment of the new Fox Bet platform in several states.
Eldorado currently has sportsbooks in four states too, including West Virginia.
What’s the plan for sports betting?
Both companies have taken independent steps to create a US sports betting empire, and their combined portfolio reaches into seven legal states:
- New Jersey
Even without West Virginia, the new Caesars entity will have better access to US sports betting than any of the competition. What exactly that sports betting product will look like is anybody’s guess, but Eldorado’s CEO did provide some clues to investors.
Here’s Reeg responding to a question during the merger call on Monday:
“We bring the William Hill and The Stars Group access partnerships. Caesars has a plethora of sports partnerships, including league partnerships, team partnerships, ESPN… and we see them all fitting together. We would see William Hill and TSG rolling into access deals across the Caesars portfolio to the extent that they’re not already offered in our portfolio. But we think the opportunity in sports betting in the combined company is as good as there is out there at this point.”
Putting the puzzle together will be a tall task, especially given the dynamic between Fox and ESPN. The two broadcasting giants recently began dipping their toes into the sports betting waters, and each will want preferential treatment.
There’s also the matter of DraftKings Sportsbook, which is linked indelibly to the new entity. In addition to its partnership with Caesars, DraftKings also counts ESPN as an investor after a separate transaction with Fox, which is now an investor in TSG. It’s all a bit complicated.
Update: William Hill statement
William Hill released a statement on Tuesday that may help clarify some of the sports betting structure:
“William Hill entered into a strategic partnership with its long term business partner Eldorado in September 2018. Under the agreement, William Hill gained the right to exclusively operate sports books at all properties owned or managed by Eldorado in the United States and to operate mobile sports betting in states where Eldorado obtains a license. These rights apply to casino properties owned or managed by Eldorado when the strategic partnership was signed and any subsequent acquisitions. Therefore, the rights apply to casinos currently owned or managed by Caesars if Eldorado’s acquisition of Caesars is completed.”
Caesars (VICI) + Eldorado at a glance
Combined, Caesars and Eldorado will be the largest gambling company in the US.
The proposed acquisition values Caesars at $12.75 per share, in line with the $13 price Icahn initially hoped to secure. The company’s stock closed at $9.99 on Friday before news of the deal surfaced.
Via VICI Properties, Caesars will retain the real estate assets for three properties in Atlantic City, Laughlin and New Orleans. VICI is a real-estate investment trust (REIT) with a portfolio that includes 22 gaming venues and four championship golf courses.
CEO Ed Pitoniak said the company is “honored and excited to be integrally involved” in the transaction.
“As a REIT, we seek to partner with operators who have the most powerful, valuable and enduring relationships with the end users of our real estate. Under Tom Reeg’s leadership and front-line focus, the combination of Eldorado and Caesars will yield the most compelling guest experiences and network effect in American gaming.”
The acquisition also involves modified leases for Caesars’ two flagship casinos in Las Vegas.
The joint company will use the Caesars brand and the Eldorado headquarters going forward, while the latter will take a 51% ownership majority. Reeg called the deal a “strategically, financially and operationally compelling opportunity” for shareholders of both groups.
The sale should close in early 2020 pending regulatory approvals.