There’s been talk of the combined Caesars and Eldorado company spinning off its sports betting and iGaming business since news of the merger.
Now, with the merger complete, it looks like the market will get an answer by the end of the year.
New Caesars CEO Tom Reeg addressed the issue on the company’s second-quarter earnings call last week.
“I’ll tell you again, we want to come to a permanent solution for this business for us,” Reeg said. “… I would still expect that we’ll have something comprehensive to talk to you about inside of this calendar year, but you shouldn’t expect this to be printing something right around the corner.”
Reeg naturally wants to keep expectations realistic but admitted the growth of US sports betting and iGaming is exciting.
“This is the most exciting growth opportunity that I’ve seen in over 25 years in and around this space,” Reeg said. “There’s going to be multiple players that succeed. I’m 100% convinced we’re going to be one.”
Caesars has profitable sports betting, iGaming business
Unlike DraftKings, which reported a net loss of $74 million in its first-quarter earnings, Caesars is already making money in its iGaming and sports betting business, Reeg said.
Caesars’ sportsbooks will be run by William Hill following the merger with Eldorado. Eldorado signed a joint-venture deal in 2018 that gives it 20% of William Hill US and a revenue share of the sportsbooks.
Reeg expects $600 million to $700 million in sports betting and iGaming revenue next year. DraftKings, meanwhile, expects $700 million in 2021.
This year, Caesars is on pace for $125 million in iGaming revenue from New Jersey alone. That business is running on profit margins in the mid-to-high 30s, Reeg said. Caesars owns 100% of that business.
Analyst: business could capture 10% share
Chad Beynon of Macquarie thinks Caesars could capture 10% market share of both US sports betting and iGaming.
Beynon called online gaming a “hidden treasure” of Caesars, saying the business could be worth around $19 per share in a July 22 note.
He estimates Caesars gets about 50% of profits from sports betting revenue through the William Hill agreements.
Beynon forecasts EBITDA at $153 million to $229 million in the combined segments next year based on profit margins of 20% to 30%. That range rises to $209 million to $313 million in 2022.
Strong US sports betting, iGaming valuations
Sports betting operators, technology suppliers, and iGaming operators going public in the US is a popular trend these days. And it’s easy to see why.
Both DraftKings and platform provider GAN went live with US listings earlier this year. DraftKings started trading in late April around $17 and has skyrocketed since then. It currently sits around $31 but closed at a 52-week high of $43.70 June 1. DraftKings even issued 30 million new shares at $40 each in June.
GAN, too, has seen significant growth. It opened around $10 in early May and is currently around $20, but had a 52-week closing high of $27.58 on July 2.
More gaming companies in the public sphere
Penn National has seen a significant jump in its value as well since acquiring 36% of Barstool Sports for a sports betting brand. It hovered around the $25 mark before the acquisition and closed above $45 on Monday.
Another US company is joining the fold soon. Rush Street Interactive, which operates BetRivers, is going public as well.
But just because valuations are strong doesn’t mean Caesars is rushing to meet the market.
“We see the same valuations that you see in this space as we sit here today,” Reeg said. “But I will tell you, as shareholders, we’re not going to react in a knee-jerk fashion to those valuations, and do something that’s not the right solution for the business over the long haul.”
