Caesars executives pledged Tuesday to “dramatically curtail” its sportsbook marketing spend as the operator looks to move towards profitability.
Caesars’ said its Digital segment made an adjusted EBITDA loss of $305 million in Q4 on $116 million in net revenue.
Caesars’ share price climbed 8% Wednesday to $83.
Job done for Caesars Sportsbook?
Reeg said the operator had some TV spots for March Madness it couldn’t get out of, but broadly: “You’re going to see our commercials largely disappear from your screens.”
“You are going to see us dramatically curtail our traditional media spend, effective immediately,” Reeg said.
“We have accomplished what we set out to do. We set out to become a significant player and it’s happened significantly quicker than we thought. And I think most of you know me as someone who’s not one to spend any money needlessly.”
A quick ramp
It was just two quarters ago that Caesars pledged to invest $1 billion in the Interactive business. Reeg stressed that plan had not changed, but everything had ramped up quicker than expected.
Reeg said Caesars Sportsbook has a 21% share of the US betting market in states that reported last month.
“And notice I’m not cherrypicking markets where I’m doing well and leaving out markets where I’m not,” Reeg added.
“That includes big handle markets like Pennsylvania and Illinois, where we have 1% and 2% market share of handle because we’ve not rolled out the Liberty platform yet. That has exceeded our expectations. So now you’re going to see us moving toward profitability.”
When will Caesars be profitable?
Later in the call, Reeg suggested the Interactive business was being valued at -$15 a share as investors worried about profitability.
However, Reeg urged a long-term view.
“We’ve gone from ever-increasing bullishness to unlimited bearishness at this point,” he said. “What we told you was we saw a significant opportunity to acquire customers and grow this business. We think this is the most exciting growth opportunity this space has seen in three decades.”
Is stopping sportsbook ads a mistake?
Some analysts questioned the logic of cutting spending given the relatively high churn rate of online gambling customers.
In other words, the customers Caesars has now are not guaranteed to stick around.
Reload and relaunch?
That said, the company could have other motivations.
In a note on Tuesday before the CZR results, Susquehanna analyst Joe Stauff suggested Caesars needed to stop marketing while it brought the core sportsbook product up to scratch.
“We believe Caesars launched its digital product before it was ready,” Stauff said. “We have continued to see how effective promotional spending is at driving user growth, but it’s fleeting when the user experience is unsatisfactory.”
Ups and downs in New York
Over in New York, Reeg said Caesars’ launch and subsequent market share was twice as big as expected.
That led to 500,000 customers signing up since launch. For comparison, DraftKings said last week it signed up 300,000 NY users in the first month.
Caesars’ market share looks to have dipped since it reduced its sign-up offer, but Reeg downplayed the impact of that promo.
“Our average deposit in New York was about $450,” he said. “So our results in New York were not driven by a lot of $3,000 deposits responding to our offer. It was hundreds of thousands of smaller customers that came to our site.”
Tidal wave of demand
Reeg likened the New York launch to drinking from a garden hose as a child.
“It was as if a tidal wave came and hit you. It was absolutely staggering the demand in New York,” Reeg said. “To give you an idea, we had 75,000 inquiries to our customer service portals in the first two days post launch in New York.”
Of course many of those inquiries were driven by a broken app and users were frustrated by their perceived lack of customer support.
Expanding the empire
Looking forward, Reeg predicted more “modest” launches for Caesars Sportsbook in Pennsylvania, Illinois and Ontario in Q2 2022.
“Those are existing markets where we’re going to have to call our share 100 basis points at a time,” Reeg said. “So you’re not going to see that dramatic day one impact that you saw in New York, Arizona, Louisiana.”
Caesars might well turn the marketing taps on for launches in Ohio and Maryland in the second half of the year.
Other key takeaways from CZR Q4 earnings call
- No to NFTs – Reeg was asked if Caesars might get into the high-margin NFT business like DraftKings. “Absolutely not,” replied Reeg. “I’ll tell you what’s a high flow-through business and high-margin business. It’s the casino business.”
- How many winners in digital? “There is enough room in this space for multiple success stories,” Reeg said. “I would say at least three or four and we intend to be one of them.”
- How might Caesars use its cash flow? “Obviously, it’s going to depend on what the valuation looks like,” Reeg explained. “If I’m still getting negative $15 a share for Digital, maybe I become a buyer of my stock.”
Truist analyst Barry Jonas reiterated his buy rating on the stock.
Truist said in a note:
“Management’s track record gives us confidence of long-term Digital ROI with a leading, wholly-owned omni-channel strategy.”
Good news for everyone else?
Stauff predicted that Caesars’ cuts would help DraftKings’ profit margins.
“This will contribute to a more normalized level of customer acquisition and retention spending,” Stauff said.
That more-sensible promotional environment benefits just about every other operator. It might also attract the likes of bet365 and Fanatics, who are on the sidelines waiting for better customer economics.