The digital sports betting and iGaming segment of Caesars was profitable in October, CEO Tom Reeg said.
The comments came on the Caesars third-quarter earnings call on Tuesday, which included plenty of discussion about the growing digital segment.
“October digital inflected to positive EBITDA for us. So we are extremely pleased. That’s 12 months ahead of the schedule that we anticipated.”
The segment posted a $38 million adjusted EBITDA loss for the third quarter. That’s compared to a $164 million loss in the third quarter last year.
Will digital profitability continue for Caesars?
Whether the segment can turn a profit for the entire fourth quarter hinges on two teams: the Houston Astros and the Philadelphia Phillies.
Mattress Mack bet $3 million with Caesars at 10-1 odds that Houston would win the World Series back in May so that $30 million payout could hold the segment back. The Phillies took a 2-1 lead in the Series following the call.
There is a “good shot” the digital segment is profitable for 2023, Reeg added. One positive is most states where Caesars is active will be on their second year. That means lower promotional costs than brand new sign-ups, he said.
The team has taken learnings from its retail casino segment now that the digital business is old enough to segment players. Now the brand is reinvesting more in the best customers and less in the others, which Reeg called the “basic blocking and tackling” Caesars is doing to achieve these results.
Various improvements have led to higher hold
October would have been a positive month for digital even without some of the lucky NFL betting results, Reeg said.
That’s come from various improvements and new tools in the backend, President of Caesars Sports & Online Gaming Eric Hession said.
“We’re increasing our uptime and our percentage of in-play hold and in-play volume, which naturally translates into a higher hold product. In addition, our percentage of parlays has steadily grown and really improved in the third quarter relative to the second and first quarter. A lot of that is due to some enhancements that we made on the tech side to improve the ability for customers to visualize and to place their parlay bets.”
An analytics team from the retail casino business also put together models for Caesars’ traders to keep odds up during games longer and to be more accurate with pricing, Hession said.
The changes have led to reasonable hold on unlucky days and some “really solid double-digit holds” when Caesars does get lucky, he added.
Caesars sticking to digital EBITDA projections
All told, Caesars’ investment in its digital segment should total $1.1 billion, Reeg said. But that is expected to pay off solidly at maturity: Reeg expects the segment to do better than 50% of that annually in digital EBITDA.
Reeg did not specifically break down where that more than $550 million would come from each year. He noted some assumptions on cost structure and said iGaming will clearly be part of the growth story.
Sports betting market share is not a specific target and Caesars will be “living in this band of market share” as it turns profitable, he added.
How much do those partnerships cost?
Another chunk will come from partnership costs with leagues, teams and media partners that will be falling off over the next three years. Those cost more than $200 million annually, Reeg said.
Some of them will continue at a lower cost while “a fair amount” will go away entirely, he added. That cash will start to fall straight to the bottom line in 2024 and 2025.
No intention to spin off Caesars digital
It is Reeg’s preference to keep the digital arm tied to the parent company instead of spinning it off.
“I’d say that our competitive advantage here is tying it to the existing brick-and-mortar business and our Caesars Rewards database. And it would be my preference that that remains 100% owned by the parent company. If you get to different shareholder bases for the two businesses, there’s a complexity introduced that you see in – you can see that in some of our peers in terms of when you get to different shareholder bases in the same business.”
That said, Reeg is always looking to create shareholder value, so it would be considered if it made sense financially. But the markets are not valuing digital assets highly right now, he added, which makes it an easy decision to hold tight.
Caesars working toward launches in multiple jurisdictions
Right now, the focus is on launching Maryland online sports betting and Ohio sports betting. Caesars hopes to see Maryland launch by the end of the month, with Ohio going live Jan. 1.
The company also put kiosks in its Windsor casino and will open a full Ontario sports betting space early next year.
Puerto Rico could launch in the fourth quarter or first quarter.
