Question of the Day - 10 March 2019

[Editor's Note: This piece is written by David McKee, our long-term gambling-business analyst and Stiffs & Georges blogger. The opinions herein are his.]

Given the potential economic impact of such a deal, it hasn't been given nearly enough coverage in the local press. For once, Wall Street is more plugged into what’s going on than the Las Vegas newspapers. Anyway, I feel that “hinting” about a potential Caesars sale is much too understated, though the news of the installation of three new directors was released in the middle of the night, perhaps to take cover under the mushroom cloud hanging over Wynn Resorts and its $20 million fine, which made more news. 

When three board members have suddenly been pushed out to make room for Icahn loyalists, a coup d’etat can be said to have taken place. Through these proxies, Icahn can continue to push for a sale, as can his option to buy an additional 10% of Caesars. Global Gaming Business also reports — and this is unusual — that Icahn has 45 days in which to appoint a CEO of his own choosing. He's alleged to want Anthony Rodio, but Rodio is currently tied up as CEO of Affinity Gaming. Still, Caesars is clearly Icahn’s company now.

In the financial world, the discussion has moved from the “if” of a Caesars sale to the “how.” More plainly, who is in a position to buy the company? Wynn Resorts, with its handful of high-class properties, has been deemed a poor fit, as has Las Vegas Sands, which is eschewing American casinos (except Venetian and Palazzo) in favor of Far East expansion. Sheldon Adelson has even kicked the tires in Vietnam. 

A merger with MGM Resorts International would create near-insurmountable antitrust issues, giving the combined companies' four casinos in Atlantic City (where Caesars is getting hammered) and a mind-boggling 19 on the Las Vegas Strip. MGM has stated that it has other priorities, mainly achieving a casino-resort in Japan (where numerous competitors are battling for three franchises) and Connecticut.

A not-so-dark horse is Golden Nugget CEO Tilman Fertitta, who tried to reverse-engineer a Golden Nugget/Caesars merger with himself as CEO.

A truly dark horse is Reno-based Eldorado Resorts, which has quietly rolled up a regional portfolio of 27 casinos, from the shores of the Atlantic to the foothills of the Sierra Nevada. Why would Eldorado make sense? JP Morgan analyst Daniel Politzer writes, “Management noted they see value in a Las Vegas-centric hub/spoke model (unique to CZR), but for it to work, an operator needs a variety of assets to appeal to different customer bases/tastes.” Eldorado fills the bill and, as Politzer alludes, Caesars has a gold mine unequaled in the gambling industry: its Total Rewards program and database.

What would we like to see happen? In my opinion, nothing. This is an unnecessary transaction that's being ginned up by a few dissident investors unhappy with the share price (CZR trades near the bottom of the gaming group). Caesars has barely emerged from the catastrophic bankruptcy into which then-CEO Gary Loveman led it and still carries debt from that entirely frivolous leveraged buyout. Selling Caesars at this point risks a repetition of history, even if the economy doesn’t go south as it did in 2008. All we can see coming out of this are asset sales and “synergies” that translate as asset sales, deferred maintenance, and stiff job losses.

Caesars ought to stick to its knitting, but Icahn could have already forced the issue and sent the company past the point of no return.