With Tilman Fertitta starting the process to buy Caesars Entertainment, I’m wondering what he's actually buying. Leases and the sports book? And what does Vici Properties own on the Strip?
[Editor's Note: This answer is submitted by our own David McKee, of which those of you familiar with his business writing will no doubt be aware.]
“Leases and the sports book” is a pretty good guess, actually. There’s not a great deal left of Caesars Entertainment (CZR), since it was disemboweled during the early 2010s as part of a bankruptcy restructuring.
The company sold in 2008 for $30 billion and is now going for just $17.6 billion, partly because there’s a lot less of Caesars to own. Also, $12 billion of that $17.6 billion is the assumption of debt, a staggering amount. The red ink was accrued when CZR changed hands just before the Great Recession, then compounded when Eldorado Resorts took it over a few years ago. The company’s strategy has left Caesars less than “asset-light,” now down to asset-poor.
The company does, actually, still own the land under a few casinos in its portfolio. Real estate investment trust Vici Properties, a spinoff of Caesars, hasn’t pulled the trigger on its options to buy Horseshoe Indianapolis or Harrah’s Hoosier Park, thinking the Indiana market to be saturated. Caesars also owns some raw land just off the Strip, as well as the Caesars Forum Convention Center, which Vici has also been reticent to buy.
On the Strip, Vici owns Caesars Palace and Harrah’s and the Hard Rock Las Vegas, opening in a year and a half. That leaves Vanderpump (formerly Cromwell), Planet Hollywood, Paris, Horseshoe, and the Flamingo in the Caesars portfolio. Caesars CEO Tom Reeg made a few attempts to shop the Flamingo, but the asking price, $2 billion, attracted exactly zero takers.
Vici also owns several non-Caesars properties on the Strip, including The Venetian/Palazzo and MGM Grand, and five other MGM-branded casinos (Excalibur, Luxor, New York-New York, Mandalay Bay, and Park MGM). Vici also owned the Mirage, which the Hard Rock will be leasing from them when it opens in a year and a half.
Tilman Fertitta also obtains a gaggle of Caesars Digital websites, including Caesars Palace Online. They perform well, but the jury is still out on Caesars Sportsbook, an online venture that hasn't grown past also-ran status.
Caesars’ holdings — and/or those of Fertitta’s Golden Nugget casino chain — may be further diminished in order to close the sale and obtain regulatory approvals. Las Vegas isn’t problematic, as Fertitta owns only the downtown Golden Nugget and some vacant land on the south Strip. But a Golden Nugget/Caesars combination would create some dicey concentrations of ownership elsewhere.
Nevada regulators might have issues with the new Caesars owning four casinos on Lake Tahoe. Ditto three in Laughlin.
New Jersey regulators are almost certain to balk at Caesars winding up with four Atlantic City casinos. The last-place tiny Golden Nugget Atlantic City would be pretty much certain to go on the sale block.
Lake Charles, Louisiana, has both a Horseshoe and a Golden Nugget. One of them might have to be sold, undoubtedly the low-grossing Horseshoe Lake Charles, if it comes to that.
The biggest piece of what Tilman is buying are the two master leases with Vici. These cover the Vegas properties that Vici owns, along with a lease pertaining to the majority of Caesars’ lifeblood, its regional casinos. There has been some talk that the latter might have to be renegotiated, but that’s on hold now that Caesars is in flux. Plus, the eight Golden Nugget casinos would strongly buttress Caesars' regional portfolio.
