Although he currently has the frontrunner for a Manhattan casino, Caesars Entertainment CEO Tom Reeg is waffling a bit. Potentially ceding momentum to deep-pocketed rivals like Wynn Resorts and Las Vegas Sands, Reeg said Caesars wouldn’t get into an “arms race,” spending heavily on its Times Square project. Trouble is, if Caesars looks like it’s trying to get something major for little capital input, it risks losing the game. Reeg is playing a similar gambit in Texas, where he openly covets a megaresort but isn’t lifting a finger to get the enabling legislation passed by the Lege. It’s fish or cut bait time and Reeg looks like someone who’d prefer not to fish.
As the CEO told investors, “We believe we have the project that will open the quickest and will start paying New York taxes the quickest and an area that doesn’t need zoning approval … We’re going to win this on the merits of the property and how quickly we can get open and how well it fits into the local environment. If it becomes an arms race of who’s going to spend the most money, we won’t win.” That’s an absolutely responsible point of view.
But when you characterize your planned level of investment as “modest,” that’s not what the power brokers in Albany want to hear. It also may not help that Reeg is being exquisitely vague about what Caesars New York would offer, even if SL Green has released a rendering. Caesars has, from what we do know about it, one of the more tenable projects that are on offer … but this is hardly the time to prevaricate. At least the company keeps signing on high-profile lobbyists, recruiting from right within the office of New York City Mayor Eric Adams (D). Move along, nothing to see.
Another area in which the Roman Empire is (rightly) preaching fiscal discipline is marketing of Caesars Sportsbook. “The switch to getting out of brand building and advertising in terms of big expensive commercials–you didn’t see us at the Super Bowl–and big granular changes in individual marketing has slowed dramatically,” Reeg said on yesterday’s investor call. “This is the quarter that we launched New York and Louisiana last year so you’re going to see over a half-billion dollars of trailing losses disappear this quarter.” That’s good news.
When Truist Securities analyst Barry Jonas wrote that Caesars was “Sounding like a broken record,” he meant it in a good way, punning on its pace-setting Las Vegas revenues. The Roman Empire hit its earnings guidance smack in the middle, with cash flow of $957 million on net revenues of $2.8 billion. Jonas was pleasantly surprised by a $5 million loss in the digital sphere, while regional winnings in 4Q22 took a $20 million that was chalked up to terrible weather. (A credible explanation, as the ballyhooed year-end recession proved to be a mirage.) The Las Vegas Strip alone generated $1.2 billion of revenue and cash flow of $537 million. Group bookings were healthy, accounting for a substantial portion of the 99.5% occupancy and trending to pre-pandemic levels looking forward. In fact, March group bookings exceed 2019’s, while Formula One could shore up an otherwise-quiet November.
Other positives expected this year are the completion of Atlantic City makeovers, as well as openings of temporary casinos in Danville, Virginia, and Columbus, Nebraska. Also to be anticipated is the finished expansion of Harrah’s Hoosier Park near Indianapolis. Among the unsurprised by Caesars’ surfeit of good news was J.P. Morgan analyst Joseph Greff, who nevertheless raised his projection of positive Internet ROI to $185 million in 2024. He added that Caesars suffers from “a valuation that doesn’t take into account a recovering group/convention business in Las Vegas, nor a strong sports calendar (basketball tournaments/F1 race in 2023, Super Bowl in early 2024), which should allow LV to perform relatively better than most, if not all, generic leisure markets in 2023.”
Horseshoe Lake Charles is “performing ahead of expectation” and Harrah’s New Orleans should complete its new hotel tower and up-market transformation to the Caesars brand by sometime in 2024. As for the digital surprise, Caesars Sportsbook would have been ROI-positive last quarter had it not been cleaned out to the tune of $30 million by John “Mattress Mack” McIngvale. The costs of launching in Ohio (see below) will impede near-term profitability. The empire has $1 billion in cash on hand but a still-worrisome $13 billion in debt, which Caesars is extending about as much as seems possible.
In case you missed it, Ohio Gov. Mike DeWine (R) wants to double the tax sports betting operators pay in the Buckeye State, two months into legalized wagering. It’s currently at a very reasonable 10%. DeWine wants a 20% cut. He’s seconded by the editorial page of the Toledo Blade, which argues that gambling operators (and by extension, gamblers) deserve to get fleeced. Yes, Ohio’s tax rate is low by national standards, the average being 19% (pulled up by New York State’s and New Hampshire‘s 51% imposts).
However, DeWine—whom we respect—is trying to close the barn door after the horse has fled. A 10% tax may be a bad bargain for the state but the Lege made it—and DeWine signed off on it. If it was a mistake, the governor ought to have to live with it. (OSB providers can’t honestly argue that 20% is too high, however, at least not those who operate in the Empire State, where they gladly absorbed confiscatory rates for a nibble of the business.) Also, DeWine appears to be overestimating the tax revenues to be made from low-margin sports betting. If he wants the big bucks, he should push for Internet casinos instead.
Michigan lost some sports betting business to Ohio last month, as revenue of $34 million was an 8% decline from last year. $16 million of that went back out in promotions and handle was $76 million. Thanks in part to high hold, FanDuel dominated with 59% market share, trailed by DraftKings (20%), Caesars Sportsbook and BetMGM. Internet casinos busted out $154 million in revenue, a record, led by BetMGM’s $53 million. Others finishing in the money were DraftKings ($33.5 million), FanDuel ($30 million), BetRivers ($8.5 million), Caesars ($7 million), WynnBet ($4.5 million) and Barstool Sports ($4 million). Detroit casinos brought in $103.5 million, a 4.5% uptick from last year. A ranking wasn’t available but we have no reason to believe it wasn’t the usual MGM Grand Detroit/MotorCity/Hollywood Detroit hierarchy.
Dummy up and deal. That seems to be the ethic at Wynncore, where a blackjack dealer allegedly kept on dealing cards even after a player suffered a heart attack and collapsed onto the green felt. (If it happened it wouldn’t surprise us in the least.) “Employees attempted to use a defibrillator to restart [David] Jagolinzer‘s heart until paramedics arrived. He was rushed to the hospital but suffered severe brain damage,” due to a 20-minute delay in receiving assistance. Jagolinzer died six months later. The damages sought are surprisingly modest: $15K. However, the Nevada Gaming Control Board deserves to get rapped for this because it is illegal to allow someone to become unconscious at a gaming device. We’d expect something like this to be a risk at a grind joint—but Wynncore?
The Massachusetts Gaming Commission is still trying to spin the early instances of illegal betting at casinos as a good thing. Said Commissioner Nakishia Skinner, “they’re relatively routine matters.” It looks more and more like the MGC caved to political pressure to ‘go live’ ASAP and is now doing a CYA move for the industry’s (and its own) benefit.
Postscript: Although Bally’s Corp. claims to have “broken [sic] ground” inside Medinah Temple in Chicago, you could fool passersby. We rode past the venue earlier this week and there was almost no evidence of work being done. Time to push back that June opening? We may learn more from tonight’s Bally’s earnings call.