Caesars deal takes shape; Carlino out at Penn

We hope Anthony Rodio isn’t getting too comfy in his CEO chair over at Caesars Entertainment. News reports have been heating up about at Caesars takeover, with Eldorado Resorts continuing to have the inside track and reportedly planning to replace Rodio et. al. with Eldorado management. The deal would happen by June 30 “assuming talks don’t fall apart.” Caesars has already rebuffed a $10.50/share offer (Eldorado shares dwarf Caesars ones in value) so obviously it’s feeling pretty confident about the whole thing. Wall Street observers are puzzled over Eldorado CEO Thomas Reeg‘s promise to cut $500 million from the Caesars budget. JP Morgan analyst Daniel Politzer doesn’t think there’s a lot of fat left on the imperial bone. Jobs and marketing would suffer, and Polizter foresees a scenario where Caesars’ Las Vegas hub is downsized to as few as three casinos and more regional spokes are added to the hub-and-spoke Total Rewards structure.

Politzer sees Eldorado keeping one high-end Vegas property (Caesars Palace, of course), one to two mid-market ones (perhaps symbiotic Bally’s and Paris-Las Vegas) and two low-roller joints (Harrah’s and The Linq maybe). “By having a smaller “hub,” the company could be more efficient as it would have fewer LV Strip rooms to fill and thus could save on allocated marketing/promo costs at regional properties,” Politzer writes, “A broader network of regional casinos would also provide a bigger database of addressable regional gaming customers, as ERI currently operates 26 regional properties and CZR currently operates 22 regional properties. This scenario could also help LV Strip peers such as MGM, as the combined entity will not necessarily need to be as promotional in LV as there would be less reliance on transient/leisure customers.” The lingering question, he adds, is who other than Phil Ruffin would be in the market for a secondhand Las Vegas Strip casino. Would Tilman Fertitta settle for leftovers? Penn National? Boyd Gaming? (CDC Gaming Editor Howard Stutz tips Boyd as a dark-horse candidate to buy out Caesars.) Somebody else without a Strip presence?

As for Carl Icahn, the living ghost behind this merger, “we would think Icahn is looking for more than a mid-teens implied return, and in a cash/stock deal,
could end up a large holder of ERI for some time.” Other gaming operators and REITs could swarm the aftermath of a takeover, as there would be significant market overlap in Atlantic City, Iowa and Missouri for starters, providing lots of small- to mid-sized assets for opportunistic companies looking to grow. Caesars/Eldorado also might want to lower its exposure in northern Illinois, given the recent casino expansion coming out of the Lege. Considering the antitrust issues raised by merging Caesars into Eldorado, this deal is going to have a dizzying number of moving parts before it’s done.

* Still trying to get your arms around that massive expansion of gambling in Illinois? Here’s a helpful primer. As the article says, it’s all in the details. Methinks Illinois lawmakers are going to be disappointed when the actual tax revenues start trickling into state coffers. Interestingly, Neil Bluhm tried (and failed) to have DraftKings and FanDuel put in a three-year “penalty box” for operating sports betting, er, daily fantasy sports in the Land of Lincoln without authorization. I guess Bluhm, a Democratic Party rainmaker, doesn’t have as much suction with the Lege as he thought. As for slot routes at Chicago airports, Mayor Lori Lightfoot said, “We’re not going to turn O’Hare or any place else into a gambling den, neither at Midway. If you look through the particulars of the bill, what you’re going to find is that we have a significant amount of local control. So, we haven’t set the parameters yet. But there’s going to be a very high hurdle reached before we see any gaming at our airports.”

We agree with Tom Swoik, executive director of the Illinois Gaming Association, who said “This is a bill that will grow the number of gambling positions, but it’s not going to increase the number of gamblers … This state has not been business-friendly to the casinos from the beginning, and this bill doesn’t help that.” He also predicted that slot routes would be hurt when casinos go into new areas like Rockford and Waukegan, and while riverboats have the option of coming ashore few are expected to do so. (The omnibus bill allows bars to add a sixth slot machine and for truck stops to go from five slots to 10 apiece.) As for the racinos, while they will be allowed to add at least 900 slots each, they didn’t get historical racing, a revenue driver in other states. The one wholly commendable facet of the legislation was increasing the funds available to treat disordered gamblers from $800,000 a year to $8.6 million.

* The Peter Carlino era at Penn National Gaming has ended, as Carlino relinquishes his chairmanship but elects to remain CEO of Gaming & Leisure
Properties. The move was not as voluntary as it sounds, having been compelled by Clayton Act antitrust concerns. A good thing, too, since GLPI mostly acts as a stalking horse for Penn. David Handler of private equity firm Centerview Partners takes Carlino’s newly vacant chair.

* WalletHub ranks Nevada as only the sixth-most entertaining state in our great country. While the Silver State is tops in casinos and third in variety of arts, entertainment and recreation establishments, it is only 30th in amusement parks per capita and 23rd in national parks. Perhaps the resurgence in theatre in Las Vegas in recent years has helped the state get to ninth on that list. Anyway, Gov. Steve Sisolak (D) has his work cut out for him in getting that sixth raised to a higher echelon.