Caesars: Cui bono?; Loveman woos Britney

Our question for the day is, “Who benefits?” Taking the long view of Caesars Entertainment to bundle a mixed bag of Planet Hollywood, its-casino-to-be in Baltimore and Caesars Interactive, in whose interest is it to purchase minority stakes, since CEO Gary Loveman intends to maintain majority control. Or, in the case of his Maryland casino, a majority of a minority stake. It’s like being offered a lift by an inebriated motorist. You’re along for the ride but you’re at the mercy of the drunkard behind the wheel. And, as Caesars “strategy” swerves from pillar to to post, your trip would be … interesting, to say the least

First, I think this move — following a series of deals where Caesars runs casinos that Dan Gilbert finances — signals a devolution of Caesars from a casino-owning company to a casino-management firm. Were I Penn National Gaming CFO William Clifford and intending to start shopping for casinos to own on a lease-back basis once my REIT goes through, my first call would be to Loveman. I’d have money and he’d have property that he’s desperate to unload, so it’s a perfect fit … especially with so much real estate on the Las Vegas Strip and major metropolitan areas. (If Caesars were to go belly up, Penn could abrogate the leases, and confiscate the licenses and slot machines … and it would already own the bricks and mortar.)

Secondly, and more near-term, who are the likeliest takers of this half-a-loaf offer? Caesars debtors, who else? Loveman could execute a debt-for-equity swap and buy himself several years of breathing room until his $20 billion-plus debt load comes due. However, given the number of assets on offer and the small portions available, do they represent sufficient value to put a significant dent in that debt burden? At least creditors could console themselves with the thought that they’d have first dibs on assets like Planet Ho if and when Caesars defaults.

The Baltimore angle of this saga is Theatre of the Absurd: Caesars offloaded Harrah’s Maryland Heights, in Missouri, in order to help bankroll it — and to get into a state (Maryland) with a punitive 60% tax rate on slots and a mostly underperforming casino industry. And now Loveman is selling down his position in Maryland so he can feed some cash to the bondholders who are snapping at his hindquarters. Why did he ever bother with Baltimore to begin with? It’s a move that never made much sense and now makes almost none. It’s as though Loveman is the kid in the toy store, asking Papa Dan Gilbert to buy him this (Ohio), that (Baltimore) and the other thing (Toronto). It’s awfully nice of Papa Dan to keep putting his money where Loveman’s mouth is. However, the unavoidable fact remains that Caesars has cashed out of Lake Charles and St. Louis, and passed (twice!) on the Kansas market. (An eyewitness tells me they’re lining up to play the slots at Boyd Gaming‘s Wichita casino, a market that was Caesars’ for the taking.) And what does it have to show for this? A fifth of the revenue from Horseshoe Cleveland, plus management fees. That’s it for now. Many a CEO would get cashiered for whiffing at three fat pitches like those. Fortunately for Gary Loveman, his bosses at Texas Pacific Group and Apollo Management are no match for a Harvard boffin with a bipolar business plan.

Loveman’s a frontrunner to snag the services of one Britney Spears. The former teen temptress has supposedly winnowed her list of prospective Vegas residencies to two casinos. One of these is a Caesars property that is not Caesars Palace. Ticket sales for Jersey Boys have been problematic, seemingly since the day the show moved to Paris-Las Vegas. Last week, Caesars was hawking $30-$50 seats for locals. So put that in the mix. Ditto Planet Hollywood, where Peepshow is keeping the room warm until a prime-time tenant can be found. Most of Caesars’ other showrooms are antiquated or undersized. Steve Wynn already has plans for his showroom and MGM Resorts International has pledged all of its appropriate venues to Cirque du Soleil. (Unless Zarkana is bombing, in which case Aria would seem a logical contender.) So I’m going to predict that The Cosmopolitan of Las Vegas is the rival candidate. It tries to skew younger in its entertainment mix and emphasis on nightclubbing, so it would have a Spears-friendly demographic in place. Besides, why the sudden urgency to build out the Cosmo’s showroom?