Caesars has realized over $1 billion in combined revenue and cost synergies from its merger with Eldorado

Business Strategy and Outlook

As a result of the acquisition of the legacy Caesars business by Eldorado (closed July 2020), it is estimated Caesars holds more than a 10% revenue share of the domestic casino gaming market; this represents around 100% of the company’s total EBITDA. The acquisition roughly doubled the company’s U.S. portfolio to around 50 properties while lifting its loyalty membership to over 60 million from 55 million (loyalty stood at 65 million at the end of 2021). Caesars has realized over $1 billion in combined revenue and cost synergies from its merger with Eldorado, representing around a 30% increase to pro forma 2019 EBITDAR. Before this recent combination, legacy Eldorado successfully integrated the Isle and Tropicana acquisitions in 2017 and 2018, respectively, with both deals driving about a 30% return on investment, based on calculations. Despite this successful acquisition record, it’s d believe Las Vegas and other U.S. gaming regions contribute to a moat for Caesars. U.S. gaming demand is lower than in Asian regions like Macao and Singapore, where the propensity to gamble is much higher. Also, the 1,000 commercial and tribal casinos in the U.S. serve a total population of 330 million, well in excess of the 41 and 2 casinos found in Macao and Singapore, respectively, with Chinese and Singaporean populations of 1.4 billion and 5.9 million, respectively. Further, supply growth in U.S. gaming is increasing in 2021-23, with two resorts opening in Las Vegas that add a mid-single-digit percentage to market room supply. This compares with negligible additions in either Macao or Singapore, where it is seen there are no additional licenses for the foreseeable future.

Despite this successful acquisition record, it’s not believed that Las Vegas and other U.S. gaming regions contribute to a moat for Caesars. U.S. gaming demand is lower than in Asian regions like Macao and Singapore, where the propensity to gamble is much higher. Also, the 1,000 commercial and tribal casinos in the U.S. serve a total population of 330 million, well in excess of the 41 and 2 casinos found in Macao and Singapore, respectively, with Chinese and Singaporean populations of 1.4 billion and 5.9 million, respectively. Further, supply growth in U.S. gaming is increasing in 2021-23, with two resorts opening in Las Vegas that add a mid-single-digit percentage to market room supply. This compares with negligible additions in either Macao or Singapore, where there are no additional licenses for the foreseeable future.

Financial Strength

Caesars’ debt levels are elevated. In 2019, excluding financial lease obligations, legacy Caesars’ debt/adjusted EBITDA measured a hefty 7.8 times, while legacy Eldorado came in at 3.7 times. It is believed reasonable to include financial lease obligations in the long-debt responsibility of the combined companies (which merged in July 2020). Caesars’ debt/adjusted EBITDA can be seen reaching 8.5 times in 2022 and then 6.9 times in 2023 as global leisure and travel market demand continue to recover from the pandemic, aided by company cost and revenue synergies that is estimated to total over $1 billion. The $7.6 billion are in free cash flow (operating cash flow minus capital expenditures) and it is expected that in 2022-26 is focused on reducing debt levels and investing in the digital sports and iGaming markets, with share repurchases and dividends not occurring until 2025. Caesars has no meaningful debt maturity until 2024, when $4.8 billion is scheduled to come due. That said, EBIT interest coverage is on the thinner side, the forecasted ratio is at only 2.0 on average the next five years.

Bulls Say’s

Caesars’ best-of-breed management stands to generate cost and revenue synergies from its merger with Eldorado.
Caesars has the largest property (around 50 domestic casinos versus roughly 20 for MGM) and loyalty presence (65 million members versus MGM’s roughly high-30 million), which presents cross-selling opportunities.
It can be seen that Caesars’ domestic properties are well positioned to benefit from the $6.2 billion U.S. sports betting revenue opportunity in 2024.

Company Profile

Caesars Entertainment includes around 50 domestic gaming properties across Las Vegas (50% of 2021 EBITDAR before corporate and digital expenses) and regional (63%) markets. Additionally, the company hosts managed properties and digital assets, the latter of which produced material EBITDA losses in 2021. Caesars’ U.S. presence roughly doubled with the 2020 acquisition by Eldorado, which built its first casino in Reno, Nevada, in 1973 and expanded its presence through prior acquisitions to over 20 properties before merging with legacy Caesars. Caesars’ brands include Caesars, Harrah’s, Tropicana, Bally’s, Isle, and Flamingo. Also, the company owns the U.S. portion of William Hill (it plans to sell the international operation in 2022), a digital sports betting platform.

(Source: MorningStar)

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