The WSOP Now Looks Out Of Place As Caesars Focuses On Its Land-Based Businesses
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Caesars Entertainment Reports Growth In Q2 But Loses $2 Billion On Voluntary Bankruptcy Of Operating Company

Caesars Q2 2016 earnings call
Fresh from the good news that Caesars Interactive Entertainment (CIE) is selling its Playtika social gaming business for $4.4 billion, Caesars Entertainment (CEC) has reported its results for Q2 of 2016.

$2 billion in bankruptcy costs in Q2

The headline numbers show a $2 billion loss resulting from the ongoing voluntary bankruptcy proceedings of Caesars Entertainment Operating Company (CEOC).

Revenues for the parts of CEC not in bankruptcy increased by 7.8 percent to $1.2 billion “primarily attributable” to CIE and “growth in hospitality revenues in Las Vegas.”

Mark Frissora, president and chief executive officer of Caesars Entertainment commented:

“We delivered solid operating performance in the second quarter, including an 8% increase in net revenue and strong income and margin results, excluding the impact of bankruptcy-related charges and CIE stock compensation expense. Our second-quarter performance was driven by strong results in Las Vegas lodging, exemplified by a 6.5% increase in RevPAR, as well as entertainment and continued strength in the social and mobile games business.”

CEC results include financials from Caesars Entertainment Resort Properties (CERP), Caesars Growth Partners, LLC (CGP), “in which we hold a variable economic interest, and the majority owned operating subsidiary Caesars Entertainment Operating Company (CEOC) (which was deconsolidated effective January 15, 2015 due to its bankruptcy filing).”

CIE, which owns the WSOP brand and operates the WSOP.com real money online gaming businesses in Nevada and New Jersey is a part of CGP. The WSOP business is not included in the sale of Playtika to Chinese gaming company Giant Interactive Gaming.

For anyone confused about the structure of CEC, the earnings call slides include a useful graphic showing what goes where in the corporate family.

Caesars Operating Structure

 

The WSOP is only a small part of a complex group

Of the total $1.2 billion in revenues for the quarter, WSOP and its online business contributed just $11 million. CIE actually reported a net loss of $4 million for the quarter mainly because of a $66 million fair value adjustment to the stock-based compensation awards.

The sale of Playtika leaves CIE with the WSOP business as its main asset. Although no announcement has been made, it is likely that the WSOP will be subsumed into a different part of the Caesars group.

Alternatively, it could still be put up for sale. The value of the WSOP brand could well be higher to another buyer.

888 is currently occupied with its bid for William Hill, but as it provides the poker client for WSOP.com in Nevada and New Jersey, the addition of the WSOP brand to its business looks like corporate common sense.

The use of the WSOP live series for online marketing suggests that 888 already places a very high value on its association with WSOP.

This year, 888 was the primary official sponsor of the WSOP live tournament series, and through satellite tournaments, sent 148 players to the Main Event. Two of the qualifiers Griffin Benger and Fernando Pons made it to the November Nine.

Live casino revenue growth was low

The revenues from all 40 casinos owned by CEC came in at $545 million, only $2 million and 0.4 percent higher than the same period last year.

During the conference call with investors, CFO Eric Hession referred to the decline in revenues at the US casinos owned by CERP:

“The year-over-year decline in revenues was primarily due to lower gaming volumes in Las Vegas and Atlantic City as well as unfavorable hold, partially offset by hotel revenue growth.”

He explained the decline partly as the result in the changed dates for the 2016 WSOP which has shifted some revenues from Q2 to Q3.

Even given the explanation, investors will not be pleased at the low rate of casino growth. The rate is lower than overall US growth in GDP over the same period — this does not bode well for the future.

The explosive growth at CIE which brought in the excellent sale price of $4.4 billion will no longer be there to cover for weaker performance in the rest of Caesars when the Playtika deal completes in the third or fourth quarter this year.

The short term share price rise of over 10 percent which followed the announcement of the sale of Playtika has already evaporated after the publication of the Q2 results. Today, August 3, the share price is down over 7.5 percent, although it remains more than 5 percent above the close on Friday July 29.

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Joss Wood
- A former editor of Poker Industry Pro, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.