Caesars and scientific games entered into a deal this week
Online Poker Report

Caesars Q2 Results Don’t Impress Investors Despite Sports Betting Expansion

Caesars earnings

Caesars CEO Mark Frissora presented what it called “strong financial” Q2 results, but the company’s stock price still fell by 15 percent after the earnings call with investors.

  • Caesars press release is available here
  • The earnings presentation is here
  • Q2 2018 results are here

The company summarized the quarter as a:

“Strong Q2 driven by robust gaming volumes and hospitality revenues in Las Vegas and exceptional cost management.”

Nevertheless the results didn’t meet with investor expectations even though Frissora could point to:

  • Las Vegas gaming revenue increased 10.7 percent, led by significant year-over-year baccarat growth
  • 447 basis points improvement in marketing efficiency
  • +930 bps adjusted EBITDAR margin
  • and >400 bps reduction in cost of debt

This week the company has announced that it is rolling out sports betting to properties in New Jersey and Mississippi, but the scope of the opportunity was not enough to offset investor disappointment that results from the land-based properties weren’t better.

Headline numbers show growth

  • Q2 2018 net revenues increased by $1.11 billion to $2.12 billion as the result of the inclusion of Caesars Entertainment Operating Company (CEOC) revenues after the company came out of bankruptcy at the end of 2017.
  • Net income also boomed from a net loss of $1.43 billion to a net gain of $29 million. The previous year’s loss resulted mainly from restructuring charges.
  • Same-store net revenues gained 2.8 percent rising from $2.06 billion to $2.12 billion.
  • Marketing costs decreased 6.6%, or $34 million.

Frissora commented:

“We delivered solid second quarter results, led by strong gaming and hospitality performance in Las Vegas, where we have completed renovating 60% of our 23,000 hotel rooms since 2014. The results also reflect balanced, robust cost management and growth strategies.”

Sports betting expansion

This week, Caesars has introduced sports betting at Bally’s, Wild Wild West and Harrah’s Atlantic City.

In the presentation to investors, Frissora made the most of Caesars’ positioning to exploit the new opportunity. He pointed out that Caesars has operations in 14 states and already has casino floor or online sports betting products in Nevada and New Jersey.

Caesars operates the World Series of Poker (WSOP) and its branded online poker sites in Nevada and New Jersey.

The poker businesses don’t contribute enough revenue to be separately identified in the results, but the record turnout for this year’s WSOP Main Event including the online events played on WSOP.com should have made a positive bottom line contribution.

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Partnership with Scientific Games and 888

This week’s announcement of the sports betting expansion specifically referenced the role of Scientific Games as the company’s sports betting technology provider.

But it is also worth remembering that Caesars already has a strong relationship with 888, which provides the online poker platform for WSOP’s products in New Jersey and Nevada.

The importance of these two relationships is mentionable especially in the light of the recent announcement by MGM that it is entering a $200 million joint venture with GVC, owners of PartyPoker.

The news has made headlines across the gaming media, which largely ignored the fact that Caesars’ existing relationships already give it a very similar capability to that announced by MGM and GVC.

MGM and GVC will be active in 15 states due to the relationship MGM has with Boyd Gaming, compared with the 14 where Caesars has a presence.

GVC brings its proprietary online sports betting and online poker platforms to the MGM deal, while Caesars has the equivalent assets in its partnership with Scientific Games and 888.

Notably, 888 is present as an online poker platform provider in all three states where online poker is up and running and sharing liquidity — New Jersey, Delaware and Nevada.

GVC’s PartyPoker is only available in New Jersey, so the GVC/MGM online poker offering is in the position of having to play catch-up.

Investors may not be convinced that Caesars’ “strong financial” results are worth a bump in the share price, but the company is well placed to take advantage of the rise of interactive sports betting, online poker and casino as more and more states introduce legislation.

Editorial credit: Jonathan Weiss / Shutterstock.com
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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.