The $18 billion mega-merger of Caesars Entertainment and Eldorado Resorts will have an impact that extends far beyond the two companies. Of note for our purposes, the new company is poised to disrupt the young US sports betting landscape.
As part of the current expansion, both Eldorado and Caesars have well-established partnerships with online providers. And at first glance, some of those alliances appear to conflict with one another. Eldorado is linked to The Stars Group (TSG) and William Hill, while Caesars has deals in place with 888 and Scientific Games (SG).
During the investor call announcing the merger, Eldorado CEO Tom Reeg fielded a question about these market-access agreements. His reply appeared to ignore the potential problems:
“We bring the William Hill and The Stars Group access partnerships. Caesars has a plethora of sports partnerships, including league partnerships, team partnerships, ESPN… and we see them all fitting together. We would see William Hill and TSG rolling into access deals across the Caesars portfolio to the extent that they’re not already offered in our portfolio. But we think the opportunity in sports betting in the combined company is as good as there is out there at this point.”
A closer look at each deal, however, reveals that the solution may not be as clear as Reeg implies.
Eldorado signed a deal with TSG in November 2018. The announcement explained that TSG had “the option to operate online betting and gaming in the states where Eldorado currently or in the future owns or operates casino properties.”
“The agreement grants The Stars Group the option to own, operate and brand real-money online sports betting, poker and casino offerings in each of the applicable states subject to license availability, state law and regulatory approvals. As it relates to sports betting, The Stars Group’s options will provide first skin access in states where Eldorado owns or operates more than one casino property and second skin access in all other applicable states.”
A TSG spokesperson explained the company’s perspective to OPR succinctly:
“Our agreement with Eldorado is a long-term agreement that covers properties which Eldorado acquires or develops in the future. This agreement will continue to remain in place.”
The Caesars/Eldorado merger looks like it provides a path to major market expansion for TSG. “Or develops in the future” strongly suggests that the deal will extend to Caesars properties in the combined group.
It is noteworthy that the new company will retain the Caesars name while relocating from Las Vegas to Eldorado’s base in Reno. The senior management team will be drawn from Eldorado, and it looks like Caesars’ new CEO Tony Rodio will be out.
Eldorado will be in charge, in other words, and their executives will naturally favor the deals they’ve struck. That would be good news for TSG.
Eldorado’s deal with William Hill pre-dates its deal with TSG. The agreement from September 2018 names Will Hill as Eldorado’s “exclusive partner in the provision of digital and land-based sports betting services as well as online gaming.”
The TSG agreement presumably doesn’t conflict with this. That deal seems to be restricted to online and mobile betting, while the Will Hill partnership includes retail sportsbook operations. The first/second skin provisions appear to mark the key online distinction.
William Hill’s statement on the deal makes even more of the opportunity:
“Under the agreement, William Hill gained the right to exclusively operate sports books at all properties owned or managed by Eldorado in the United States and to operate mobile sports betting in states where Eldorado obtains a license. These rights apply to casino properties owned or managed by Eldorado when the strategic partnership was signed and any subsequent acquisitions. Therefore, the rights apply to casinos currently owned or managed by Caesars if Eldorado’s acquisition of Caesars is completed.”
The potential clash centers around which company gets first dibs on online sports betting in new markets. This will be more of an issue in some states than others. New Jersey allows three skins for each licensee, for example, while Pennsylvania only allows one apiece.
Moving across to the other side of the house, Scientific Games is Caesars’ sports betting partner.
The two signed a deal back in July 2018, before both TSG and Will Hill entered the picture. The agreement initially brought SG’s OpenBet sportsbook platform to Caesars properties in New Jersey and Mississippi before expanding to include Pennsylvania.
SG President Barry Cottle saw the deal as the foundation of a multi-state partnership with Caesars:
“This is a pivotal deal that will shape the U.S. sports betting landscape for years to come. Together, we will usher in a new era for gaming in the US and welcome thousands of new players into the sports betting market. With OpenBet, our powerful and robust sportsbook platform, Caesars will have a truly open platform and end-to-end product suite that delivers the very best and flexible solutions. Our SG Digital team is excited to help Caesars build for the future, as they expand their sports betting across land-based, digital and mobile platforms into newly regulated markets.”
The merger, which puts Eldorado in the driver’s seat, doesn’t look so positive for SG.
Finally, Caesars already has a long-time digital partner in 888.
The Caesars/888 agreement stretches all the way back to the 2013 launch of online poker in Nevada and New Jersey. In addition to powering the WSOP platform for Caesars in both states, 888 also offers online poker under its own brand in the latter.
Though still underexposed in the US, 888 has a much larger presence in online sports betting than online poker. And its Kambi platform would have been easily capable of meeting Caesars’ sports betting needs. So the fact that Caesars went with SG must have come as a blow.
During 888’s last investor call, the company said that it was still looking for partners for its own US sports betting ambitions. After this merger, one more option seems to have faded away.
There also seems to be an enormous broadcasting dynamic in play.
Caesars has a strategic deal in place with ESPN, reflecting the current industry belief that broadcast media will heavily influence customer acquisition. William Hill has years of broadcasting experience via its horse betting business, operating its own network in the UK and the US.
TSG has repeatedly emphasized the importance it places on broadcast media too. It bought Sky Betting & Gaming last year, a spin-off of TV giant Sky UK. It more recently entered entered into a deal with Fox Sports, and this is the route the new Caesars will take to market.
“We’re going to participate in the Fox Sports betting with our Stars Group deal. We really like what we’ve got there. We will analyze, is there a better way to go about it, but it would surprise me if there is a different answer.”
Sorting out the apparently contradictory contractual obligations won’t be easy.
Though the plan is still in flux, William Hill and TSG seem to be the major beneficiaries of the merger. While TSG’s share price has halved in the last year, this deal all but guarantees it substantially increased US market access. And it hasn’t had to spend a penny to get it.
The SG and 888 deals will continue as they are for now, it appears. But time will eventually squeeze them out of the Caesars’ fold.