Caesars Entertainment CEO Tom Reeg appeared yesterday at the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum in Las Vegas, and addressed a variety of topics. His remarks were largely upbeat.
Reeg began with Vegas, where he saw the market’s propulsion as continuing, thanks in part to limited growth in room and gambling supply on the Las Vegas Strip. Other positive factors were improving international business and convention business that now sees Las Vegas as its primary destination.
High-end customers were described as being more cosmopolitan than before the pandemic, when they were predominantly Asian. Now they’re characterized as “a better mix of domestic luxury customers,” according to J.P. Morgan analyst Joseph Greff.
The CEO predicted “better profitability” from the second Las Vegas Grand Prix, the first Formula One race having failed to meet Caesars’s cash-flow projections. Reeg’s new forecast was due to Caesars becoming “a primary beneficiary of the market-wide effort to better tailor the event to mass-market participants.”
After last year’s race, Caesars lamented that its mid-market and lower-end Vegas properties failed to share in the bounty, particularly when compared to Caesars Palace.
Although Caesars benefited from the recent Super Bowl, Reeg said the company was “seeing more idiosyncratic obstacles related to events that are affecting March, along with lower-than-normal table hold in January and February,” in Greff’s words. Reeg remained hopeful of full-year growth, citing easier revenue and cash-flow comparisons in the second through fourth quarters.
The wage increases built into last year’s Culinary Union and Bartender’s Union contracts are starting to make their presence known in the bottom line. Reeg said that in the first three quarters of 2024, the full impact from wage hikes will be felt, with the second-year salary escalator impacting the fourth quarter as well. (The pacts will reach their first anniversary in November.)
Turning to Caesars’s outlying markets, Reeg described customers and their spending habits as “resilient.” Individual weakness among provincial gaming properties were attributed to new competition. Reeg said this would be offset by a new casino in Danville, Virginia, and an upgrade of Harrah’s New Orleans to Caesars status, both occurring late this year.
Free cash flow from these and other revenue streams would be channeled toward the retirement of debt, Reeg remarked. He implied a lack of merger or acquisition activity, saying that Caesars had no plans to issue equity for that purpose, despite “no shortage of opportunities in the market.”
Instead, Reeg said, Caesars would buy its own stock were its price not to change. (CZR was trading at $41.61 per share at the time of Greff’s report.)
On the online front, Reeg reported that Caesars Palace-branded igaming “has exceeded expectations.” Growth in revenue has occurred month over month in amounts surpassing Caesars’s previous digital efforts. Fifty percent year-over-year growth was forecast, with February revenues said to be $40 million.
Caesars’s digital division anticipates launching a second online brand later this year “to increase customer acquisition and customer engagement on the CZR online ecosystem.” This year it expects revenue to keep pace with overall market growth, with fully half going into cash flow.
Without speculating on the prospects for additional igaming legalizations, Reeg said the addition of another state would be equivalent in cash flow to two or three states’ worth of online sports betting. He also foresaw a “meaningful opportunity” to win back brick-and-mortar customers who engage in igaming on non-Caesars platforms, at a very low cost of capital.
Reeg remained confident about Caesars hitting its online financial markets. Return on investment in 2025 is still pegged at $500 million.
