Caesars Entertainment told Wall Street analysts this week that, like other operators, they’re in the planning stages to enter the sports prediction market if a legalized path becomes available — without putting their state licenses across the country at risk.
The comments came in the response from a question from Barry Jonas, an analyst with Truisit Securities. Sports betting operators have been facing competition from prediction markets like Kalshi, selling sports event contracts under the auspices of the Commodities Futures Trading Commission. Online sports betting operators have taken a hit in the stock market from the competition and states and tribal nations have sued the operators to stop what they consider illegal gambling and taking away their revenue.
“We’re actively watching it and as we said before, we can’t be out on the lead on this,” said Eric Hession, president of Caesars Sports and Online. “We’re going to monitor it, so we’re not left behind if there’s regulatory clarity and that we have a good plan in place should that outcome happen.”
Hession referenced what’s happening in Nevada and other states, where regulators are warning licensed operators to stay out of prediction markets.
Caesars CEO Tom Reeg echoed what other casino executives are saying: What prediction markets are doing is wrong, but they would enter the market if legalized rather than get left behind.
“We will not put any of our licenses at risk,” Reeg said. “We believe what’s happening in prediction markets is sports gambling. If a path develops where we can participate in a way that doesn’t put licenses at risk, we are prepared to go down that path. We’re watching it the same as you are.”
As for the impact of the prediction market on Caesars, Hession said they haven’t seen any so far. “I suspect most of the volume is coming from states that don’t have legalized sports betting and legalized states that we might not have been able to access anyway, like 18- to 21-year-olds.”
In his note to investors, Jonas wrote that Caesars’s underlying digital trends remain solid. Its third-quarter EBITDA of $28 million was lower by $24 million year-over-year, primarily due to the loss of licensing revenue from the sale of the World Series of Poker, low NFL hold in September, and increased fees, platform costs, and gaming taxes as a result of higher igaming volumes. He also cited recent state-tax increases.
“Despite the headwinds, growth was seen across both igaming and online sports betting,” Jonas said.
In the third quarter, online sports betting handle grew 6% and igaming revenue in the quarter grew 29%, Jonas said. Management also highlighted its redesigned Horseshoe online casino update set to launch in the fourth quarter.
“Management noted that while hold has been better year-over-year thus far in the fourth quarter it’s still below Caesars’s online sports betting structural hold levels,” Jonas said. “That said, sporting outcomes can be volatile and management did not provide any additional commentary on the fourth quarter, positive or negative. At a higher level, management continues to expect digital to drive +20% top line growth with 50% flow through which should lead to Caesars’ $500 million EBITDA target.”
While an analysis around spinning off the digital business has been discussed in the past, Jonas said he wouldn’t expect anything imminent, given the current “prediction noise” hitting digital online sports betting valuations, while the business still is ramping toward hitting its $500 million EBITDA targets.
