Ten days before Caesars Entertainment shareholders vote to approve the company’s $17.3 billion merger with Eldorado Resorts, the Las Vegas-based casino giant said Tuesday it lost $359 million in the third quarter despite growing revenues 2.3% to $2.24 billion.
The revenue increase was directly attributable to the company’s Las Vegas casinos, where overall revenues grew 6.9% to $973 million during the quarter that ended Sept. 30. Gaming revenues from the nine resorts, including Caesars Palace, Bally’s Las Vegas, Harrah’s Las Vegas and the Linq, increased 17.3% due to favorable hold and higher gaming volumes.
Revenues in the company’s other U.S. casinos declined less than 1%, which the company blamed on increased competition in Atlantic City and Southern Indiana.
Companywide cash flow increased 5.8% to $635 million.
“Revenue performance was driven by our Las Vegas region due to increased consumer demand, with particular strength in the hotel business which continues to outpace prior years across properties,” Caesars CEO Tony Rodio said in a statement. “Coupled with corporate expense reductions, this led to strong adjusted (cash flow) growth as well as margin expansion.”
On a conference call with analysts, Rodio said he wouldn’t talk in specifics about the merger with Reno-based Eldorado, referring investors to the definitive proxy statement that was filed with the Securities and Exchange Commission in October, outlining aspects of the deal.
Shareholders from both companies will vote on the deal on Nov. 15. Once the deal closes, Eldorado will become the managing company, although the merged business will retain the Caesars name.
Rodio said the companies “have made significant progress on the integration planning process.” The transaction is expected to close early next year.
Eldorado said it expects to achieve $500 million in cost savings from the merger that will create a gaming conglomerate with 60 properties in 18 states under multiple brands, including Caesars, Harrah’s, Eldorado, Horseshoe and Bally’s.
Rodio said he expects Caesars will between $75 million and $100 million in costs through various reductions by the time the merger closes. He said the number of leased slot machines have been reduced at the several casinos, the work of many outside contractors and professional services have been terminated, and the company ended its international casino pursuits, including a departure from the biding process for a gaming license in Japan.
“We’ve had attrition at the corporate level and we launched a voluntary severance program last month and 50 people raised their hands,” Rodio said. He expects additional job eliminations will take place after Jan. 1
“This is allowing us to reduce costs through the closing (of the merger),” Rodio said. “We expect to see more of a flow-through in the first quarter as more people accept the voluntary severance over the course of the coming months.”
During the quarter, the company reduced its net loss by $110 million from the third quarter of 2018 while loss per share improved 16 cents from a year ago to a net loss of 52 cents.
Rodio said Caesars has been active in the sports betting arena, and now operates 29 Caesars-branded sportsbooks in seven states – Nevada, New Jersey, Mississippi, Iowa, Indiana, and Pennsylvania at its Caesars-owned resorts. In a seventh state, Caesars operates a sportsbook with the Turning Stone Indian casino in upstate New York.
Rodio said the effort is not about the revenue directly generated from sports betting, but the incremental cash flow provided throughout the casino by increased foot traffic in the property. He cited results at the Horseshoe Casino in Hammond, Indiana. Revenues were down a year ago but are up 4% in the quarter after the property’s sportsbook opened.
“Sports betting is influencing customer visitation and revenues across all areas,” he said. “There has been a direct impact on food and beverage spending and gamming volume.”
At least one gaming analyst believes the company’s Las Vegas success will continue into the last three months of the year. Nomura Instinet gaming analyst Harry Curtis said room rates at Caesars Strip properties are up 10.3% compared to a year ago.
“We believe that strong group bookings for Las Vegas Strip operators in the fourth quarter are offsetting any transient pressures the surveys were picking up several weeks ago,” Curtis said in a note to investors ahead of Caesars earnings.
In September, Caesars agreed to sell the off-Strip Rio Casino-Resort in Las Vegas for $516.3 million to a company controlled by a principal of Imperial Companies, a New York-based real estate group.
#breaking – Caesars shrinks Q3 net loss to $359M, but grows revenues 2.3% to $2.24B. –@howardstutz, CDC Gaming. https://t.co/UytWtztle7 @CaesarsEnt #CDCgaming Check back for updates!
— CDC Gaming (@CDCNewswire) November 5, 2019
The sale is expected to close by the end of 2019, and Caesars will continue to operate the Rio for a minimum of two years under a lease agreement. The property will remain part of the Caesars Rewards network throughout the lease.
Rodio expects customers at the Rio will move to other Caesars properties once the company’s lease expires.
Shares of Caesars, traded on the Nasdaq, closed at $12.32 Tuesday, down 6 cents or 0.48%.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
