Caesars Entertainment says that the company has exceeded the targeted savings in the $17.3 billion merger with Eldorado Resort, so it’s halting its television advertising campaign for acquiring sports bettors earlier than expected.
On its earnings call Tuesday, Caesars said the campaign will no longer make a difference in adding new customers after its launch of sports betting in January in New York and Louisiana and now that it has a national market share that exceeded expectations. The reduction in media buys will save about $250 million.
That means saying goodbye for now to television spots featuring actor and comedian JB Smoove, along with Halle Berry and the Manning family (Archie, Cooper, Eli, and Peyton). Caesars will instead market to its most profitable customers rather than the masses and target Ohio and Maryland with an ad blitz when those states eventually add sports betting.
The media plan comes as Caesars announced its fourth-quarter earnings in which its digital segment generated $116 million in net revenue, but sustained an adjusted earnings loss of $305 million.
Some 90% of the handle was mobile sports betting and igaming. Caesars Sportsbook is live in 22 states and jurisdictions, 16 of which offer mobile wagering.
“While customer acquisition and handle exceeded our internal expectation, net revenues were negatively impacted by promotional investments and competitive pricing strategies and lower-than-historical hold in certain markets,” said Caesars President and COO Anthony Carano.
Caesars CEO Tom Reeg said that while the digital market is struggling and investors have moved from bullish to bearish, worried about whether this can be a profitable business, he remains excited about the opportunities, despite the high cost of acquiring customers. The company has an advantage with its Caesars Rewards database of 65 million players.
“We couldn’t be happier with digital with where we are,” Reeg said. “We’ve become a meaningful player in the space and have the ability to start pulling back levels that will move us to profitability as quickly as we can get there.”
Reeg said they were behind even after buying betting operator William Hill in 2021. Caesars and its newly branded app effectively sat out its first full football season in a number of jurisdictions and had ground to make up.
“That’s what we set out to do and everything remains in front of us,” Reeg said. “We still expect to lose in excess of $1 billion (in adjusted earnings) and generate better than a 50% (adjusted earnings) return on investment at maturity (in 2024).”
Reeg said Caesars went from “an afterthought in the market” in January to having 21% of the sports betting handle in the U.S. despite being 2% and less in Illinois and Pennsylvania where it’s yet to launch its platform.
“We’ve exceeded our expectations from our original framework,” Reeg said. “What you’ll see from us moving forward is profitability. We thought this business share would be consolidated into a handful of leaders, but it happened more quickly than we thought.”
Reeg said they have a window into states that are profitable within their business and know the trajectory for newly launched states in the future.
“You’ll see us dramatically curtail our traditional media spend, effective immediately,” Reeg said. “I’m not one to spend any money needlessly. Our commercials will largely disappear from your screen.”
Reeg mentioned some media buys for March Madness, the NCAA basketball tournament, that they couldn’t rescind in time.
In touting success, Reeg said the launch in New York in January amounted to twice the volume they anticipated and the market share was also two times higher than expected.
“We’ve signed up about a half-million since we launched in January,” Reeg said. “We’re extremely pleased with how we came out of the box. But because of the launch in New York and Louisiana in the first quarter, you should expect this first quarter to be our peak (adjusted earnings) loss, and that you’ll see a quarter like this again.”
That loss will be larger than the fourth quarter and Caesars will move toward profitability, not only due to cutting traditional media, but also offers to customers, Reeg said.
“If you look at what’s happening with Caesars Rewards, about 28% of customers brought into digital comprises almost half of the digital business,” Reeg said. “We’ve already identified the most valuable gamblers out there and it’s our job to convert them to the digital business.”
The digital business is driving incremental value to the brick-and-mortar business, Reeg said. What they’ve seen so far is “extremely encouraging” and Caesars has a run-rate of more than $150 million of gaming revenue a year from digital into brick-and-mortar.
“This is high flow-through revenue, and all that comes out is gaming taxes,” Reeg said. “If we assume non-gaming spend, we’re making more than $200 million a year out of digital and into brick-and-mortar. That’s what makes us excited about what’s happening here. We still have work to do with icasino, where we’re at 6% national handle share, but creeping up as we add games.”
As Caesars rolls out its platform in Pennsylvania and Illinois, Reeg said there won’t be the expenses accrued in New York, Louisiana, and Arizona in 2021. Instead, they’ve learned that the best time to obtain new customers is during the first quarter post-launch, which is worth two times more than customers obtained afterward.
“We’ve removed the marketing to everyone and are targeting the most profitable customers,” Reeg said. “That sounds simple, but that was not a particular strength of our industry until relatively recently.”
The merged Caesars and Eldorado Resorts lost more than $200 million on food and beverage in 2019, but had a quarter-billion swing to the positive in 2021, Reeg said of an industry learning a lesson.
“This was our first full year owning Caesars, and we were excited to talk about what we accomplished,” Reeg said. “There was a lot of conservation when we bought Caesars and we said we could find $500 million in synergies. We had to fight those skeptical on the board at that time. If you look at what we did with our first-year post-owning Caesars, the synergy realization is more than $1 billion at this point. The Las Vegas assets had their largest (adjusted earnings) year on record.”
