Caesars Faces Tough Quarter as Vegas Softens and Digital Falters

Caesar’s Digital struggled again in the third quarter. Net revenue was up 2.6% to almost $311 million, while EBITDA declined to $28 million. After non-EBITDA costs were factored in, the digital division reported a 21 million dollar loss. The company attributed much of that to a series of bad beats, including higher marketing spend for acquisition, increased state taxes in a number of jurisdictions in which they operate, as well as some unpaid debt.

The company also sold off its digital World Series of Poker brand in Q3 2024 to GGPoker for $500 million, though the company did keep the rights to the live WSOP tournament. It said adjusted EBITDA would have been closer to $40 million, without the sale.

Still, the company had posted almost $52 million in EBITDA in Q3 2024, so even using the “adjusted EBITDA number, the company faced headwinds. Sports book hold was down markedly in September across all 20 states where the company operates sportsbooks, though iCasino was up 29% in the four states where the company currently has online casino licenses.

Monthly unique players grew 15% to slightly over 450,000. The company continues to tout the rollout of its universal wallet and a new Proprietary Account Management (PAM) system as attracting new play. The company expects to be live with sports betting in Missouri in November.

Eric Hession, President of Caesars Sports and Online, said during the earnings call that he believes the digital division is still on track to see YOY 20% top line growth, and around 50% flow through to EBITDA, though that was hard to square with the numbers unveiled this week.

He did say that parlay mix, often a sign of higher hold, was up 210 basis points and that the company was also seeing parlays with longer legs on average as well. He also touted an improved live dealer experience, a newly redesigned Horseshoe Online casino update that should roll out before the end of the year.

Vegas Blues

As perhaps the whole world has heard by now, Las Vegas continues to suffer from declining tourism, and Caesars, with a dozen properties in town, struggled a bit as well, though not as much as some. ADR, or nightly room rates, was only down 6% and occupancy was slightly more than 5%. Of course, with that many properties over a 90-day time period, that comes to about 90,000 fewer hotel nights booked.

Tom Reeg, Caesars' CEO, famously doesn’t like to talk about hold numbers, but did point out that while those 90,000 missing rooms only drove slot handle, or total amount wagered, down by 2%, slot hold was down almost 6% across all properties.

He spent a large part of the call laying out what he sees as a much-improved Q4, largely based on group booking strength for the rest of the year. He also pushed back against the overpriced Strip value proposition, pointing out that there is a little something for everyone, at every price point. “You can come and see Paul McCartney for $500 a ticket…or you can come and see Donny Osmond for $60.”

Overall, Q3 Las Vegas net revenue was $952 million, down from $1.06 billion in last year’s Q3. EBITDA also fell to $379 million from $472 million.

Regional Resilience

Caesar’s has several dozen other properties scattered across the us from New Orleans, Louisiana, to Lake Tahoe, Nevada. Danville, Virginia, to Sonoma, California. And these properties did much better than Las Vegas. In fact, regional properties were up 6.2% to 1.54 billion in net revenue. EBITDA also climbed to $506 million from $498 million.

The company also pared its rather large debt from $11.4 billion to $11.1 billion while still keeping about $836 million in cash reserve.

Overall Performance

Net revenue across all verticals was flat at $2.9 billion. EBITDA, on the other hand, sank to $884 million from $996 million, and the GAAP loss number was an even worse 55 million dollar loss, vs a loss of $9 million last Q3. This sank the stock around 5% on the news, leaving them not only trailing the broader market but actually down almost 40% since the beginning of the year.  

Tough Times or Better Days Ahead?

It’s probably fair to say that Q4 will tell the story for several quarters to come. If Las Vegas can indeed pull out of this tourism nose dive and add several more percentage points to occupancy, then not only the Las Vegas vertical but the whole company will be in a much stronger position.

If, however, this pullback in spending on destination trips is just a harbinger of weakening economic demand overall, and this contagion spreads into regional properties, that $11 billion + in debt is going to take on a whole new perspective. Coupled with what was at best a lacklustre display in digital, an area that has shown remarkable growth for other companies, and you get a better view of why Caesars' stock continues to be choppy as buyers weigh all the data.