Challenges Await New Caesars as Company Must Sell Three Indiana Casinos By Dec. 31
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On Monday, Eldorado Resorts Inc. and Caesars Entertainment Corp. completed their $17.3 billion deal, with Eldorado taking control and taking over the legendary name in the gaming business. And while the acquisition is officially closed, more than a year after it was announced, there are more deals to come.
That’s definitely true in Indiana as the new Caesars Entertainment Inc. now owns five casinos in the state, including the four biggest in terms of adjusted gross revenue. In January and February, the Horseshoe Hammond, Caesars Southern Indiana, Indiana Grand and Harrah’s Hoosier Park accounted for 54.4 percent of the adjusted gross revenues the state’s 13 licensed casinos produced. Factoring in the other casino, Tropicana Evansville, the market share grows to 61.1 percent.
That prompted the Indiana Gaming Commission, when it approved the deal earlier this month, to stipulate that the new Caesars must divest of three properties, with agreements in place by Dec. 31.
Caesars CEO Tom Reeg told Indiana regulators that the company plans to put the Hammond, Southern Indiana, and Evansville properties on the market.
Given the current environment and economy, Caesars may face significant challenges in selling three significant regional properties. Casino.org reached out to Richard Schuetz, a longtime gaming industry executive, regulator, and consultant, for his insights into the current market.
“There are a lot of unknowns out there,” he said. “And they are big unknowns.”
Good News, Bad News
One of the advantages the Indiana properties have is that they’re considered regional attractions. People are more likely to drive to a resort or casino than fly, Schuetz said.
While that helps, he adds that the market for those properties is limited.
One should look to the usual regional players to possibly make a strategic acquisition,” Schuetz told Casino.org. “I would not expect any cowboys to try and acquire any of these assets, and the big Vegas houses do not need any additional challenges. I do not see the tribes becoming a player in the near future because of liquidity concerns, and I would also expect, because of this limited pool of buyers, that these asset values will be sold at traditionally depressed prices.”
As an example of depressed prices, he noted that Bally’s Atlantic City sold in April for $25 million. While Atlantic City isn’t an apples-to-apples comparison with Indiana, he said that it still shows a downward trend on the value of gaming assets.
Political, Economic Uncertainty Ahead
Five-plus months isn’t a lot of time to get a deal together, and Schuetz thinks the window is actually smaller than that.
“I think there are probably a lot of folks that want to see the outcome of the upcoming election before they start acquiring casino assets and how crazy the world is going to get as we approach that election,” said Schuetz, a former president and CEO of the Stratosphere Hotel and Casino who also worked as a gaming executive at resorts led by Steve Wynn, Sheldon Adelson, and William Boyd.
The presidential election is one factor, but so too is the ongoing COVID-19 crisis. With no real national policy to guide the country into recovery, that should lead to gaming executives wanting as much liquidity as possible, he said.
“Cash and cash equivalents are nice things to have on a balance sheet when one is confronting massive uncertainty,” Schuetz said. “This tends to lead to less than aggressive strategic plans regarding acquisitions.”
And that’s just one side of the economic impact of COVID-19. There’s also the effect the pandemic is having on states dependent on gaming tax revenue and on consumers’ discretionary spending. Those will have an impact, he added.
Indiana’s casino market is mature, with Terre Haute receiving the state’s 13th license earlier this year and the Indiana Grand and Hoosier Park casinos receiving permission to offer table games. The likeliest next step for Indiana in expanded gaming would be online with poker and iCasinos.
Discretionary spending, Schuetz said, will be a concern.
“One would guess as this stretches-out that there will be fewer disposable dollars available for the casino segment,” he said. “The days of being recession-proof are long-gone.”
More Time Available?
It’s possible the IGC will give Caesars more time to find buyers. When commissioners asked Reeg for his timeline, he said one property could be sold in six months, with another sold within the following six months, but the third would need to occur after January 2022, when he said hopefully the pandemic is past the country.
“You want to get to where it’s a clear picture for potential buyers, so that it’s an orderly process,” Reeg told the IGC earlier this month. “You’re going to get a better quality bidder in that case, and you’re going to get a better outcome for the state.”
While the commissioners said they could push the clock back, they also expressed concerns that Caesars keeping properties it plans to divest for up to 18 months would lead to those casinos becoming neglected.
“One of those properties has just experienced a huge investment, and for it just to sort of sit there in limbo would, to me, not be good stewardship of our state’s investments,” said Commissioner Susan Williams, referring to the $90 million land-based casino that opened at Caesars Southern Indiana in December.
Reeg pushed for keeping three properties, saying there was value for Caesars to maintain its presence in Hammond and also acknowledged that it would be a tougher sell because of the lease arrangement on the property and the growing Chicago casino market.
The Chicago suburbs have five casinos, and leaders in Illinois have plans to put a major resort casino in downtown Chicago. In addition, a couple of additional suburban casinos are in the works at Hawthorne Park and one south of the city.
“Between the pandemic and the competitive situation, expanding in Illinois, I’m not optimistic about how that would go,” Reeg said.
Schuetz said he’s skeptical over concerns the Chicago market may affect the market for the Horseshoe casino.
“I would not overly discount Hammond too much on the notion that Chicago can get its act together,” he said. “Ever.”
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