In the midst of a blockbuster merger that will create the United States’ largest gaming company, Eldorado Resorts Inc. and Caesars Entertainment Corp. delivered quarterly financial reports this week that offer a clearer picture of Atlantic City’s future following the anticipated completion of the $17.3 billion deal in early 2020.
The newly formed gaming company, which will retain the Caesars name but operate under Eldorado’s corporate ethos, will control four of Atlantic City’s nine casino properties when the deal is finalized, accounting for nearly 37% of the market’s gaming revenue and employing 40% of the industry’s workforce.
The second-quarter financial reports show both Eldorado and Caesars are in a good position ahead of the deal but indicate Atlantic City could become a focal point for operating efficiencies and property sales going forward.
Caesars cited additional casino properties in the Atlantic City market as a contributing factor to falling revenues for its properties outside Las Vegas.
In a financial report released Monday, the gaming operator said overall net revenues increased by 4.9%, or $103 million, for the three-month period, but decreased $47 million throughout the country in areas other than Las Vegas “due to increased competition in Atlantic City” and other regional jurisdictions.
Caesars CEO Tony Rodio — former chief executive of Tropicana Atlantic City — said the company “delivered solid results in the second quarter” but pointed out the numbers were “partially offset by competitive pressures in Atlantic City and other parts of our regional portfolio.”
During a conference call with investors and analysts to discuss the quarterly financials, Rodio said the company’s three Atlantic City properties — Bally’s, Caesars and Harrah’s Resort — “underperformed” compared to the other four casinos in the resort that were operating before the June 27, 2018, dual openings of Hard Rock Hotel & Casino Atlantic City and Ocean Casino Resort.
“So if those other properties could figure out a way to hold on to market share to some degree and then to do it on a profitable basis, I certainly think Caesars Entertainment should be able to do it,” Rodio said.
Earlier in the call, Rodio expressed cautious optimism for the market, saying: “And I mean, call me crazy, but I think we can improve things in Atlantic City a little bit.”
He also suggested part of the company’s problems in Atlantic City were due to a lack of capital investment in the properties.
“Particularly at Caesars Atlantic City, not so much at Harrah’s, that I think that we could be deploying a little bit more capital dollars to create some incentives and some nongaming amenities that give people a reason to come and visit our property,” Rodio said. “If you look at the properties that are successful — and I think Hard Rock is turning it around a little bit — it’s properties that have reinvested in the experience. And I think that we have failed to do that over the last couple of years.”
Eldorado, a new entrant into the Atlantic City market with its 2018 acquisition of Tropicana, reported net revenue losses of 3.5% in the East Region for the quarter compared to last year, but operating income and earnings before interest, taxes, depreciation and amortization, considered the most accurate measure of corporate performance, both increased.
Eldorado CEO Tom Reeg said the 12-month EBITDA for Tropicana was “almost identical” to the pre-Hard Rock and Ocean additions to the market, a point he said the company was “extraordinarily pleased” with during Tuesday’s conference call with investors and analysts.
Reeg also reiterated a previous point that the newly formed company would seek almost $500 million in “synergies” once the deal is complete. Industry experts believe a sale of an Atlantic City property currently operated by Caesars is a potential target for realizing some of Eldorado’s desired efficiencies.
“If they sold an asset in Atlantic City, it wouldn’t be bad,” said Robert Heller, CEO of Spectrum Gaming Capital. “They have too many assets. And they have now Tropicana, Caesars, Bally’s and Harrah’s, (and) that’s an awful lot of concentration in Atlantic City. So I think it’s a decent chance that they’ll sell one.”
Reeg suggested a property could be sold due to “anti-trust purposes.” New Jersey gaming regulators are bound by law to consider “undue economic concentration” when considering licensing approval of casino mergers and acquisitions.