ATLANTIC CITY — State gaming regulators hold all the cards in the proposed $17.3 billion merger of Eldorado Resorts Inc. and Caesars Entertainment Corp., as New Jersey’s is the final approval needed for the deal to be completed.
But following a second day of testimony Thursday where two economists presented differing analyses of the deal’s potential impact on the Atlantic City casino market, the investigative and enforcement arm of New Jersey’s regulatory body expressed serious concerns.
“In reflecting on the testimony presented, the division’s concerns, as they relate to the overall uncertainty associated with the transaction, remain,” Deputy Attorney General Tracy Richardson said on behalf of the state Division of Gaming Enforcement.
Conversely, the attorney for Eldorado argued the newly created gaming company was well-positioned financially, committed to Atlantic City and the resulting merger would not negatively affect the market.
The Casino Control Commission will resume hearings on the proposed deal at 10 a.m. Friday.
New Jersey regulators must consider the proposal’s impact on market concentration and the financial stability of the resulting merger. Presently, Eldorado and Caesars operate four of Atlantic City’s nine casinos.
The DGE declined to issue a recommendation on the merger in its pre-hearing report to the commission until testimony had been concluded.
On Thursday, after two days of testimony from multiple Eldorado executives and the two economists, Richardson said the DGE still had reservations. She noted the uncertainty of the effects of the coronavirus on gaming and tourism, the financial impact of casino capacity restrictions and the timetable for a market recovery as reasons for the division’s position.
“As we indicated in our report, the financial success of the merger will be determined, in many respects, by events and circumstances that are beyond the control of Eldorado and cannot accurately be predicted at this time,” Richardson said.
Eldorado currently operates Tropicana Atlantic City, while Caesars controls Bally’s Atlantic City, Caesars Atlantic City and Harrah’s Resort Atlantic City. The merged gaming company would keep the Caesars name — becoming Caesars Entertainment Inc. — and customer rewards program, while Eldorado senior management would oversee operations.
Bally’s was recently sold for $25 million to Rhode Island-based Twin River Worldwide Holdings. The sale is pending approval.
The DGE report contained several recommendations for the commission to consider if the deal is to be approved. Among the conditions included in the report is the creation of a $400 million trust fund for capital investment over the next three years at Caesars, Harrah’s and Tropicana. The division also recommended the new company lift existing deed restrictions on casino gaming on three former assets of Caesars’, the Showboat Hotel Atlantic City, The Claridge hotel and the former Atlantic Club Casino Hotel.
Eldorado CEO Thomas Reeg said during Wednesday’s hearing “new Caesars” would adhere to both those conditions, as well as commit to reinvesting 5% of annual net revenue back into the Atlantic City properties.
Eldorado attorney Steve Schrier relied on the analysis of economist Timothy Watts, managing director at National Economic Research Associates Inc., as well as the testimony of five of the company’s executives Wednesday, to argue for approval of the proposal. Watts concluded that a merger of Eldorado and Caesars would not result in an undue economic concentration of casinos in the Atlantic City market.
Schrier said his client was well-positioned financially to absorb Caesars and effectively operate casinos in Atlantic City.
“Eldorado wants to be in Atlantic City, and they back that up, not just with promises but with enormous dedicated and set aside funds,” Schrier said.
Martin Perry, head of the economics department at the University of Illinois at Urbana-Champaign, argued in favor of certain conditions that would foster market competition. Perry, who has conducted several Atlantic City merger and acquisition analyses for the state, did not approve or disapprove of the merger outright.
Instead, Perry offered several recommendations for approval of the deal that would reduce the market share of the newly formed company, including selling one larger casino or two smaller properties. The sale of Bally’s alone, Perry said, would have the least impact on reducing market concentration.
The Casino Control Commission currently consists of two members — Chairman James Plousis and Commissioner Alisa Cooper — following the recent retirement of former Vice Chair Sharon Anne Harrington.
Late submitted petitions by Hard Rock Hotel & Casino Atlantic City and Ocean Casino Resort to participate in the hearings were denied by the commission Thursday.