Eldorado, Caesars Marriage Makes Atlantic City an Epicenter for Potential Asset Sales

Posted on: August 8, 2019, 05:00h. 

Last updated on: August 8, 2019, 04:24h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

When Eldorado Resorts, Inc. (NASDAQ:ERI) announced its $17.3 billion takeover offer for Caesars Entertainment Corp. (NASDAQ:CZR) in June, asset sales aimed at raising cash and the reducing the companies’ sprawling portfolios were expected.

Caesars Palace Atlantic City where that company could see its roster trimmed. (Image: CNBC)

Reno-based Eldorado has already announced the sale of eight casinos across the US and while speculation remains rampant about the fate of some Caesars properties on the Las Vegas Strip, Atlantic City, N.J. could be an area of focus for Eldorado as it looks to prune Caesars’ roster.

When the acquisition is completed in the first half of 2020, the combined company will own four of the nine Atlantic City casinos, assuming one or more are not sold between now and then. The company, which is retaining the Caesars name, will account for 37 percent of gaming revenue and 40 percent of related staff on the Boardwalk, according to The Press of Atlantic City.

When Caesars reported second-quarter earnings earlier this week, the company mentioned operational weakness in Atlantic City.

And I mean call me crazy, but I think we can improve things in Atlantic City a little bit. I think that we’ve underperformed there, and I think that there’s an opportunity for us to turn those results around,” said Caesars CEO Tony Rodio on a conference call with analysts and investors.

Rodio acknowledged Bally’s, Caesars Palace, and Harrah’s – the company’s three Boardwalk properties – lagged behind the four other casinos in the city that were open before the Hard Rock Hotel & Casino Atlantic City and Ocean Casino Resort debuted in June 2018.

Bally’s And More?

Bally’s Atlantic City has frequently been rumored to be one of the Atlantic City venues Eldorado could sell. However, chatter emerged last month that due to the recent debut of an $11 million sportsbook there coupled with the success of sports betting in the Garden State, Eldorado may not be keen on selling Bally’s.

Bally’s is believed to have flailed on the Boardwalk due to neglect and lack of investment by the parent company. While not mentioning that specific property, Rodio acknowledged Caesars could be doing a better of investing in Atlantic City.

“I would say that we have particularly at Caesars Atlantic City not so much at Harrah’s, but I think that we could be deploying a little bit more capital dollars to create some incentives in some non-gaming amenities that give people a reason to come and visit our properties,” he said. “If you look at the properties that are successful, 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 owns the Tropicana in Atlantic City, which it acquired last year. CEO Tom Reeg said after the Hard Rock Hotel & Casino Atlantic City and Ocean Casino opened, Tropicana’s earnings before interest, taxes, depreciation, and amortization (EBITDA) were comparable to the trailing 12 months when those competitors weren’t in the market.

Other Ideas

On Eldorado’s earnings conference call, Reeg said that if opportunities come up between now and completion of the Caesars purchase to divest properties “you should expect us to do that.”

Without specifically mentioning Atlantic City, Reeg said, “There’s a possibility that we will sell, or agree to sell, assets for antitrust purposes. Those should be relatively narrow and modest.”

Due to the concentration the two companies currently have on the Boardwalk, there is talk that New Jersey gaming regulators may push Eldorado to sell a casino there.