After a disappointing fiscal report from the company, analysts are stating it is a “possibility” that Caesars Entertainment may have to sell the World Series of Poker and restructure its debt to maintain its profitability.
According to VegasInc.com, the financial services company Fitch Ratings has recently downgraded the stock suggestion of Caesars Entertainment from “stable” to “negative” following its most recent financial statements for investors. In that report, Caesars lost $241.7 million in the second quarter of this fiscal year. In making the adjustment to its ratings outlook, Fitch Ratings cited several troublesome areas.
With $19.9 billion in debt, Fitch Ratings raised concerns over the ability of Caesars Entertainment to make payments on that debt. While admitting that there was “adequate” cash on hand for the company to fulfill its obligations, Fitch Ratings worried over the ability of Caesars’ largest investors, Apollo Global Management LLC and TPG Capital LP, to continue to push money into the system. Fitch Ratings estimates that, over the next two years, the company would have debts totaling in the $450-$600 million area.
With such expenditures facing them, Fitch Ratings suggested that Caesars might have to take the difficult look at shedding some of its more valuable assets. “A spin-off of Caesars Interactive or other means of monetizing the online business could be (a) logical precursor to a restructuring,” the Fitch Ratings report stated according to VegasInc. “The parent guarantees OpCo (operating company) debt and sponsors, if electing to restructure OpCo, would like want to extract value out of Interactive and not risk the entity being pulled into the restructuring proceedings.”
This is an area that would potentially affect the poker community. Caesars Interactive Entertainment is made up of several areas that affect poker. The World Series of Poker is its crown jewel, but other entities, such as Playtika (an online game developer behind such games as Slotomania and Caesars Casino) and its online gaming activities throughout Europe, would be nearly as highly prized by potential buyers. Founded in 2009, it has rapidly shown profitability in a very short time.
“Fitch believes that most of Caesars’ current equity value is attributable to this unit (Caesars Interactive), which would benefit materially if online gaming is legalized on the federal level in the U. S.,” the report states. (Note that Fitch Ratings didn’t look at the current state of regulation in the United States or the current moves in Nevada towards intra-state regulation of online poker.) “Besides (possibly) entering into Chapter 11 (bankruptcy proceedings), Caesars may elect to execute debt exchanges, possibly for equity since the company is now public,” the Fitch Ratings report concluded.
The history of Caesars – and its involvement with the World Series of Poker – has been a convoluted one. Then known as Harrah’s Entertainment, in 2004 the company purchased the WSOP along with Binion’s Horseshoe for an undisclosed amount (while they kept the WSOP and the Horseshoe brand, Harrah’s immediately sold Binion’s). In 2005, the company moved the WSOP to the Rio All-Suites Hotel and Casino (which they had purchased in 1999 for $888 million) and, since that time, the WSOP has been contested on the property.
Harrah’s – and now Caesars – Entertainment grew the WSOP brand to unprecedented heights of success, starting the WSOP Circuit events in 2005, creating the WSOP Europe in 2007 and moving to Australia for the WSOP APAC (Asia Pacific) in April 2013. In the meantime, Caesars Entertainment has gone private and returned once again to the NASDAQ market earlier this year. After once earning $17.90 a share, at this moment the Caesars Entertainment stock (traded under the symbol “CZR”) is moving at $7.19.
According to VegasInc, Gary Thompson, the Director of Communications for Caesars Entertainment, would have no comment on the Fitch Ratings report, but Thompson observed that Fitch affirmed the existing rating for the company despite downgrading its future outlook for the company.
