Las Vegas Sun NewsCaesars stock falls; analysts say World Series of Poker could be spun off
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Mona Shield Payne / Special to the Las Vegas Sun
Poker players compete on the first day of the World Series of Poker Main Event Saturday, July 7, 2012, at the Rio in Las Vegas. With Caesars Entertainment stock falling, analysts have suggested the company might spin off the WSOP.
Wednesday
5 September 2012
10:19 a.m.
The stock of casino resort giant Caesars Entertainment Corp. of Las Vegas continues to fall this week as more analysts suggest it may have to restructure its debt and spin off assets like the World Series of Poker.
Caesars stock fell 10.7 percent last week, slid another 7 percent on Tuesday and opened down another 2 percent today at $6.55.
Caesars lost $241.7 million in the second quarter amid anemic spending by guests and intense competition in its big Las Vegas and Atlantic City markets.
In the latest report to raise doubt about Caesars’ ability to meet its financial obligations absent some sort of restructuring of its $19.9 billion in debt, Fitch Ratings today revised its ratings outlook on Caesars from stable to negative.
Analysts are concerned that even as Caesars expands with projects like the Linq entertainment district in Las Vegas, it continues to lose money amid tough competition and it’s paying out so much cash in interest that it doesn’t have enough cash left over to properly maintain its existing hotels and casinos.
Fitch today estimated that a Caesars’ subsidiary, Caesars Entertainment Operating Co., will burn through $450 million to $600 million in both 2013 and 2014. That represents cash flow losses and capital spending that will have to be covered by the parent company or the operating company (OpCo) taking on new debt.
Analysts say Caesars has adequate liquidity in the near term to meet its obligations, and it has sponsors with access to cash to cover continued losses and maintenance spending.
But the analysts are also more frequently asking if Caesars’ biggest investors will be willing to continue pumping cash into a money-losing operation.
Fitch analysts today said that instead of sinking more cash into the operating company, Caesars’ deep-pocketed sponsors Apollo Global Management LLC and TPG Capital LP may instead opt to restructure the operating company’s debt.
“A spin-off of Caesars’ Interactive unit or other means of monetizing the online business could be logical precursors to a restructuring. The parent guarantees OpCo’s debt and sponsors, if electing to restructure OpCo, would likely want to extract value out of Interactive and not risk the entity being pulled into the restructuring proceedings,” Fitch said in its report.
Caesars’ interactive unit includes the World Series of Poker brand, social gaming company Playtika and Caesars’ online gaming operations in the United Kingdom.
“Fitch believes that most of Caesars’ current equity value is attributable to this unit, which would benefit materially if online gaming is legalized on the federal level in the U.S.,” Fitch said in its report.
“Besides (possibly) entering into Chapter 11 (bankruptcy), Caesars may elect to execute debt exchanges, possibly for equity since the company is now public,” Fitch added.
Caesars spokesman Gary Thompson said the company had no comment on the possible scenarios in the Fitch report but pointed out that Fitch affirmed Caesars' existing ratings, even as it changed the rating outlook to negative.
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Really? Duh ya think so? I've been saying this for more than a year. Caesars and MGM will have to restructure their debt similar to what Station Casinos did. The gambling business model is broken. Caesars and MGM just took on too much debt to fund buying sprees. Look at it this way. When MGM bought out Wynn they paid about 6.5 billion for Bellagio, Mirage and TI. Even if you low balled the value of the TI to 1.5 billion....Phil Ruffin stated the only way he could make money on the purchase is if he paid about 700 million. What has happened to MGM is the equivalent of buying a home during the boom in Las Vegas for 1.5 million. It's now maybe worth half. They will never make their money back and continue to bleed cash on the note. The travesty is that executives at both companies continue to rake in enormous salaries.
I walked over the overpass from Crystals to The Mandarin and I can honestly say the entrance to City Center with its "6 lane highway" is the most uninviting entrance to a casino I've ever seen. The place will never be successful.
@Tom. MGM purchased more than the three properties you have listed. They are also paying down debt with deals like MGM China. I think you need to research a little more before spewing such comments. Also, if I remember correctly City Center turned profit last quarter.
These monopolies are top heavy and debt ridden. The time is coming when they'll have to pay up or start spinning off their properties to the highest bidder. MGM has already started with The Hotel. Caesars seems to be doubling it's efforts by building the Nobu Hotel and that Linq project.
I sense Penn Gaming can't wait to take over one of these Strip properties.
Any company that wants to succeed needs to take a look at its balance sheet and focus on what's working while cutting the fat. This step is long overdue. Debt restructuring seems the way to go along with focusing on Caesars' poker market. They absolutely dominate land-based poker across the U.S. with the WSOP brand and poker rooms in almost all of it's properties nationwide (helped by their Total Rewards loyalty program). Adding and pushing the online component once legalized is a logical step and way for them to improve revenues and their bottom line. Shame to see that it's debt payments that are crushing them. It's a good company with thousands of good employees. Bit off more than they could chew unfortunately with all the borrowing. Restructuring and focusing on moneymakers like poker should hopefully fix things there over time. In the interest of full disclosure, my website acts as an affiliate for their hotel properties...but I decided to work with them based on my belief in their strengths as far as the poker market - trying to push these hotels specifically to poker players who want to take vacations (www.cardplayerlifestyle.com/poker-vacati...).
Like the banks, they are "Too Big To Fail". If they do file for Chapter 11, they should be chopped up like Baby Bells were in 1984 from Ma Bell! The Banks should of been chopped up too.
My wife and I are Vegas regulars and we always bring at least one other couple with us. We are not wealthy but we seem to spend about a thousand dollars a day while we are there. This may be a drop in the bucket to Caesars, but that is no excuse for the terrible service we received last time we stayed there. They have seen the last dollar from me. Vegas is a big place and I have lots to choose from. I might not be a high roller, but we have stayed at most places on the strip and some of them treat their customers as if they are, no matter what. That's where my money will end up. I'm looking for a good time and the most bang for my buck, not snotty staff and sub-par service.
how can they keep building projects while in debt? who is the idiot bank financing these remember the movie trading places "margin call gentleman all debts settled by the end of the day " the time is coming soon for caesars
Anyone with a brain knows that Caesars needs to spin off Loveman and Jones.
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