Mission146
Posted by Mission146
Jul 30, 2019

Introduction

As written about by our sister site, Latest Casino Bonuses (LCB):

El Dorado Resorts is set to acquire Caesars Entertainment in a merger valued at 17.3 billion dollars.

Most of you are probably familiar with this already as it was reported on by a wide variety of major media outlets. The LCB Article focuses mostly on the business side of the transactions, I’d certainly give it a read, but I will summarize here:

  1. The 17.3 billion is to be comprised of 7.2 billion dollars in cash as well as 0.0899 shares of El Dorado stock per Caesars share, which comes out to about 44 million shares of El Dorado stock.
  2. The combined company will become the largest casino company in the United States.

There’s obviously more than that to be found in the LCB Article, as well as a myriad of other online resources, but my focus of this opinion piece is going to be what effect this may have on both regular gamblers and advantage players.

El Dorado

For those who didn’t already have an ear to the ground, this news may well come as something of a shock. In terms of their casino footprint, El Dorado is decidedly smaller than CET and focuses mainly on regional markets. While Caesars is known for historically iconic Las Vegas Strip casinos such as Caesars Palace, Planet Hollywood and Harrah’s (among others) as well as three large properties in Atlantic City (Caesars Palace, Harrah’s and Bally’s); El Dorado Resorts does not have a huge footprint in either of these markets.

With exception to a substantial footprint in Reno, as well as the Tropicana in Atlantic City, El Dorado does not have much of a presence in major gambling destinations.

El Dorado also lacks the brand recognition that something like a Caesars Palace or Harrah’s enjoys. The most recognizable El Dorado brands are the Tropicana Properties, Isle (and Isle of Capri) properties, El Dorado branded properties and Lady Luck branded properties.

El Dorado has been a steadily growing company having recently acquired many of their casinos and brands.

For example, of its current portfolio of 26 casinos, three were acquired in a reverse merger with MTR Gaming back in 2014. At that time, El Dorado acquired Scioto Downs, (Columbus, OH) Mountaineer Casino and Resort (New Cumberland, WV-according to its Facebook page, though some would say it’s located in Chester, WV) and Presque Isle Downs (Erie, PA); though it no longer owns the Presque Isle.

The purchase of the Circus Circus in Reno, from MGM, as well as the purchase of the 50% of the Silver Legacy in Reno (it was jointly owned between themselves and MGM prior) took place as recently as 2015.

Representing nearly half of its casino holdings, El Dorado Resorts purchased all of the remaining properties of the now defunct Isle of Capri Casinos as recently as 2017, at least, that’s the year that the deal was completed.

The year 2018 would see El Dorado Resorts acquire the operation of seven Tropicana-owned properties and also purchased Illinois’ Grand Victoria Casino.

All told, from 2014 onward, El Dorado acquired the vast majority of its casino footprint. If I’m looking at this correctly, they gained 24.5 casinos and divested themselves of two, so of their 26 current casinos, they gained ownership of either the properties or casino operations of 22.5 of them as recently as 2014.

Caesars Entertainment

In recent years, Caesars Entertainment has found itself in a myriad of financial difficulties resulting in a number of different restructurings and creations of different arms of CET, which essentially were brought into existence to protect certain assets from a possible liquidation of what would have otherwise been the parent company.

All of these things can be researched at your leisure, unfortunately, the entire story of the last decade of CET is WAY too detailed to be rehashed for the purposes of this article.

The important thing to know is that Caesars, unlike El Dorado, was mostly centered around destination casinos with the bulk of its revenues coming from major gambling markets, particularly those in Las Vegas and Atlantic City. Caesars owns several major properties in Las Vegas as well as three major Atlantic City destinations.

The problem that Caesars had came mainly as a result of the 2008, ‘Great Recession,’ that would see both travel and spend per visitor drop significantly in the major gambling markets. In addition to the fact that El Dorado Resorts only owned a few casinos at that time, they did not have any major exposure whatsoever to these major gambling markets.

In the meantime, while Caesars did have a number of regional properties, any profits from these (if any) weren’t enough to weather the storm in the major gambling destinations during the years of the great recession. In fact, Caesars had sold off a number of regional properties (perhaps most notably the Horseshoe branded properties in Cleveland, OH and Cincinnati, OH to Rock Gaming) for needed capital.

As we can see here.

Even though the greater economy did recover, Caesars did not, with the only year of substantial net income coming in 2015, the year in which it sold some of its properties. We can see here.

That the net income from continuing operations from 2015 was exceeded by the net loss from continuing operations the following year.

Other financials would indicate that the company, while solvent, continues to burn through cash at a pretty expedient rate. In the meantime, El Dorado continues to exceed its own performance, year-after-year, in net income and revenues.

Revenues would obviously be a result of the fact that they are acquiring more properties, but as everyone knows, revenues do not necessarily equate to profits. El Dorado Resorts also enjoys a very healthy looking balance sheet.

The Combined Company

The company is expected to complete the merger in 2020, which will see El Dorado Resorts effectively triple in total number of casino properties and grow even more than that in gambling and property square footage. The whole thing is quite a risky venture for El Dorado, but they have shown that they are quite adept at taking over new properties and continuing to grow by way of net income whilst maintaining positive cash flows and a strong balance sheet.

What Does This Mean for Players

Caesars most valuable single asset is arguably its extensive players club database. The Total Rewards program encompasses casinos from all over the country, including in those major gambling destinations that we discussed earlier.

Total Rewards marketing is also largely done on a national level with players given room and food offers at casinos across the country that they may never have visited. Free Play offers tend to be based either by markets or by individual casinos, however, players will occasionally also be given free play offers (viewable online) in markets that they have yet to visit; predominantly in Atlantic City and Las Vegas, more so the latter.

On the other hand, El Dorado has traditionally given players offers and marketed on a basis of its individual casinos. Aside from what hosts might perhaps do, players at a given El Dorado property receive offers directly from that property.

More than that, I have read a few different El Dorado earnings calls and they have referenced, multiple times, being fairly conservative when it comes to the offers given out to players, most notably in terms of free play. While I have certainly not visited every El Dorado casino, of those that I have visited, I can say that they are pretty conservative when it comes to giving players offers.

Granted, El Dorado will likely realize that the markets of Atlantic City and Las Vegas are much different and that the offers will have to be more competitive to entice players into the casino, but it will not be a surprise to see the offers from casinos currently owned by Caesars (already regarded as stingy, by many) to become even more conservative in that regard.

In terms of the games offered to players, particularly with respect to video poker paytables and Table Games rules/payouts, I actually do not expect much to change in that regard. I think this is true for a couple of reasons:

1.) There is not often geographic crossover between properties currently owned by El Dorado Resorts and properties owned by Caesars. Therefore, the individual casinos are not facing an effective decrease in competition with casinos not owned by the combined company. There’s even a bit of a question as to whether or not El Dorado will have to divest itself of a property in Atlantic City as one company in that city should have no more than three casinos.

There is a big difference between this, and say, a merger between Caesars and MGM. There is a TON of market crossover between those two companies, particularly on the Las Vegas Strip and in Atlantic City, so a drastic reduction in paytables would seem almost inevitable.

2.) El Dorado properties (except Reno) generally do not have decent Video Poker paytables in the first place. Again, most of El Dorado’s holdings are regional properties, and many of these regional properties are somewhat isolated and face very little competition. Even in markets that face competition that can be considered nearby, (consider that Mountaineer is within a hundred miles of a few different casinos) those regional casinos don’t have much, and sometimes not any, ‘Good,’ video poker, so this merger is unlikely to result in El Dorado deciding to put good paytables in these regional casinos.

3.) The paytables, even in the Las Vegas and Atlantic City markets, generally aren’t THAT good in the first place. Caesars, for example, tends not to put in much video poker that even flirts with 100% return-to-player, much less surpasses it. It’s a pretty widely known fact that the decent video poker paytables in Las Vegas are to be found Downtown, and elsewhere, not so much on The Strip.

In essence, if video poker paytables are going to change, they will change for the worse...but I don’t think an overall wide scale change is very likely in any of the casinos.

Players Club

I would assume that El Dorado is going to incorporate the casinos that it currently owns into the Total Rewards program, as that only makes sense. Hollywood Casinos (and Penn National, in general) are doing something similar as they acquire more casino properties.

This might be something of a benefit to regional players who currently gamble at El Dorado Resorts’ casinos as we would expect them to get offers for Vegas and Atlantic City casinos who otherwise wouldn’t know who they are in the first place. More than that, it will likely be a benefit for players who currently gamble at casinos owned by both El Dorado and Caesars/Total Rewards properties, regional players who travel, because they would be able to earn Total Rewards points at their local casino.

Other than El Dorado’s notoriously tight stance on free play offers, I don’t expect people who visit Las Vegas, Atlantic City or other Total Rewards destinations as their primary casinos of choice to be affected too much. If nothing else, this will give them a wider variety of regional and local casinos at which they might have offers through the Total Rewards program.

In other words, I think the only area where a player might be adversely affected by this development might be in the amounts and frequency of free play offers. El Dorado players might be slightly adversely affected by the fact that the casinos owned by El Dorado Resorts might not focus as much on direct marketing for the specific local or regional casino, but I doubt it.

Conclusion

Overall, I don’t really expect much to change for visitors to the Las Vegas Strip, Atlantic City or other casinos that are part of the Total Rewards program to change too much. Most likely, the program continues to operate as it does currently, only with the addition of the properties currently owned by El Dorado. On an individual casino level, it wouldn’t be surprising to see free play offers reduced at locations that El Dorado might see as too aggressive in their marketing practices.

Current El Dorado casino players should benefit from inclusion into the Total Rewards program because they will have access to offers across the country. As it currently stands, El Dorado owned properties generally don’t market in conjunction with one another in anyway whatsoever. Free Play levels at those casinos should remain relatively unchanged because they are already doing what El Dorado wants them to do.

I don’t expect much of a change in table games rules, overall slot returns or overall video poker paytables for the reasons stated above. The main reason is because the merger doesn’t really result in decreased competition in the regions in which both entities currently have properties. There’s also the fact that the regional casinos owned by El Dorado generally do not offer anything good on video poker in the first place. I suspect that average slot payouts will also remain roughly the same, in all cases.

Comments

Gialmere
Gialmere Aug 01, 2019

Do you think they'll upgrade/improve any of the newly acquired properties? You say it's a risky venture for ED but also that they probably won't change the gaming paytables or rewards perks. Standing pat and hoping for the best doesn't seem a viable option (which I assume is why CET is selling out). Of course, I don't know what their cash flow after a huge deal like this.

FleaStiff
FleaStiff Aug 01, 2019

Let us think back to Banks. I think the term used was "Cowboy Bank". It meant that a man owned the bank. You would meet with him and if he liked you and liked your project, or if you threatened to tell his wife about the red-head in Vegas, you got your loan. Sure he had to submit the loan papers to the bank's Loan Committee because that is what the law said, but he started each meeting of the loan committee by reminding the members that they could either cast their independent votes exactly the way he told them to or they could go spit.

Casinos used to be the same way. No one in Vegas ever said he "dealt blackjack AT Fancy Name Casino". Everyone said "I deal blackjack FOR (name of the Casino Owner).There was no corporate policy, there was only the owners personal opinions. When a craps player accidently dropped a bindle of cocaine in the Field, Benny Binion yelled out "Your faded; at this time of night everyone of my dealers can cover that bet".

Then came the invasion of the MBAs, the bankers, the palace coups engineered by the vice presidents. As a matter of fact you can trace back thru all the corporate name changes and asset swaps and find that CET, the most rapacious gambling company ever, was originally a corporate entity whose Founder and Guiding Light was unalterably opposed to gambling. The Executive Vice Presidents marched into his office and told him he had just gone from Chairman to Chairman Emeritus, the corporation was now a gambling corporation and they had the stockholders and the banks behind them while he had nothing but his tired old principles.

So now we hear of yet another leveraged buyout, asset swap, name change, corporate shuffle and palace coup. Big deal. Its been akin to a Bonzai tree for decades. Instead of emasculating the tree by snipping away at its roots, its been hedge funds snipping away at income streams and snipping away with equal vigor at the powerless public. The bread has been falling buttered-side down for a long time, but now the players will get charged for that bread and butter instead of being comped to it.

odiousgambit
odiousgambit Aug 02, 2019

It is odd that a smaller organization is buying a larger one and not vice versa, but I guess it shows that Caesar's just has too much debt and somehow El Dorado can absorb it? Gets over my head pretty quick.

I get the feeling that El Dorado deals well with the ravenous beasts they are chained to in the new states that now have casinos ... i.e., the big cut of the profits these states demand

Mission146
Mission146 Aug 02, 2019

Gialmere,

It's hard to say. There's a lot of, shall we say, 'Variance,' in the properties that El Dorado already owns. Some of them are well-lit, clean and generally pretty decent while others are kind of dumpy. I guess maybe if something isn't already up to their standards, but judging from the regional/local casinos I've been to, those standards aren't too terribly high.

CET hasn't been performing excellently, but much of their problems come as a result of debt load, which they took care of some of with sales like the ones in Ohio mentioned above. Also worth repeating, unlike El Dorado, they had a ton of exposure to tourism falling off as a high proportion of Caesars assets are either in Las Vegas or Atlantic City.

Individually speaking, I'd say the vast majority of individual casinos are relatively stable, if not profitable.

Fleastiff,

It's tough to argue with any of that in principle. I definitely agree that players had it better in Las Vegas when you had twenty companies/owners competing for the business of the gamblers as opposed to, what? Six or seven?

OdiousGambit,

That's basically the long and short of it. El Dorado has done and continues to do well in driving newly acquired assets to profitability, or in the alternative, turning around and selling them at a gain or manageable loss. Also, having divested themselves of several assets to reduce debt load, Caesars is not in anywhere near as much trouble as they once were. They certainly aren't positioned to buy El Dorado, but they would probably be solvent, at this point, without El Dorado buying them.

For El Dorado, Total Rewards is probably the most important asset because of the incredible player database. Not only that, but converting all El Dorado properties to Total Rewards essentially gives them a presence nearly everywhere.

As far as the taxes in many of the states with El Dorado presence, yeah, that doesn't matter much to them. It's a percentage of revenue, but Regional/Local casinos aren't exactly known for their extremely generous slots and liberal video poker paytables. Wizard highlighted the same thing in his review of Maryland LIVE!. Basically, if your revenue is going to get taxed, then just increase your revenue.

Call me greedy, but I'm not going to give players a 99.7% video poker game if I have to pay a full one-third of those revenues to the state. That's why anything over 98% is generally considered a relatively decent find in those states. $10,000 coin-in (assuming perfect play) per day and my expected revenue is $30 of which I'm giving the state $10? No thanks. Especially not when a large percentage of players don't know the difference. You also care very little about the value gambler when you have little to no competition, anyway. Quite frankly, I'm surprised there are no casinos yet where an Eleven pushes on the Come Out at Craps if one is playing the Pass Line. I bet someone has considered it.

odiousgambit
odiousgambit Aug 03, 2019

>Quite frankly, I'm surprised there are no casinos yet where an Eleven pushes on the Come Out at Craps if one is playing the Pass Line. I bet someone has considered it.

I agree there must be some thought about changing Craps rules for better HE, though I think there would be too big of a howl about the 11 itself. So far, though, what you see is things like Crapless Craps and yes I have seen it be the only Craps available in the casino.

Mission146
Mission146 Aug 03, 2019

I definitely believe it!

I tend to agree with you that the only reason they haven't is because it would be too obvious. It's not like you can have a point established/made not pay even money, so it would have to be something on the Come Out...which would still be obvious. The only thing I can think of is eleven pushes on the Come Out for the Pass Line and a three pushes on the Don't.

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