Why is Caesar's (CET) in debt?

I just don't understand how a casino chain can be in debt to begin with, let alone be in more and more debt with time.

Similarly I don't understand why full tilt poker a few years ago thought a ponzi scheme was necessary to make money nor do I understand why ultimate bet and absolute poker think using a superuser account at high limits table was necessary to make money.

Basically it comes down to? You guys make money so easily right? How the hell is it possible for CET to be in 10B debt. People go to the casinos every day and probably literally lose more than millions. Is it AP's? can't possibly be unless 99% of gamblers are APs, which it's the other way around. Comps and freebies? No way that gets even close to exceeding how much the average people lose.

I'm just really not getting it.

They borrowed money to buy or build most of their casinos during a time when the economy was a lot better and people were losing more a casinos. Now that people aren't spending so much it appears that some of these were bad investments, and it is difficult to service the debt based on the income that the casinos produce.

well just the Octavious Tower alone in Caesars Palace cost 1 billion dollars to build. I am not sure how they expect to make money money when they spend that kind of money on a hotel alone.

Quote: Neutrino

Basically it comes down to? You guys make money so easily right? How the hell is it possible for CET to be in 10B debt. People go to the casinos every day and probably literally lose more than millions. Is it AP's? can't possibly be unless 99% of gamblers are APs, which it's the other way around. Comps and freebies? No way that gets even close to exceeding how much the average people lose.

I'm just really not getting it.

Debt, poor acquisitions, the economy since 2008, less disposable income, increased competition in certain markets, the spread of legalized gambling.

It doesn't really have so much to do with whether people are winning or losing, overall, they are certainly losing. It's kind of like a grocery store, we can assume that grocery stores sell (most) products for a profit, now grocery stores intentionally take a loss on some products, but that is simply to entice people into the store who will (they hope) purchase products at which they gain.

Okay, so let's assume that the price points for a business dealing in products are fundamentally sound, just as the house edge is fundamentally sound, you still have to sell enough of that product (have enough gamblers losing enough money) to pay all of the bills and your debts, or you're going to lose money.

The casinos have no inherent immunity to the financial downfalls that plague other businesses, especially with respect to the greatly increased competition in the recent 10-15 years as a result of the spread of legalized gambling. Twenty years ago, or so, if you wanted to gamble, then you went to Atlantic City or Las Vegas, where else could you go? The result of that is that people went there and seriously threw down for serious amounts of money, so you had more people, and a greater theoretical (and actual) win per visitor.

MLIFE didn't have to give me free buffets at their properties, without knowing anything else about me, just in the hopes that I might gamble at their properties, which I didn't on my most recent visit. I'm not saying that offers didn't exist back then, twenty years ago was a great time for AP's (from what I have read on here) and there were offers abound, but the negative expectation bettors lost more money then, and you had to prove yourself to the casino.

Imagine an entire trip just to, "Scratch the itch," as it were, every single time. I would say that the majority of America's citizens live, at worst, within 200 miles of a place to scratch the itch. Not only does this mean that people don't have to plan a major trip every single time they want to gamble, but it also means that these people won't necessarily bring as large a bankroll with them when they do take that major trip. They have to think there is value there, as opposed to gambling just to be able to gamble.

David McKee, on his excellent, "Stiffs and Georges," blog often highlights the way that the licensing design in Ohio is such that the casinos in Ohio are essentially, by design, cannibalizing themselves. You see it in Atlantic City's inevitable fall (for one or two more casinos, at a minimum, and Revel's eventual sale for dimes on the dollar) mainly because many of the surrounding states that would even, 'day trip,' or 'weekend,' to Atlantic City now have their own casinos closer and offering values and properties just as good or better. Newer, most. Ohio, West Virginia, Maryland, and Pennsylvania all with legalized Table Games within the last decade, so you lose that crowd. Slot machines longer than that, in the case of West Virginia.

As a major casino company, you jump into these new areas (or try) but there are loans and expenses with creating the infrastructure, not to mention the fact that it has to be big and beautiful for it to have any chance of being a 'destination casino,' for any except the local market.

In the end, they're gambling too, and it's impossible to tell whether or not they are at +EV until the place is built and the revenue reports start coming out. Every new business is a gamble, you take a loan, you gamble that you can pay it back, as does the bank.

Quote: Mission146

Debt, poor acquisitions, the economy since 2008, less disposable income, increased competition in certain markets, the spread of legalized gambling.

It doesn't really have so much to do with whether people are winning or losing, overall, they are certainly losing. It's kind of like a grocery store, we can assume that grocery stores sell (most) products for a profit, now grocery stores intentionally take a loss on some products, but that is simply to entice people into the store who will (they hope) purchase products at which they gain.

Okay, so let's assume that the price points for a business dealing in products are fundamentally sound, just as the house edge is fundamentally sound, you still have to sell enough of that product (have enough gamblers losing enough money) to pay all of the bills and your debts, or you're going to lose money.

The casinos have no inherent immunity to the financial downfalls that plague other businesses, especially with respect to the greatly increased competition in the recent 10-15 years as a result of the spread of legalized gambling. Twenty years ago, or so, if you wanted to gamble, then you went to Atlantic City or Las Vegas, where else could you go? The result of that is that people went there and seriously threw down for serious amounts of money, so you had more people, and a greater theoretical (and actual) win per visitor.

MLIFE didn't have to give me free buffets at their properties, without knowing anything else about me, just in the hopes that I might gamble at their properties, which I didn't on my most recent visit. I'm not saying that offers didn't exist back then, twenty years ago was a great time for AP's (from what I have read on here) and there were offers abound, but the negative expectation bettors lost more money then, and you had to prove yourself to the casino.

Imagine an entire trip just to, "Scratch the itch," as it were, every single time. I would say that the majority of America's citizens live, at worst, within 200 miles of a place to scratch the itch. Not only does this mean that people don't have to plan a major trip every single time they want to gamble, but it also means that these people won't necessarily bring as large a bankroll with them when they do take that major trip. They have to think there is value there, as opposed to gambling just to be able to gamble.

David McKee, on his excellent, "Stiffs and Georges," blog often highlights the way that the licensing design in Ohio is such that the casinos in Ohio are essentially, by design, cannibalizing themselves. You see it in Atlantic City's inevitable fall (for one or two more casinos, at a minimum, and Revel's eventual sale for dimes on the dollar) mainly because many of the surrounding states that would even, 'day trip,' or 'weekend,' to Atlantic City now have their own casinos closer and offering values and properties just as good or better. Newer, most. Ohio, West Virginia, Maryland, and Pennsylvania all with legalized Table Games within the last decade, so you lose that crowd. Slot machines longer than that, in the case of West Virginia.

As a major casino company, you jump into these new areas (or try) but there are loans and expenses with creating the infrastructure, not to mention the fact that it has to be big and beautiful for it to have any chance of being a 'destination casino,' for any except the local market.

In the end, they're gambling too, and it's impossible to tell whether or not they are at +EV until the place is built and the revenue reports start coming out. Every new business is a gamble, you take a loan, you gamble that you can pay it back, as does the bank.

very well said Mission. 10 years ago I went to Vegas with a budget of about 7K and 5K of that was just for gambling. Back then the only place I could drive to was Wheeling Island. They only had slot machines back then (possibly even VLTs, I can not remember). It was a real treat for me to travel to Vegas. I got to play blackjack and other games.
In 2010 we were last in Vegas. We went with a 5K budget which included everything. We set a limit of $300 a day on gambling. We did most of our spending on other things such as shows and other types of entertainment that are not available to us locally. I no longer need to go to Vegas to "scratch the itch". If I need to do that I can just ride my bike to the nearest casino. I would believe this line of thinking holds true for a lot of people.

If you only grew a company with the profits it made, there would be very little risk and modest growth. If you take on a lot of debt to hyper-expand, you are essentially gambling: more risk=more potential reward. From the perspective of the people running the company it makes sense.. they don't get a gigantic bonus if there is only modest growth. But they do get a gigantic bonus if they get fired or if the company does really well.

deleted

Quote: chrisr

If you only grew a company with the profits it made, there would be very little risk and modest growth. If you take on a lot of debt to hyper-expand, you are essentially gambling: more risk=more potential reward. From the perspective of the people running the company it makes sense.. they don't get a gigantic bonus if there is only modest growth. But they do get a gigantic bonus if they get fired or if the company does really well.

Right. Gambling with the stockholders' money, in most cases. Give me $5,000 of your dollars to play Craps and I will try to triple it, if successful, I get 10% and if I fail, I want $500 guaranteed for making the effort for you.

Short version:

The days where a casino license was like a license to print money are over.

Harrah's / Caesars took on a lot of debt back in the good old days, but didn't get a chance to pay off before the printing money license expired.

Combine that with habits that are hard to break - they continue to take on debt that they have no way to pay off.

Hey Caesars: How's that overpriced Ferris Wherl working out? So few riders that you gotta give out coupons already? How does that help pay down the debt???

I agree with lots of this. Its pandemic to the economy. Its a disease I like to call "Unlimited Trend-Bean Counters Syndrome". Yeah, extrapolate this!

Its so bad in vegas even Lake Mead is leaving, its so bad in Atlantic City the busses are not leaving. But, hey, Mass Transit to AC is a friggin BUS. That shold be the clue. Repeat after me, build near AMTRAK, build near an airport. Mohegan Sun is THiiiissss close to having that Train. The freight-rail runs just off property on the Thames R. by Trader's Cove. gwrr.com will enlighten.

What about simple piss-poor management? Yes, all those factors listed here may be true, but other casino companies are not in the same position as Caesars.

At least half of the debt occurred when Harrah's was taken private at the peak in a leveraged buyout at like $80 a share that also assumed the existing debt. The purchase of Barbary Coast purchase didn't help either.

Quote: Dukwoo2014

What about simple piss-poor management? Yes, all those factors listed here may be true, but other casino companies are not in the same position as Caesars.

Harrah's is in worse shape than Wynn, MGM and Sands because Harrah's does not have any casinos in Macau. Additionally, Harrah's has exposure in many declining locations (AC, Tunica, etc.).

Quote: Pokeraddict

At least half of the debt occurred when Harrah's was taken private at the peak in a leveraged buyout at like $80 a share that also assumed the existing debt. The purchase of Barbary Coast purchase didn't help either.

Actually the Barbary Coast deal was a land swap with Boyd for the old Westward Ho land that they were going to use with the Stardust to build Echelon Place. This is one of the better deals they made as that land still sits empty and they have probably made money off BC/Bills/The Cromwell.

Quote: Mission146

Debt, poor acquisitions, the economy since 2008, less disposable income, increased competition in certain markets, the spread of legalized gambling.

It doesn't really have so much to do with whether people are winning or losing, overall, they are certainly losing. It's kind of like a grocery store, we can assume that grocery stores sell (most) products for a profit, now grocery stores intentionally take a loss on some products, but that is simply to entice people into the store who will (they hope) purchase products at which they gain.

Okay, so let's assume that the price points for a business dealing in products are fundamentally sound, just as the house edge is fundamentally sound, you still have to sell enough of that product (have enough gamblers losing enough money) to pay all of the bills and your debts, or you're going to lose money.

The casinos have no inherent immunity to the financial downfalls that plague other businesses, especially with respect to the greatly increased competition in the recent 10-15 years as a result of the spread of legalized gambling. Twenty years ago, or so, if you wanted to gamble, then you went to Atlantic City or Las Vegas, where else could you go? The result of that is that people went there and seriously threw down for serious amounts of money, so you had more people, and a greater theoretical (and actual) win per visitor.

MLIFE didn't have to give me free buffets at their properties, without knowing anything else about me, just in the hopes that I might gamble at their properties, which I didn't on my most recent visit. I'm not saying that offers didn't exist back then, twenty years ago was a great time for AP's (from what I have read on here) and there were offers abound, but the negative expectation bettors lost more money then, and you had to prove yourself to the casino.

Imagine an entire trip just to, "Scratch the itch," as it were, every single time. I would say that the majority of America's citizens live, at worst, within 200 miles of a place to scratch the itch. Not only does this mean that people don't have to plan a major trip every single time they want to gamble, but it also means that these people won't necessarily bring as large a bankroll with them when they do take that major trip. They have to think there is value there, as opposed to gambling just to be able to gamble.

David McKee, on his excellent, "Stiffs and Georges," blog often highlights the way that the licensing design in Ohio is such that the casinos in Ohio are essentially, by design, cannibalizing themselves. You see it in Atlantic City's inevitable fall (for one or two more casinos, at a minimum, and Revel's eventual sale for dimes on the dollar) mainly because many of the surrounding states that would even, 'day trip,' or 'weekend,' to Atlantic City now have their own casinos closer and offering values and properties just as good or better. Newer, most. Ohio, West Virginia, Maryland, and Pennsylvania all with legalized Table Games within the last decade, so you lose that crowd. Slot machines longer than that, in the case of West Virginia.

As a major casino company, you jump into these new areas (or try) but there are loans and expenses with creating the infrastructure, not to mention the fact that it has to be big and beautiful for it to have any chance of being a 'destination casino,' for any except the local market.

In the end, they're gambling too, and it's impossible to tell whether or not they are at +EV until the place is built and the revenue reports start coming out. Every new business is a gamble, you take a loan, you gamble that you can pay it back, as does the bank.

Nice post, Mission

Quote: Boz

Actually the Barbary Coast deal was a land swap with Boyd for the old Westward Ho land that they were going to use with the Stardust to build Echelon Place. This is one of the better deals they made as that land still sits empty and they have probably made money off BC/Bills/The Cromwell.

The "land swap" worked out well for Harrah's. The only better deal was Phil Ruffin getting $1.2 Billion for the Frontier, then buying Treasure Island for $775 Million 16 months later.

A recession free 2014 Las Vegas would see a bustling Enchleon Place, Fountainbleu, and New York Plaza celebrating third anniversaries. While Riviera, Bill's, and Circus Circus and likely Saraha would have been demolished with replacements nearing completion and the 2nd airport scheduled to open in three short years.

Quote: Sonuvabish

Nice post, Mission

Thanks!

Quote: DJTeddyBear

Short version:

The days where a casino license was like a license to print money are over.

Harrah's / Caesars took on a lot of debt back in the good old days, but didn't get a chance to pay off before the printing money license expired.

Combine that with habits that are hard to break - they continue to take on debt that they have no way to pay off.

Hey Caesars: How's that overpriced Ferris Wherl working out? So few riders that you gotta give out coupons already? How does that help pay down the debt???

Ah for the good old days of " Open the doors and let the suckers in ".

11.90 - 26.74 - 18.47

= 52 week Low - High - Current ( 04/24/2014 )

Just for fun I looked this up on Yahoo.com Finance. And the 52 week high of 26.47 as recently as 03/04, and then it drove over a cliff. I'm guessin' the Wiz got in and played some blackjack. OR Mission stopped in after having some Nuggets. Hey, just kiddin', don't ban me ! ;-)

Quote: JohnnyQ

11.90 - 26.74 - 18.47

= 52 week Low - High - Current ( 04/24/2014 )

Just for fun I looked this up on Yahoo.com Finance. And the 52 week high of 26.47 as recently as 03/04, and then it drove over a cliff. I'm guessin' the Wiz got in and played some blackjack. OR Mission stopped in after having some Nuggets. Hey, just kiddin', don't ban me ! ;-)

It may be as of 3/4 , there was high hopes the gamble of the Linq and the big wheel would pay off big time.
Maybe reality is sinking in that the Wheel and the Linq wont be the smash success CET was hoping for.
CET needs big profits on this project, breaking even on the Linq and Wheel wont cut it.

Less money comes in than goes out?

I think the Macau factor is the biggest problem that Caesar's has faced. It's clear that a great deal of the gambling revenue was being propped up by big whales coming from Asia. Those whales have a much shorter trip now to get the exact same experience, and while Caesar's is completely missing out, what's worse is that their competitors are directly cashing in.

I had a very long talk with a floor supervisor that I've known for a long time since he was just a part-time dealer many years ago. It was a Saturday night, and I was shocked at how many seats were empty at the tables. I asked him why it was so dead in Vegas this weekend. He said "What do you mean? Vegas is PACKED this weekend!" I looked around and he pulled out his little newsletter that gets send around showing the hotel check ins/check outs and occupancy. There were a couple of conventions in town and every CET resort was over 90%. "They just don't gamble like they used to."

Looking around, it seems that young people are in for $20 or $40 at the tables and that's it, they'd much rather spend their money in the nightclubs or sit at the pool all day. Vegas has tried to design schemes to get as much money from these avenues as possible (I was shocked when a co-worker of mine described how much bottle service at a club one night cost her group), but it's like trying to juice a carrot. It's there, but damn is it worth it in the end?

It's very true though . . . when I moved to LA in 1996, if you wanted a true casino-style experience, Vegas was your only option. Now I can drive in three different directions and within 90 minutes I can have that same experience, albeit on a much smaller scale. If it's just about the gambling, though there's little difference when sitting at the tables.

I will give CET some credit, though. I think the overall product that the Linq has become is very nice. I have spent some time down there during the partial openings and have had a good time. Looking forward to spending more time down there in a couple of weeks and checking out Brooklyn Bowl and the High Roller. Will it save CET from the brink? Probably not . . . I expect there will have to be some tough decisions made on some properties.

They just took the company private at the wrong time. At the top of the market and borrowed B$ to do it. Other casino company have since gone bankrupt. Caesar may be next. Gary Loveman got about $150M for his help and is sitting pretty.