Caesars Could Spin-Off WSOP
THE WEEKLY SHUFFLE, 2012-09-09, by OzoneCaesars Entertainment's debut as a public company has not gone well. Since creating their initial public offering in February (CZR), the company is down 53%. In that same time period, Vegas casino rival companies Wynn Resorts, MGM Resorts International, and Las Vegas Sands are down only 10%, 25%, and 15%, respectively. With their stock in free fall, a credit analysis by Fitch Ratings last week suggested the company may have to restructure their debt and spin-off certain assets such as the World Series of Poker.
The WSOP is included under Caesars' "Interactive" unit which also includes their social gaming company Playtika and online gaming operations in the United Kingdom where residents can play real-money online poker at World Series of Poker. This unit of the company is thought to contain most of Caesars' equity since it stands to benefit substantially if online gaming is legalized in the United States. Caesars may seek to spin these assets away from the parent company to avoid them being pulled into possible Chapter 11 bankruptcy proceedings.
Why is Caesars Failing?
Why is Caesars doing so poorly when other Vegas casino companies are not taking quite as large of a beating? There are at least a couple of reasons for this.
First, all three of Caesars' largest competitors in Las Vegas have exposure in Macau. Caesars really dropped the ball by missing out on the China casino boom. Gambling revenue in Macau was five-times higher than in Las Vegas last year. By failing to capitalize on this expanding market, Caesars is left in big trouble relative to their competitors.
Second, Caesars just has a lot of debt. A main reason they are operating at a net loss each quarter is because of debt payments. They still have $18.5 billion in debt from expanding during the boom in Las Vegas casino construction. The interest payments on this debt alone leave the company struggling to keep their head above water.
One reason that cannot be attributed to Caesars' failings is mere incompetence on the part of their management at their Vegas properties. Despite gripes from poker players about how they run the WSOP, the company is doing the best they can with the hand they've been dealt. They simply just do not have the cash to properly maintain their hotels and other assets like the WSOP.
Caesars is losing about a quarter of a billion dollars per quarter. Soon, they're going to be faced with having to restructure their debt or enter Chapter 11 bankruptcy. Before they do so, the company has plenty of incentive to throw its best assets into a life raft in hopes that it can paddle on to a brighter future.
So what does this mean?
With the future of Caesars Entertainment up in the air, what does it all mean for the WSOP and the poker community in general?
Let's first get something straight. A spin-off and a sale are two different things. There are some whispers in the poker world among people who despise how Caesars runs the WSOP who are saying the company could sell that holding to PokerStars or a Vegas casino group like Las Vegas Sands. This would be a pure sale which is not what is likely to happen.
What Caesars will likely do with their "Interactive" division is spin it off under the umbrella of a newly-created sister company. This would not mean that the WSOP comes under completely new management as likely the individuals put in charge of running the new company would be internal promotions from within Caesars current personnel.
However, under a new company not burdened with $18.5 billion in debt which keeps a clamp on their operating capabilities, the WSOP could see more capital investment each year with more of an emphasis on creating a better overall experience. Basically, the WSOP might not be run as cheaply as players have grown accustomed to.
Caesars does not want to sell the WSOP. With online poker regulation in the U.S. appearing more and more imminent, the WSOP is too huge of a marketing tool for the company to help drive traffic to their eventual online poker rooms (and players from those poker rooms to the WSOP).
Look for Caesars to unload their Interactive division into a new venture. While this might not be as glamorous as them selling the WSOP to PokerStars, it could work out better for the poker community than people currently realize. Besides, why should players be hungry for PokerStars to hold a monopoly on everything? Give Caesars a chance. Unburdened by the debt of the parent company, their Interactive division could turn out pretty sweet.
The Weekly Shuffle is our Sunday column with our observations and commentary on the poker world. Have an idea for an article? Leave a suggestion on the feedback page.
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