Caesars’ Big Gambling Problem
Stocks
October 1, 2020
Caesars Entertainment ($CZR), the US hotel and gambling operator, is about to feed its gambling addiction even further. On Sept. 28, Caesars announced an offer to buy UK-based gambling company, William Hills. With the acquisition, Caesars is looking to capture a piece of the fast-growing online sports betting industry that is currently dominated by upstarts, DraftKings ($DKNG) and FanDuel, owned by Flutter Entertainment (LON:$FLTR).
Governments double down on online gambling
In May 2018, the US Supreme Court gave the go-ahead for states to legalize online sports betting. Since then, online sports betting has been legalized in 18 states, with 5 more to come and 23 moving closer and closer towards legalization.
In 2015, Caesars’ gambling and debt problem led it to bankruptcy. The company has brought in new management several times over the years and even merged with Eldorado Resorts in July 2020 to become the casino powerhouse it is today. With casino revenues falling over 75% during COVID, Caesars is pushing itself further into the online gambling space through its acquisition of Willam Hill. Here’s the problem, Caesars lacks the expertise and desperately needs William Hill to break into the online sports betting space.
Caesars’ got some hills to climb if it wants to stay competitive:
- Playing catchup… Competitors, DraftKings and FanDuel owns 43% and 38% of the online sports betting market. In comparison, William Hills owns just 9% of the market.
- Bidding war… Investment firm Apollo Global Management is also in talks to buy William Hill which could spark a bidding war. William Hill has until Oct. 23 to announce firm plans as per UK rules.
Caesars splitting its hand
Here’s the real opportunity: Caesars and William Hill are discussing separating their online gambling portion of their business into a new company. The new entity would then be traded as a new company on the stock exchange.
- Why? Caesars thinks that investors are undervaluing the fast-growth online gambling portion of the business by valuing it together with their low-growth casino/hotel business.
- How? By separating the two sides, Caesars expects that the new online gambling business will be valued higher. The spin-off is expected to finalize before the end of 2020.
