Complex Merger Between Caesars and Eldorado

US operator Eldorado Resorts is purchasing and merging with Caesars Entertainment in a debt-laden cash and stock deal, reportedly valued at almost $18billion. The agreement comes just three months after it was reported that Caesars had opened its financial books to Eldorado under the instruction of billionaire investor Carl Icahn.

The deal is expected to close some time in the first half of 2020. Together, the merged companies will own around 60 properties across 16 US states. Caesars also has operations in four other countries as well: Canada, Egypt, South Africa, and the United Kingdom. While any merger of this size would be complicated, this transaction is particularly difficult due to the numerous conflicting partnerships held by both sides.

Caesars has deals with 888 and Scientific Games, while Eldorado is linked to The Stars Group and William Hill. Tom Reeg, CEO of Eldorado, did answer a question about these conflicts during the announcement of the merger, but does not seem to anticipate any problems: “We bring the William Hill and The Stars Group access partnerships. Caesars has a plethora of sports partnerships, including league partnerships, team partnerships, ESPN… and we see them all fitting together. We would see William Hill and TSG rolling into access deals across the Caesars portfolio to the extent that they’re not already offered in our portfolio. But we think the opportunity in sports betting in the combined company is as good as there is out there at this point.”

Together, Caesars and Eldorado will be the largest gambling company in the US. After the merger, the new company will use the Caesars brand and the Eldorado headquarters. Importantly, Eldorado will take a 51% ownership majority.

Eldorado’s Assets

Eldorado casino with William Hill logo on screen next to it.

Eldorado has a pre-existing deal with William Hill © Calvin Ayre

Although it started small, Eldorado’s portfolio now includes 26 properties across 12 states. It reverse-merged with MTR Gaming Group in 2014 and began its expansion across Ohio, West Virginia, and Pennsylvania. In 2017, it bought the Isle of Capri Casinos in a $1.7billion deal, and the next year bought Tropicana Resorts for $1.85billion. It does seem that prior to the merger, the company will be getting rid of some pre-existing partnerships. Last year, it shed operations for Lady Luck Nemacolin and Presque Isle Downs. It has also agreed to sell off assets in West Virginia and Missouri.

Eldorado and The Stars Group

When it comes to sports betting, however, Eldorado is still linked to some big names, which could surely be a problem in this merger. In 2018, Eldorado and The Stars Group (TSG) signed a long-term deal, allowing TSG “the option to operate online betting and gaming in the states where Eldorado currently or in the future owns or operates casino properties.” It seems that this partnership will continue after the merger, as a spokesperson from TSG said: “Our agreement with Eldorado is a long-term agreement that covers properties which Eldorado acquires or develops in the future. This agreement will continue to remain in place.”

The wording of the original deal suggests that the partnership will now expand to include Caesars’s properties as well. This could be a major market expansion for TSG, so it may be good news for everyone in this case.

Eldorado and William Hill

Also in 2018, although before the TSG partnership, Eldorado made a deal with William Hill, making it an “exclusive partner in the provision of digital and land-based sports betting services as well as online gaming.” While it may seem like there could be some conflicts here, William Hill has released a clear statement on the subject of the merger: “Under the agreement, William Hill gained the right to exclusively operate sports books at all properties owned or managed by Eldorado in the United States and to operate mobile sports betting in states where Eldorado obtains a license. These rights apply to casino properties owned or managed by Eldorado when the strategic partnership was signed and any subsequent acquisitions. Therefore, the rights apply to casinos currently owned or managed by Caesars if Eldorado’s acquisition of Caesars is completed.”

However, all of these companies working side by side relies heavily on the first/second skin provisions. Since different states have different allowances for this – for example, New Jersey allows threes skins per licensee, while Pennsylvania only allows one – there may be some disagreement about who gets first pick on online sports betting.

Caesars’s Assets

Inside view of Caesars casino.

Caesars’ partnerships cause problems for the merger © Caesars

Caesars owns 34 properties across 9 states, mostly under the Harrah’s and Horseshoe brands. A huge asset owned by this company is also its database of customers, which would be invaluable to any company looking to expand into new markets.

Caesars does not only bring assets to the table, however. It also has billions of dollars in outstanding liability. It only recovered from bankruptcy in 2017 after a previous takeover attempt plunged it into debt.

Caesars and Scientific Games

These two companies signed a deal in 2018 and so the partnership predates Eldorado’s deals with TSG and William Hill. The deal brought SG’s OpenBet sportsbook to Caesars. SG president, Barry Cottle, said the deal was pivotal and “will shape the US sports betting landscape for years to come.” He went on the say that together the companies would “usher in a new era for gaming in the US and welcome thousands of new players into the sports betting market.”

However, this may all be coming to an end soon. The merger puts Eldorado in the driver’s seat when it comes to sports betting and so despite the fact that this partnership began before others, it may not last much longer.

What Happens Next?

It is clear that there are many details that still need to be hammered out between the two merging companies. Both companies have existing partnerships with sports betting operators, and it is not yet clear which of these will continue.

William Hill says that it expects to operate some Caesars sportsbooks in the future and it looks like this may be the plan. Both it and TSG stand to benefit massively from the merger. TSG’s share price has fallen dramatically in the past year, but this deal has the potential to exponentially increase its access to the US market.

It seems that the deals with SG and 888 will continue as they are for now, but it is likely that conflicts between companies will eventually mean that they are dropped.

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