Three months after it launched a rebranded sportsbook and announced plans to invest more than $1 billion over the next two-and-a-half years to build an online sports betting empire, Caesars Entertainment executives said they were pleased with how well the company has been signing up new customers.
Caesars Rewards customers made about one-third of new deposits since Caesars Sportsbook was launched on August 2. They also made up about half of the more than $1.7 billion in handle made during Q3 2021, according to executives.
“We’re seeing an extremely high uptake in terms of people signing up for Caesars Rewards, and we’re seeing cross visitation,” CEO Tom Reeg said during an earnings call to discuss the quarter on Tuesday.
But Reeg’s warning in August that Caesars’ Digital division, which includes both retail and online sportsbooks, would “be a material EBITDA [earnings before interest, taxes, depreciation and amortization] loser” during those two-and-a-half-years rang true in Q3 2021; the division posted an adjusted EBIDTA loss of $164 million, compared to a gain of $11 million in the year-ago quarter.
Overall, Caesars reported $2.7 billion in net revenue during Q3 2021, up 86% from the $1.4 billion generated in the year-ago quarter. The $2.7 billion figure included $96 million in net revenue from Digital, which made $86 million in the previous third quarter.
The gaming giant reported a net loss of $233 million for the quarter, including a $190 million loss by Digital. By comparison, Caesars reported a net loss of $926 million in Q3 2020.
Market share slowly increasing
During Tuesday’s call, COO Anthony Carano said Caesars was “laser-focused” on growing its Digital division throughout the fall sports season.
Caesars Sportsbook, which uses the Liberty platform, is currently live in nine states. Carano said that, excluding Arizona, Caesars’ share of sports betting handle in the states it operates increased to 12% through September. He added that Caesars’ national market share, which includes all legalized sports betting states, totaled 17% through September.
Carano said that following the launch of retail sports betting in Louisiana on Sunday, Caesars now offers sports betting in 20 jurisdictions, 14 of which are mobile. “We expect to complete the migration of our legacy app in Washington, DC, Nevada, Pennsylvania and Illinois to our Liberty platform in 2022,” he said.
Caesars acquired the Liberty platform as part of its $4 billion deal to acquire William Hill, which closed earlier this year.
Reeg told analysts during the Q&A portion of Tuesday’s call that Caesars had anticipated the states where its Liberty technology was deployed “would be our most effective markets,” in no small part due to its large database of existing customers.
“That describes Arizona to a T,” Reeg said. “Arizona is our third-strongest state behind Nevada and Iowa, where we have incumbent advantages. That reflects exactly what we expected.”
Reeg said that in states where Caesars got a late start, including Michigan, New Jersey and Pennsylvania, the company is looking at its share of handle—for now.
“Michigan went from 3% to more than 6%. Tennessee went from 2% to almost 8%. Virginia went from 6% to 10%. In the states where we jumped in late, you’re seeing that we’re gaining share. We expect to continue to claw share over time.”
When asked if he thought Caesars would ultimately spend more than $1 billion on growing its sports betting business, Reeg said that since the launch of the rebranded sportsbook, the bulk of spending is considered “success-based.”
“It’s tied to customer acquisition,” Reeg said. “If we do worse than we’re expecting from a share perspective, I’d expect that the ultimate investment will be less. If we do better than we expected from a share perspective, I’d expect the ultimate investment to be more. But obviously the return will fall in both directions.”
Reeg added that he expects the sports betting side of Digital will make a positive contribution to EBITDA by the 2023 football season.
iCasino games coming in 4Q
Carano said Caesars will roll out new iCasino games in the fourth quarter, “following anticipated regulatory approvals related to the release of new games in New Jersey, Michigan and West Virginia.
“Our expanded game portfolio will be accompanied by significant improvements to our in-app merging technologies.”
Reeg conceded that the rollout had been a little slow.
“If you want to think about somewhere where we have tracked a little bit below plan, we inherited a platform in iCasino that was non-competitive from a game-offering standpoint,” Reeg told analysts. “We didn’t spend money advertising and promoting our iCasino business until we got the approvals we needed to offer a broader array of games that’s competitive with our peers that are out there.
“We continue to perform strongly in New Jersey and iCasino, but we have not pushed our launch in iCasino beyond New Jersey to date.”
Sale of William Hill’s non-US assets
CFO Bret Yunker said Caesars expects to close on the sale of the non-US assets of William Hill to 888 Holdings during Q1 2022. Following the repayment of debt, the company expects to receive net proceeds of about $1.2 billion.
Yunker added that Caesars expects to spend between $350 million and $400 million on capital expenditures (capex) during the 2021 calendar year, but that figure excludes Atlantic City.
Total capex for 2021 includes approximately $75 million for Digital. “This is simply a shift in timing of planned capex from 2021 to 2022, driven in part by [Hurricane Ida, which] impacted our New Orleans expansion and COVID-related supply shortages,” he said.
