Good News and Bad for Caesars Entertainment

Alex Weldon : August 24th, 2015


It’s been a bumpy ride of late for investors in Caesars Entertainment Corp. (CZR), which owns, among many other things, the Caesars Palace Hotel & Casino in Las Vegas and the World Series of Poker (WSOP). The first good news in a while for the struggling company came on Friday, when it was announced that the company had finally reached a debt-restructuring agreement with its creditors. Today, however, the company has found itself forced to settle with the US Justice Department to the tune of $20 million over charges that the company’s sportsbook operations failed to take sufficient steps to prevent money laundering.

A badly-timed takeover

The debt issue has been the biggest problem facing the company for quite some time. It began back in 2008, when the company was still known as Harrah’s. At that time, the gaming business was booming, and in an attempt to capitalize on its growth, the company negotiated a takeover deal with private equity firm TPG Capital and buyout firm Apollo Global Management. As part of the deal, the company was split into two halves – an “operating” wing responsible for the company’s casinos, and a real-estate company.

This proved in retrospect to be a terrible move, because no sooner was it completed than the US economy tanked. People’s disposable incomes shrank and with them, their gambling budgets, and so the profits TPG and Apollo had been counting on in making the deal were no longer there. The company found itself in increasing debt, and the bulk of those debts were being held by the operating wing.

This, in turn, led to a massive series of lawsuits this summer, in which the company was accused of transferring some of its most valuable properties from the operating wing to the real estate wing, where it hoped they would be protected when the operating wing was forced to default on its loans. Last month, a judge finally ruled against Caesars, making the company as a whole responsible for the operating unit’s debts, and therefore making all its properties vulnerable to seizure.

A stock market rollercoaster

The company’s stock tumbled as a result, from a one-time high of $25.96 in February 2014 to an eventual low of just $4.84. The stock has since rebounded somewhat, and Friday’s news sparked hopes that it would recover further. The creditors in question hold a combined $12 billion of the company’s debts, or a little more than half of the total, so the deal cut with them alleviates a lot of the pressure on the company and makes an overall bankruptcy less likely, even as the operating wing remains in Chapter 11.

The surge in stock price began on Friday, when news of the deal broke, and seemed to be continuing today, up until the settlement with the Justice Department was announced. This was the final outcome of an investigation which began in 2013, when the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) accused Caesar’s of violating the Bank Secrecy Act. The $20 million the company was forced to pay as a result may be relatively a relatively paltry sum compared to its billions of dollars of debt, but it was nonetheless enough to arrest the company’s recovery, with its stock price doing an about-face shortly after noon; it’s now holding relatively steady around $8.75 after briefly cracking $9 a share.

What does it mean for poker?

All of this is worrisome to stock holders, of course, but also to poker players, due to the company’s control of the World Series of Poker. The WSOP represents only a tiny fraction of the company’s value, and so isn’t likely to be a very high priority for its upper management during a time of crisis. At the same time, the WSOP is absolutely central to the poker world. This year’s WSOP was a bit of a disappointment for many who attended, so hopes are high that improvements will be made next time around, but that may depend on the state the company as a whole is in come next summer. What’s certain is that we’ll hear more news from Caesars in coming months; let’s hope for more of the good kind and less of the bad.

Alex Weldon (@benefactumgames) is a freelance writer, game designer and semipro poker player from Montreal, Quebec, Canada.

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