weather icon Partly Cloudy

Caesar’s titanic debt will go on

Caesars Entertainment Corp. has a bigger debt load than what Detroit owes its creditors.

And we all know what’s happening in the Motor City.

In July, Detroit became the nation’s largest municipality to file for Chapter 9 bankruptcy protection when its $18 billion in obligations finally became too cumbersome.

Several Wall Street analysts have opined that the U.S.’ largest casino operator could be headed down a similar path.

Caesars carries a gaming industry high of $23.5 billion in long-term debt on its books, much of it accrued when the company was taken private in a $30.1 billion buyout by Apollo Global Management and TPG Capital in 2008.

The recession played havoc on casino operators nationwide. Caesars, with more than 50 casinos in 13 states, took on the full brunt of the storm.

The company felt the pressure in its major destinations, notably Las Vegas, where it owns 10 resorts on or near the Strip, and Atlantic City, where it operates one-fourth of the 12-casino market.

Despite several corporate moves in recent years to right the ship financially, Caesars is still taking on water. In 2012, the company collected revenue of almost $8.6 billion, but suffered a net loss of $1.5 billion.

Results aside, the company’s debt is center-stage. Earlier this year, Moody’s Investor Service called Caesars’ debt “unsustainable.”

At a Nevada Gaming Control Board meeting in July, Caesars Deputy General Counsel Michael Cohen admitted the company’s debt — $10 billion higher than that of MGM Resorts International — was large, but a burden that could be handled.

“We think it’s manageable, but others disagree,” Cohen said.

Caesars took another step toward making the debt a little more controllable by raising $1.18 billion when it placed ownership of Planet Hollywood Resort, Caesars’ interactive gaming division and an under-construction Baltimore casino into a new publicly traded holding company.

Caesars Entertainment owns 57 percent of the newly christened Caesars Acquisition Co. and holds an option to buy back the other 43 percent in three years. Caesars stockholders who chose to participate in the sale purchased one share of the holding company for each share they owned in the parent company.

The problem is that the new business, which will raise money for Caesars’ development projects, such as new U.S. casinos and Internet gaming opportunities, does little to alleviate the $23.5 billion hanging over the balance sheet.

“While the deal structure (and) terms of the rights offering are complex, and questions about Caesars’ capital structure will likely persist, we believe the near-term bias for Caesars equity shareholders is to the upside given the opportunity to own (the holding company) at a very attractive valuation,” Eilers Research gaming analyst Adam Krejcik told investors.

As for the aforementioned debt, Caesars announced a restructuring plan in September for at least $4 billion that one company insider described as the “most significant” concern in the investment community. Maturity dates covering those loans are coming due.

The company is securing new debt — with maturity dates starting at 2020 — and backs the loans with some of its newer Strip projects, including the 668-room Octavius Tower at Caesars Palace and the under-construction $550 million Linq development.

A stock sale of more than 10 million shares that raised $200 million was part of the deal, which reduced Apollo and TPG’s majority stake in Caesars from 70 percent to 64 percent.

On Tuesday, Caesars filed a 900-page document with the Securities and Exchange Commission explaining the debt restructuring. Just a little easy reading for the financial community.

“Kicking the can down the road,” “putting things off for another day,” or the time-tested, “rearranging the deck chairs on the Titanic,” are idioms that could describe Caesars’ actions.

The restructuring does nothing to reduce the debt.

Despite the enormity of its obligations, Caesars is expanding.

Last year, Caesars and partner Rock Gaming opened two casinos in Ohio and added a slot machine-only casino to a racetrack near Cleveland. Rock Gaming and Caesars are partners in the $400 million Horseshoe Casino Baltimore, which is expected open next year. Also, Caesars, in a partnership with the Suffolk Downs Race Track in Boston, is considered front-runner to win a lone gaming license and build a $1 billion hotel-casino in Massachusetts’ largest city.

The Linq, which includes 300,000 square feet of outdoor retail, dining and entertainment attractions, and is anchored by a 550-foot High Roller observation wheel, embraces a belief that adding nongaming elements offers a vehicle to grow company revenue outside of the casino.

Newmark Grubb Knight Frank gaming analyst Brent Pirosch told Bloomberg News that Caesars was embracing “the new model in Las Vegas.”

Meanwhile, Krejcik said the real growth area for Caesars is its interactive division, which operates the World Series of Poker, the pay-to-play wsop.com poker site in Nevada, and is seeking a license for real-money online gaming in New Jersey. The company plans to expand the brand as other states legalize Internet gambling.

The real moneymakers are the social and mobile casino games offered through Caesars’ two wholly owned subsidiaries, Playtika and Buffalo Studios. In 2012, total interactive revenues were $193.3 million. Krejcik estimates division revenues could reach $283 million this year. Social gaming customers pay nominal fees to increase their “virtual” chip stacks.

“Caesars is generating nearly half of its social casino revenues from mobile and tablets, which we believe is crucial given the secular shift towards mobile gaming,” Krejcik said. He sees Caesars collecting $407 million to $488 million from an estimated industrywide $3.7 billion in social gaming revenue by 2015.

But can social gaming help pay down Caesars debt? That’s going to take a lot of tokens.

Howard Stutz’s Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Follow @howardstutz on Twitter.

Don't miss the big stories. Like us on Facebook.
Business Videos
How much do Las Vegas casino CEOs make?
Las Vegas gaming CEOs made anywhere between $1 million and $24 million last year, according to company filings with the U.S. Securities and Exchange Commission. ((Las Vegas Review-Journal)
30-year-old Rio needs a little TLC
Nearly 30 years after the Rio opened, the red and blue jewel that helped catapult Las Vegas to a new level with its buffet and nightclub has lost its status along with its shine.
The latest on the Drew Las Vegas - VIDEO
Eli Segall recounts his tour of the Drew Las Vegas, formerly the Fontainebleau, on the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
Pinball Hall of Fame to move near south Strip
Operators of the Pinball Hall of Fame have been approved to build a new, larger arcade near the south edge of the Strip on Las Vegas Boulevard near Russel Road. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
National Hardware Show underway Las Vegas
The National Hardware Show kicked off Tuesday at the Las Vegas Convention Center (Mat Luschek / Review-Journal)
Caesars for sale?
Caesars Entertainment Corp. has been swept up in takeover speculation since the company’s share price tumbled last year amid disappointing earnings and concerns over a recession. Amid the decline, hedge funds scooped up shares. Billionaire activist investor Carl Icahn began buying shares of Caesars as early as January. Icahn acquired nearly 18 percent by mid-March. In February Icahn called on the Caesars board to study a sale as a way to boost shareholder value.
Las Vegas home prices
Las Vegas home prices grew fastest among major markets in February for the ninth straight month. But amid affordability concerns, the growth rate has slowed down. Southern Nevada prices in February were up 9.7% from a year earlier, according to the latest S&P CoreLogic Case-Shiller index. The last time Las Vegas' price growth fell below 10% was in September 2017, S&P Dow Jones Indices reported.
Free Parking Coming To Wynn
Free parking will come to the Wynn and Encore resorts on May 1, 2019. (Mat Luschek / Review-Journal)
Founding Venetian employees talk about 20 years at the Strip resort
The Venetian, which opened May 3, 1999, is celebrating 20 years on the Las Vegas Strip. Seven original employees talk about opening the luxury resort and working there for two decades. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Circa aiming for December 2020 opening
The 1.25-million-square-foot property will have 44-stories and 777-rooms. It will also have a separate nine-story, 1,201-space parking garage.
Boxabl official explains the building concept
Boxabl business development manager Galiano Tiramani shows off a room built by his company. (Blake Apgar/Las Vegas Review-Journal)
TI/Mirage Tram reopens
The tram that shuttles guests between TI and Mirage reopened this week after being closed for much of 2018.
Las Vegas Convention Center expansion taking shape
Renderings and actual footage show how the Las Vegas Convention Center is evolving.
Former Starbucks CEO Howard Schultz at Las Vegas convention
Former Starbucks CEO and potential presidential candidate Howard Schultz spoke at the Epicor Insights user conference at Mandalay Bay Convention Center Wednesday, April 17, 2019. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Drew Las Vegas to open in the second quarter of 2022
The 67-story Drew Las Vegas is slated to open in the second quarter of 2022 at the north end of the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
NAB Day 1 (Time Lapse)
NAB kicked off at the Las Vegas Convention Center on Monday, April 8, 2019. (Mat Luschek / Review-Journal)
National Association of Broadcasters Show shows 1mm thick 8K TV with 22.2 channel digital sound
Japan’s NHK Science & Technology Research Laboratories booth featured a 1mm thick 8K TV system used in conjunction with a 22.2 channel digital sound system at the National Association of Broadcasters Show at the Las Vegas Convention Center. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Nevada shoppers react to Smith’s no longer accepting Visa credit cards
On March 1, Smith’s announced that it would no longer be accepting Visa credit cards at any of its 142 supermarkets, including the 45 in Nevada.
Massachusetts Gaming Commission asks how long Wynn executives knew about misconduct
Business reporter Rick Velotta gives an update on the adjudicatory hearing on the suitability of Wynn Resorts to retain its gaming license in Massachusetts.
Henderson app developer part of Startup in Residence
Henderson based developers of the app On Point Barricade are taking part in Startup in Residence, a North America program dedicated to pairing tech companies with governments. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Sam's Town employees and customers talk of their love for the iconic casino
Longtime Sam's Town employees and customers love each other and love their casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Las Vegas apartments rents
Las Vegas’ apartment market has accelerated in recent years. Developers are packing the suburbs with projects, landlords are on a buying spree, and tenants have filled buildings.
William Boyd talks about the birth of Sam's Town
On the eve of the 40th anniversary of Sam's Town, William Boyd, executive chairman of Boyd Gaming and son of hotel namesake Sam Boyd, talks about how the casino became one of the first local properties in Las Vegas. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
High Roller observation wheel turns five
The world’s tallest observation wheel celebrates it’s fifth year on Sunday, March 31, 2019. (Michael Quine/Las Vegas Review-Journal) @Vegas88s
Escape Room Industry Growing In Las Vegas
Escapology employees discuss the growing escape room industry in the U.S. and Las Vegas. (Bailey Schulz/Las Vegas Review-Journal)
Impact of parking fees on visiting the Las Vegas Strip
There are no data showing a relationship between Strip resort and parking fees and the number of out-of-state visitors to Las Vegas. But there are data showing a relationship between Strip parking fees and the number of local visitors to the the Strip. ‘’As a local, I find myself picking hotels I visit for dinner or entertainment, based on whether they charge for parking or not,”’ said David Perisset, the owner of Exotics Racing. ‘’It is not a matter of money, more of principle.’’ A 2018 survey by the Las Vegas Global Economic Alliance found 36.9 percent of Clark County residents reported avoiding parking at Strip casinos that charge for parking. 29.1 percent reported avoiding using any services from a Strip casino that charges for parking.
MGM's sports betting deals
MGM Resorts International signed a sports betting sponsorship agreement with the NBA in July It was the first professional sports league to have official ties with a legal sports betting house. The deal came just two months after the U.S. Supreme Court overturned a law prohibiting sports betting in most states. In October, MGM became the first gaming company to sign a sports betting partnership with the NHL. In November, MGM became the first gaming company to sign a sports betting partnership with the MLB. Financial terms of Tuesday’s deal and earlier partnerships have not been announced.
Faraday puts Las Vegas land on the market
Nearly two years after Faraday Future bailed on its North Las Vegas auto factory, the company has put its land up for sale. (Michael Quine/Las Vegas Review-Journal)
El Cortez owner Kenny Epstein on running the iconic property
Kenny Epstein, owner of the El Cortez Hotel in downtown Las Vegas, talks about Jackie Gaughan mentorship and answers rumors about bodies in the basement at the mob-era casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
LVCVA recommends construction of underground people mover
The Las Vegas Convention and Visitors Authority announced the recommendation for an underground people mover for the convention center. The system would have the potential to expand and connect Downtown and the resort corridor all the way to McCarran. (Michael Quine/ Las Vegas Review-Journal)
Caesars new CEO appears to be in for the long term

Based on the terms of Tony Rodio’s employment agreement disclosed in a Securities and Exchange Commission filing, he appears to be in for the long term with a $1.5 million annual salary, prospective bonus payments of $3 million, as well as a $3 million buyout clause. This doesn’t look like the pathway to a quickee company sale.