Caesars, Eldorado merger comes as companies take a hit from pandemic

Eldorado Resorts Inc. and Caesars Entertainment Corp. have offered a glimpse into their performance since reopening, just before their $17.3 billion merger is expected to close.

The companies released preliminary estimates on Wednesday. Overall, the findings show that regional properties fared far better than those in destination markets.

By March 31, both companies had temporarily closed down all of their domestic operations due to the COVID-19 pandemic. As of June 30, 17 out of Eldorado’s 19 properties — excluding divested properties — had reopened in nine states. Caesars had opened 20 properties in seven states by that time, out of the more than 35 it owns, operates or manages in the U.S.

Net revenues for Eldorado’s 14 regional properties for the period between reopening and June 30 were down 9 percent compared to the same period the year prior. Operating income was up 24 percent.

The company’s reopened destination properties — which include its three Reno properties: Eldorado Reno, Silver Legacy Reno and Circus Circus Reno — were hit harder. Net revenues were down 42 percent for the period between reopening and June 30, compared to the prior year period. Operating income was down 59 percent.

The discrepancies between regional and destination performance were mirrored in Caesars’ summary.

Revenues for Caesars’ reopened regional properties between reopening and June 30 were up between 9 and 11 percent compared to the year prior. Operating income for that period increased between 125 and 135 percent.

Meanwhile, revenues at its reopened Nevada properties and Harrah’s New Orleans were down between 43 and 45 percent for the period between resuming operations and June 30, compared to the previous year. Operating income was down between 75 and 85 percent compared to the previous year.

In a July 9 note, SunTrust Robinson Humphrey analyst Barry Jonas said Strip casinos — which are defined as destination properties by Eldorado and Caesars — have faced a number of challenges since reopening, such as competition from California tribal casinos for coveted drive-in customers.

Jonas said rising COVID-19 cases in Nevada and Gov. Steve Sisolak’s mask mandate could also hurt already depressed visitation rates in the destination market.

“We continue to favor regional gaming in the near-term,” Jonas said in another note, published Wednesday.

Jefferies gaming analyst David Katz said large portions of destination properties’ customer base have been absent during the pandemic, with a lack of air traffic and limited meetings and conventions business.

Meanwhile, regional properties are withing driving distance for many gamblers, and fewer amenities and staff members help reduce operating costs.

“We knew going into this merger that the cost basis for Caesars and their regional business was way out of line, and there was an awful lot to cut,” Katz said, adding that the pandemic presented the company an opportunity to trim the fat.

In the Wednesday note, Jonas said Eldorado and Caesars’ summaries show that strong trends for Eldorado’s regional properties upon reopening “have yet to show any material signs of slowing down,” and spend per visit trends among customers are likely still benefiting from factors like stimulus checks and unemployment insurance benefits.

Still, the companies face near-term risks as COVID-19 case counts continue to spike in many key states, Jonas said.

Eldorado’s acquisition of Caesars is expected to close this month.

Contact Bailey Schulz at bschulz@reviewjournal.com or 702-383-0233. Follow @bailey_schulz on Twitter.