Caesars Won’t Empty War Chest in New York, Unlikely to Sell Assets in 2023

Caesars Entertainment (NASDAQ: CZR) won’t overspend in its quest to land a New York City casino permit, nor is the company likely to divest assets this year.

Caesars
Times Square in New York City. Caesars said it won’t overspend to win a gaming license there. (Image: CNN)

That’s according to remarks made by executives on the company’s fourth-quarter earnings conference call on Tuesday. As has been widely documented, Caesars is partnering with commercial real estate developer SL Green and entertainment agency Roc Nation to bring a gaming venue to Times Square. That group is among a slew of well-known casino operators vying for three downstate permits in the Empire State.

While the allure of New York City is undeniable to operators and would represent a major victory for Caesars’ domestic expansion efforts, CEO Tom Reeg said the company won’t burden itself financially for the sake of winning the New York competition.

I can assure you, we are not going to be the one that wins because we built the biggest housing development outside of our casino,” Reeg said on the call in response to a question from Macquarie analyst Chad Beynon. “We’re going to win this on the merits of the property and how quickly we can get open and how well it fits into the local environment. If it becomes an arms race of who is going to spend the most money, we won’t win.”

Caesars and SL Green announced last October that they are partnering to bring a casino hotel to 1515 Broadway in Times Square. Roc Nation, the entertainment agency controlled by rapper Jay-Z, has since joined the consortium.

Caesars Isn’t Eyeing 2023 Asset Sales

Entering 2022, one of the biggest questions surrounding Caesars and the related investment thesis was when the operator would unload one of its Las Vegas Strip properties to raise cash as part of its debt-reduction efforts.

However, as the year went along and occupancy rates on the Strip remained elevated, it became apparent the company wouldn’t part with one of its Sin City venues. There was also speculation Caesars’ asking price for the Flamingo — the property rumored to be on the auction block — was too high due to the venue needing updating.

Even without the asset sale, the operator was able to pare debt by $1.2 billion last year, which CFO Bret Yunker believes can be repeated in 2023. That won’t require an asset sale Yunker said in response to a question from Goldman Sachs analyst Stephen Grambling.

Caesars finished 2022 with $13.1 billion in debt and leverage of 4.4x. The company believes it can drive leverage to the sub-4x area in 2023.

Caesars Digital Inching Toward Profitability

Caesars’ internet gaming unit, which includes Caesars Sportsbook, delivered a much narrower-than-expected loss in the fourth quarter and likely would have been profitable if not for exposure to an unusually large World Series wager that went against the book.

Owing to improving performance on the digital side, it’s possible that part of the Caesars portfolio turns profitable at some point in 2023.

“As for profits, lower losses clearly highlight CZR strategy to reduce promo/marketing where there are opportunities,” noted Macquarie’s Beynon in a note to clients.

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