Caesars going for digital profitability in 2023 as Q4 losses narrow

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Caesars Entertainment CEO Tom Reeg has set out the company’s stall for its digital business going forward. Reeg told investors that Caesars Digital is aiming to be profitable in 2023 after significantly narrowing its year-over-year fourth-quarter losses. 

Publishing its Q4 financial results, Caesars recorded revenues of $2.8bn, up 8.9% YoY, largely driven by strong growth and performance across its Las Vegas and Digital operations. 

Las Vegas revenues jumped 11% YoY to $1.15bn as the entire strip continued to enjoy a strong 2022. 

Meanwhile, the digital wing increased revenues by over 100%, jumping to $237m, compared to $116m in Q421 as both the sportsbook and online casino apps continue to attract new users. 

More pertinently, the adjusted EBITDA of the digital wing reduced to just negative $5m, compared to negative $305m in Q4 of 2021. 

Caesars Digital looking for profitability in 2023

Reeg told investors that the company expects a positive contribution from the digital unit this year. 

He said: “We’re anticipating that Digital on a full-year basis will be an EBITDA contributor for us this year. And when I say that, I’m talking about overall and both verticals, I expect sports betting and igaming to be EBITDA positive this year for us.”

The firm also disclosed that it anticipates $550m EBITDA from the digital unit once it hits maturity, around 2025. Caesars also anticipates that it will run at that level for ‘at least a quarter or two in 2024’. 

Pressed on this claim and how he expects this to be broken down between sports betting and igaming, Reeg detailed that the number will lean towards sports betting, but ‘igaming is overrepresented’ on a per state basis, given the higher margins associated with online casino operations. 

Another claim on the digital side is that igaming revenues will begin to ramp up from H2 of 2023, leading up to maturity in 2025. 

Whilst launching in additional states is of course part of this strategy, Eric Hession, President of Sports & Online Gaming, noted that tech improvements and efficiencies will help to support the ramping up of the contribution from this year. 

He told investors: “The big change that we’re going to make is to have a standalone casino app. So right now, if you want to play on the casino, you have to go download the sports betting app and then find the casino icon, click on it and go through the casino.

“We’ll also be offering a casino app that then you can do the same thing and go back to the sports betting side, but it will be much easier to use from a customer perspective who’s looking just for the casino side.”

Caesars tech platforms have made the headlines in recent weeks given that its sportsbook and William Hill’s sportsbook platform went down during the Super Bowl, and was not reinstated for several days in Nevada. 

Pressed on this, Reeg said the issue was ‘over and done with’, explaining: “That’s a technology issue. We’re running Nevada on old technology, not Liberty. Liberty needs approval. It’s actually the PAM provider that needs approval. 

“We expect that relatively soon, and so we expect Nevada to be on Liberty for the next football season. So that’s certainly not something that we enjoyed while it was going on, but it’s in the rearview mirror at this point.”

Land-based casinos performing strong 

As mentioned, Caesars Las Vegas operations made up a large part of the company’s success during Q4, with 11% revenue increases and an increase in EBITDA up to $537m. 

With the Vegas Strip performing strongly throughout 2022 after the pandemic had become a less pressing issue, Caesars rode the wave of recovery to have higher occupancy figures than in 2019 across its properties. 

The firm was asked about the impact that having the F1 Grand Prix coming to the Strip this November will have on EBITDA. 

There are high expectations across Las Vegas heading into the Grand Prix, but Reeg detailed that he expects ‘Super Bowl type activity’ throughout the weekend and a potential 5% or better boost to its bottom line. 

He explained: “I’m expecting Super Bowl-level activity, if not stronger. But if you lost the Super Bowl in February, you’re still going to have a strong weekend. 

There’s obviously an incremental lift from the Super Bowl. But when you’re talking about in November, that’s our softest period of the year. So the lift is far more dramatic on a year-over-year basis.”

Caesars Regional division, casinos across the rest of the US performed to a flatline level during Q4, maintaining revenues of $1.4bn, making it the firm’s most lucrative unit but fall short of  Q421’s $1.36bn. 

As the economy continues to bite the pockets of consumers, leadership was quizzed on its expectations going forward, with a recession looming. 

“Your business is going to fluctuate based on how much cash your customer has. Obviously, that’s going to have significant correlation,” Reeg added.

“I don’t know if time was a limiting factor as well, that people can now spend time doing things that they enjoy longer than they could before because they’re not commuting to a city center, and they’re not spending the money to do that.

“What we see in the business is continued strength and where we’re up against strong comps going back for a few quarters now, and we’re still growing.”

FY22 results 

Caesars also disclosed its full-year 2022 figures, noting a 12.5% increase in total revenues, which reached $10.8bn. 

The firm’s total adjusted EBITDA witnessed impressive growth too, reaching $3.2bn, up from $2.9bn in 2021. 

Whilst displaying improved performance during Q4, the Digital unit’s full-year adjusted EBITDA losses widened to $666m, up from $476m loss in 2021 as it continued to invest in its sportsbook through new state launches. 

Finally, CFO Bret Yunker, explained that it had paid out over $200m from free cash flow to reduce the company’s total debt as it continues to move towards a more sustainable debt target. 

He explained: “Consistent with our historical track record, we continued to aggressively reduce debt in the fourth quarter by paying down over $200m from free cash flow, bringing our full-year debt reduction to $1.2bn. 

“Our leverage also came down significantly during 2022 and now stands at just under 4.5x on a traditional debt-to-EBITDA basis or mid 5x rent adjusted.”