Caesars Entertainment‘s mounting debt has the company on red alert, with many analysts seeing a bankruptcy restructuring as the company’s only chance to pull itself out of the hole it has dug itself into.
That bankruptcy restructuring has finally gotten underway, as Caesars and most its major bondholders have agreed to restructure some $10 Billion of the company’s debt, a sizable deal for sure, but a deal that still only accounts for less than half of Caesars total debt load.
With the proposed restructuring of debt, and the very likely sale of some of its assets, it’s safe to say that when Caesars does emerge from the other end of the tunnel the company will hardly resemble what it looked like going in. And this new look Caesars will begin with an announced change at the top of executive management.
CEO Change
Caesars has announced that Gary Loveman, the long serving CEO of Caesars Entertainment, will be stepping down from his position and assume the role of Chairman. Taking over for Loveman will be Mark Frissora, a man with zero experience in the gaming industry, but with a good track record at his previous jobs – the changeover will officially occur on July 1, 2015, with Loveman and Frissora working together until that point.
Loveman’s replacement was most recently the Chairman and CEO of Hertz Global Holdings, and headed an auto parts manufacturing company named Tenneco. As previously noted, Frissora has no gaming experience, but Caesars is more in need of manager and less in need of a gaming visionary at this point in time, so his inexperience may not be an issue.
The change comes during a massive debt restructuring by the casino giant, in a last ditch effort to avoid an all out bankruptcy filing. Loveman took home $7.6 million in salary and compensation in 2013, while Frissora will command a base salary of $1.8 million with other compensation possible up to 150% of his base salary according to the Las Vegas Review-Journal. Frissora also has the option to purchase up to one million shares of Caesars stock .
It’s unclear, but possible, that part of the restructuring included a change at the top.
The good and the bad of Caesars
Caesars Entertainment has a disputed reputation in the gaming world. On the one hand the company is one of the industry’s giants, with 44 casinos spread across the United States and robust online ventures including real money and social gaming brands among their assets.
On the other hand, Caesars carries over $24 Billion in debt and has been losing money for years.
Another positive, is the company is well known thanks to its powerful brands such as the World Series of Poker and for being an early adopter of social casinos and brick & mortar rewards programs. On the negative side, the company is also widely criticized for cost-cutting measures that draw the ire of experienced gamblers, particularly poker players.
Caesars growth and innovation are certainly the reason why Caesars CEO Gary Loveman has been in his position since 1988. Caesars mounting debt and impending restructuring, coupled with his long tenure easily explain why Loveman is being replaced.
When the trouble began
Caesars monetary woes can be traced back to a period of massive acquisition beginning in 2005 when Caesars (at the time the company was called Harrah’s) acquired Caesars Entertainment for $9 Billion. But the real trouble began in 2008 when the company changed its name to Caesars Entertainment and took the company private (backed by Apollo Global Management LLC and TPG Capital), a move that cost some $31 Billion, and leaving the company $22 Billion in debt.
The timing of the deal could not have been worse, as the country was about to enter the Recession of 2008, and one of the hardest hit industries was gaming as disposable income dried up and unemployment rates skyrocketed.
What happens in Atlantic City?
A year ago Caesars owned five casino properties in Atlantic City, four of which were active casino properties: Caesars, Harrah’s, Showboat, and Bally’s – the company also owned the shuttered Atlantic Club which they purchased at auction.
As we enter 2015 the company now owns just three properties, having sold the Atlantic Club and closed and sold the Showboat Casino.
Even though Caesars’ three Atlantic City casinos are among the top revenue generators in the city (chart below), the company is not taking any options off the table, and there have been intimations that another AC property could be sold – Two of the company’s casino’s, Caesars AC and Bally’s AC are part of the division Caesars is restructuring, Harrah’s is not.
Since it would be hard to close a profitable casino, the most likely change would be for Caesars to part with one of its AC properties (most likely Bally’s), which is made all the more desirable to a forward thinking operator thanks to online gaming’s legality in New Jersey.
Why Bally’s? Not only is it Caesars least profitable and lowest revenue generator in AC, but since September, when three casinos closed (Revel, Showboat, and Trump Plaza) Borgata, Golden Nugget, Tropicana, Resorts, Harrah’s and Caesars have all posted significant year-over-year gains. Trump Taj Mahal (embroiled in its own bankruptcy restructuring) has seen revenue decline, and Bally’s has held steady.
| Casino | 2014 Total Revenue |
| Borgata | $643 Million |
| Harrah’s | $365.3 Million |
| Caesars | $330.6 Million |
| Tropicana | $274.6 Million |
| Bally’s | $224.9 Million |
| Golden Nugget | $171.9 Million |
| Trump Taj Mahal | $215.9 Million |
| Resorts | $139.4 Million |