Caesars Earnings Call Signals Possible Digital Spinoff

Caesars reported earnings this week, and while there was plenty to discuss, CEO Tom Reeg wasted no time reiterating a familiar point. Caesars’ digital assets remain undervalued compared to the company’s overall stock valuation, and this time, he had $1.16 billion reasons to back up his claim. Caesars' digital operations generated $1.16 billion in revenue in 2024, accounting for 10% of the company’s total net revenue.

Yet specifics were scarce. While EBITDA for online casinos and sportsbooks surged to $117 million in 2024, up from just $38 million the previous year, the stock remained stubbornly flat. This may reflect investor skepticism about digital growth, even as Caesars’ brick-and-mortar casinos struggle to manage debt.

Overall net revenue was relatively unchanged year over year at $11.2 billion, down slightly from $11.5 billion in 2023. Fourth-quarter revenue also held steady at $2.8 billion. However, the casino giant reported a $278 million loss for 2024, a stark contrast to its $786 million profit the prior year. The primary driver was a $940 million charge related to an allowance against deferred tax assets. Excluding this charge, same-store EBITDA remained stable at $3.7 billion, compared to $3.9 billion in 2023.

Las Vegas operations showed slight weakness, with gross revenue declining to $4.2 billion from $4.4 billion, aligning with a broader slowdown on the Strip over the past six months. Caesars’ regional casinos, operating under brands like El Dorado, Harrah’s, Horseshoe, and Silver Legacy, also saw a slight decline in revenue, falling to $5.5 billion from $5.7 billion.

Caesars Digital was the clear bright spot, growing to $1.1 billion from $973 million in 2023. Adjusted EBITDA figures, however, showed minor declines. Las Vegas reported $1.9 billion compared to $2 billion the previous year, while regional properties generated $1.81 billion, down from $1.96 billion.

In October 2024, Caesars sold its WSOP brand to NSUS, the operator of GGPoker, for $250 million in cash and $250 million in promissory notes due in five years. The deal allowed Caesars to retain the rights to operate WSOP tournaments for the next two decades and continue running WSOP online in New Jersey, Michigan, Nevada, and Pennsylvania.

Two months later, the company sold the Linq Promenade, an open-air retail and dining destination with 32 tenants and the 550-foot High Roller observation wheel, for $275 million. Proceeds from both sales were used to pay down $500 million in debt and repurchase $190 million in stock.

Despite these efforts, Caesars still carries over $12.3 billion in outstanding debt, largely stemming from the El Dorado merger and major reinvestments in its properties. This debt burden continues to hinder the company’s ability to grow, prompting Caesars to reaffirm its openness to selling assets if the price is right. However, in a high-interest rate environment, securing favorable offers remains a challenge.

A spinoff of Caesars Digital appears increasingly likely. The company saw 65% growth in its iGaming sector in Q4, driven in part by the rollout of Horseshoe Online Casino, which complements the already successful Caesars Palace Online app. Additionally, Caesars recently launched its first Live Dealer studio in Pennsylvania, with New Jersey and Michigan studios expected to follow soon.

While Caesars remains the fourth-largest online sportsbook operator in the US, trailing FanDuel, DraftKings, and BetMGM, it operates in 30 states and continues to attract new users with aggressive promotions. Yet this digital expansion has yet to be reflected in the company’s stock price.

To unlock shareholder value and reduce its debt burden, a digital asset spinoff in 2025 appears highly probable. Free from legacy buyout debt and ongoing capital expenditures in markets like New Orleans and other casino properties nationwide, a standalone Caesars Digital could emerge as a major force in the online gaming industry.