Caesars sees flat Q1 despite digital gains

While Caesars Entertainment’s brick-and-mortar operations faced a downturn, robust performance from its digital segment provided a crucial safety net in Q1.

In its quarterly results for the period ending March 31, Caesars announced a group net revenue of $2.8 billion (£2 billion/€2.5 billion), reflecting a modest 2% year-over-year increase.

Adjusted EBITDA rose by 4%, climbing from $853 million in the previous quarter to $884 million this year. As of March 31, the company reported cash reserves of $884 million and total debt of $12.3 billion, marking slight increases from $866 million and $12.29 billion as of December 31, respectively.

Caesars’ net revenue in Las Vegas for the quarter exceeded $1 billion, a 2% decline compared to the prior year. Officials attributed this drop to challenging comparisons, notably the Super Bowl’s impact on the previous February’s figures. Adjusted EBITDA for Las Vegas remained steady at $433 million.

Regional revenue achieved $1.38 billion, representing a year-over-year rise of 1.7%, with adjusted EBITDA at $440 million (a 1.6% increase). Company officials cited adverse weather patterns and a tragic terrorist attack in New Orleans on January 1—resulting in 14 fatalities—as factors influencing the performance in that market.

The highlight of the quarter was undeniably Caesars Digital, which continues to serve as the company’s primary growth engine. This segment posted a remarkable 19% increase in net revenue to $335 million, alongside an adjusted EBITDA of $43 million, a significant leap from $5 million the previous year. Eric Hession, the leader of this division, commented on the positive player feedback regarding recent updates and game content enhancements.

Speculation on a Digital Spin-Off

The impressive performance of Caesars Digital has sparked speculation about a potential spin-off into a standalone entity. These discussions gained momentum following the appointments of two new directors to Caesars’ board on March 18, both affiliated with Carl Icahn’s Icahn Enterprises.

Icahn’s involvement with Caesars dates back to his role in orchestrating the company’s sale to Eldorado Resorts in 2020. Following his initial exit from the company, his recent stake increase has reignited interest. In a statement after the board appointments, Icahn expressed eagerness to explore “strategic alternatives for the Company’s underappreciated digital business.”

Responding to inquiries about the rumors, CEO Tom Reeg noted that Icahn shares their perspective on the value of the digital segment. He stated, “Our job is to deliver the numbers we have set out starting in 2021, and we are on that path.” Reeg emphasized a commitment to exploring all avenues to enhance shareholder value while underscoring the importance of driving performance.

Currently, Caesars Digital operates across 32 jurisdictions in North America, as highlighted in an investor presentation.

Macro Trends Influencing Caesars

As a company with both destination and regional casinos throughout the United States, Caesars is acutely aware of macroeconomic trends. Recent fluctuations in global markets, driven by US tariffs, have raised recessionary concerns.

During the COVID-19 pandemic, Caesars was notable for its efficient cost-cutting measures. Although officials downplayed current economic anxieties, they referenced these past strategies when addressing questions from analysts.

“If we begin to see signs of softness, we have strategies available to us, just as we did during the pandemic, which allowed us to outperform our peers in the market,” Reeg stated. He further highlighted that there is no observable consumer softness, contrary to investor concerns.

Reeg pointed to strong future bookings and emphasized that, unlike previous downturns, the company now benefits from a robust digital segment. “We have never seen a segment growing for us like digital during a downturn,” he noted.

Stock repurchases also emerged as a topic of keen interest. Reeg indicated that Caesars would adopt an “opportunistic” approach, particularly if share prices experience significant fluctuations, similar to the decline witnessed in early April when stock prices fell to around $23 before recovering to the high $20s.

Industry Trends on the Horizon

In addition to Caesars’ updates, Reeg provided insights into broader industry trends. One of the most pressing issues has been tax increases; since the beginning of 2024, numerous states have either implemented or discussed imposing significant increases on online gambling taxes. This includes traditionally pro-gaming states like New Jersey.

Reeg characterized this move as “symptomatic” of states grappling with budget shortfalls as federal COVID funds wane. He expressed little surprise at state lawmakers’ focus on gaming revenue. Conversely, he viewed this situation as potentially beneficial for legalization efforts. With initiatives in Nebraska and Hawaii faltering, 2025 may mark the first post-PASPA calendar year without new sports betting or iGaming markets. Reeg posited that tight budgets could make legalization more appealing.

“The online gaming industry will remain a sought-after domain,” he suggested.

Additionally, Reeg touched upon the emergence of prediction markets, which allow users to trade contracts on sporting events. Kalshi, the most prominent prediction market, faced cease-and-desist orders from several state regulators but has secured preliminary injunctions in Nevada and New Jersey. A scheduled hearing by the Commodity Futures Trading Commission for April 30 was recently canceled.

Reeg noted that Caesars has experienced “zero impact” from prediction markets thus far, indicating a stable performance in that area.