Icahn Relationship Remains Solid As Caesars Mulls Spin-Off

Reeg and Caesars Gain Insights from Icahn on Possible Digital Business Divestiture

Last week at a distinguished gaming conference, Caesars Entertainment CEO Tom Reeg articulated the company’s pivotal strategies as it navigates the evolving landscape of the gaming industry.

In recent months, Caesars has signaled its openness to the idea of spinning off its digital business. This segment, brimming with growth potential, particularly in online casino arenas, is under active consideration. Back in March, renowned investor Carl Icahn made headlines by reaching an accord with Caesars to expand its board of directors, an alignment that appointed two executives from Icahn Enterprises LP, his billion-dollar conglomerate.

“He wishes to be an integral part of our discussions, and I welcome his insights,” Reeg stated during an interview with iGB at the East Coast Gaming Congress. “Our relationship is strong.”

Assessing Long-Term Profitability in Digital Ventures

In the fiscal year of 2024, Caesars reported an impressive overall net revenue of $11.2 billion (£8.4 billion/€9.8 billion), with approximately $1.2 billion derived from its digital operations. Notably, this online segment saw an increase of around 20% compared to the previous year.

Furthermore, Caesars recorded an adjusted EBITDA of $117 million in its digital segment, signifying a remarkable increase from $38 million in 2023. These promising results led Caesars Digital to reaffirm its long-term target of achieving $500 million in annual EBITDA.

Hints at a potential spin-off were first suggested by Caesars management during a Truist investor summit last December, where evidence pointed to the online gaming brand outpacing market growth. The standalone Caesars Palace online app has also exhibited a positive trend in its slot mix performance.

While market analysts believe that a divestiture could crystallize the value of Caesars Digital, Truist analyst Barry Jonas emphasized the necessity for profitability to attract investment on a pure-play basis.

During Caesars’ last earnings call in February, Reeg remarked, “Operationally, it makes the most sense to keep everything integrated. However, the timing appears favorable to evaluate the digital arm as a standalone entity.”

Evaluating Caesars as a Multi-Billion Dollar Case Study

Prior to finalizing any strategic decisions, Reeg indicated that Caesars must demonstrate scalability within its digital operations.

If the online segment can achieve desired growth, the next step for Caesars is to ensure this progress is reflected in the company’s share price. If further alignment is needed, Reeg noted that there are strategies available to unlock that value potential.

Analysts project that Caesars Digital revenues for this year will be approximately $352 million. Should Caesars surpass this benchmark while maintaining an EBITDA multiple of 12.5x, its digital division may be valued at a substantial discount when compared to competitors like DraftKings. Deutsche Bank analyst Carlo Santarelli previously estimated a standalone valuation of around $4.4 billion for Caesars’ online operations, while most digital-only gaming companies usually command valuations ranging from 15x to 25x EBITDA.

Strengthening the Relationship with Carl Icahn

Icahn is an established player within the Caesars narrative, having acquired shares in the company over the past seven years, ultimately amassing a 25% stake. His influence contributed to his securing three board seats, during which he actively pushed for the company’s sale. Following the $17.3 billion acquisition of Caesars by Eldorado Resorts in 2020, Icahn exited his position only to reappear last August, disclosing ownership of over 2.4 million shares in the restructured “new Caesars.” As of December 31, 2024, his holdings remained consistent. Recently, Caesars appointed two directors with ties to Icahn, enhancing the board to a total of 12 members.

In a statement, Icahn expressed his eagerness to collaborate with Reeg and the board to optimize shareholder value, including examining strategic alternatives for the digital sector, which he described as “underappreciated.”

Reeg shared with iGB, “Carl recognizes the same undervalued equity and the opportunity we have through our digital initiatives.”

Historically, Reeg and his financial team have garnered praise from Icahn for their adept management of debt. Nevertheless, challenges persist given that Caesars finished 2024 with a significant debt load—totaling $12.3 billion. According to company filings, by the end of the year, Caesars possessed $866 million in cash, excluding $150 million in restricted funds. The company aims for a leverage ratio of 4x by the conclusion of 2026.

Anticipating Q1 Earnings

Despite a 7% spike on Tuesday, Caesars shares, like many gaming stocks, have faced pressure due to overarching macroeconomic headwinds stemming from prolonged global trade tensions. Year-to-date, Caesars shares have decreased by nearly 20%.

Investors will gain deeper insights into Caesars’ future digital strategies during the upcoming quarterly earnings call, scheduled for April 29—one day following BetMGM’s report. Caesars will present its Q1 results in advance of MGM Resorts’ own earnings update, as MGM jointly operates BetMGM with Entain.

According to Zacks Consensus Estimate, Caesars is anticipated to report a quarterly loss per share of $0.18, marking a 67.3% improvement from the same quarter last year. Analysts forecast first-quarter revenues to hit around $2.79 billion—a 1.8% increase from Q1 2024.

While Reeg has not specified the timeline for a decision regarding the potential spin-off, he appears optimistic about the prospects for its digital unit. “Our objectives lie ahead of us. We are focused on reaching them,” he conveyed to iGB.