MGM/GVC-esque Arrangement Pitched by Analyst for Caesars Sports, Online Casinos

An agreement similar to what MGM Resorts International (NYSE:MGM) has with GVC Holdings for internet casinos and sports wagering is being touted by a sell-side analyst. He sees it as an avenue for Caesars Entertainment (NASDAQ:CZR) to unlock shareholder value in those businesses.

In a note to clients today, Wolfe Research analyst Jared Shojaian pitched the idea of Caesars entering into a 50/50 pact with William Hill (WMH), its sports betting partner.

We think it would be beneficial to restructure the agreement with WMH to a simpler version, where a JV (joint venture) is created with 50/50 ownership, similar to the MGM/GVC JV,” said Shojaian.

Under the terms of the current Caesars/William Hill accord, the latter runs all of the former’s US sportsbooks, while the Caesars Palace operator collects 40 percent of the economics derived from that business. That agreement was reached between the UK-based sportsbook firm and Eldorado Resorts, the company that recently acquired Caesars and took that name.

As part of that long-standing pact, WMH gets the rights to manage any books new Caesars gets via acquisition, while Caesars has a 20 percent stake in the UK company’s US operations.

Lots of Talk on the Matter

Chatter regarding the fate of Caesars’ sports wagering and online casinos business dates back to last year when then Eldorado CEO Tom Reeg noted it was possible those units could be spun off because markets weren’t fully appreciating the value of those segments.

The executive said that business could generate $600 million to $700 million in revenue next year, with $125 million of that tally coming from New Jersey alone.

“We think a separation could be beneficial, where CZR and WMH each own 40 percent and they float the remaining 20 percent,” said Shojaian. “We think the combined business could be worth ~$7 billion at CZR’s target of $600 million to $700 million in 2021 revenue.”

Another, Sort of Wild Idea

Shojaian pitches another, perhaps unfathomable near-term idea: Caesars acquiring William Hill outright. It’s not as far-flung as it appears, because old Caesars and the sportsbook giant held talks to that effect in 2018.

As the analyst notes, new Caesars management probably wouldn’t want WMH’s European operations, and the team has plenty on its plate as it works through a $17.3 billion deal that was finalized just weeks ago. Of course, it’s worth noting WMH has an enterprise value of just $2.3 billion, and Caesars in the current form is a company built by multiple acquisitions. Overall, it appears Shojaian favors the idea of spinning out the internet casino/sports betting segment.

“We think creating a separate entity with a public float helps showcase a valuation not currently in the stock,” said the analyst. “It also opens the entity up to a new investor base, and we think there would be lots of interest.”