New Orleans Scores $103M Lifeline: How a Huge Casino Rent Deal is Saving the City’s Budget

• The city is taking an upfront payment of $103 million on nine years of rent on Caesars New Orleans
• An institutional investor is buying that portion of the lease
• The other 23 years on the lease term aren’t affected

Facing a critical budget crunch, New Orleans has secured a massive $103 million cash injection by striking a high-stakes rent deal on a casino hotel operated by gaming giant Caesars Entertainment (NASDAQ: CZR).

Under the terms of the newly announced accord, private equity firm TPG is paying $103 million upfront for the first nine years of rent on Caesars’ eponymous New Orleans property, representing a discount rate of 8.75%.

The other 23 years on the lease aren’t affected.

This is not a new fee or a new tax. Yet we have found a way to replenish our fund balance with more than $100 million once this transaction closes,” said Mayor Helena Moreno at a Tuesday press conference.

Prior to the announcement of the deal on the Caesars venue, New Orleans had just $35 million in its fund balance, or rainy-day fund, but under city guidelines, that figure should be 20% of the budget, or approximately $160 million.

Give a Little, Get a Little

As is the case with casino real estate transactions involving operators and real estate investment trusts (REITs), the Caesars/New Orleans arrangement is a case of the city giving up something to get something.

In the case of Caesars, the rent transaction is a nonstarter because it doesn’t control the lease. The operator contends with $11.9 billion in outstanding liabilities.

The plan needs to be ratified by the New Orleans City Council, which is scheduled to discuss the transaction next week.

History of Caesars New Orleans

Born as Harrah’s New Orleans in 1999, the property took the Caesars name about two years ago.

Widely regarded as one of the operator’s marquee venues outside of Las Vegas, Caesars is in New Orleans for the long haul because in 2019, it landed a gaming license running through 2054 in exchange for a minimum investment of $325 million in property enhancements.

The New Orleans landmark was a crown jewel in the massive $3.2 billion reshuffle that saw Eldorado Resorts swallow Caesars in 2019. Partnering with VICI Properties, Eldorado packaged the Big Easy casino alongside Harrah’s outposts in Laughlin and Atlantic City to anchor the historic takeover.

Translation: Caesars pays rent to VICI because the REIT owns the building in New Orleans and it pays rent to the city because the city owns the land on which the casino hotel resides.