Caesars nears sale of Las Vegas Strip Casino (it’s more complicated than that)

Entertainment Caesars (CZR) – Get the report from Caesars Entertainment Inc. Chief Executive Tom Reeg spent $17.3 billion when his former company, Eldorado Resorts, bought the casino giant in 2020. The new company retained the Caesars name and incurred around $13 billion in debt. dollars at the time of the agreement.

The combined company has casinos across the United States and properties in the United Kingdom, Egypt, Canada and Dubai, as well as a golf course in Macau. Caesars, which Reeg still runs, also dominates the Las Vegas Strip, owning Caesars Palace, Paris Las Vegas, Planet Hollywood, Harrah’s Las Vegas, the Flamingo, Linq Hotel, Cromwell and Bally’s (which is rebranded as the company’s Horseshoe ) as well as Rio, which is off the Strip.

It is a massive operation that has passed MGM Resorts International (MGM) – Get the MGM Resorts International Report as the largest casino operator in the world.

Reeg has, however, made it clear that his business needs to scale down a bit. Since Eldorado completed the purchase, it has talked about selling one of the company’s properties on the Las Vegas Strip, and it seems to be happening. But it is not that simple.

Las Vegas looking to sell Flamingo

Reeg thinks Caesars has too many rooms on the Strip, hurting its pricing power. The company plans to sell one of its properties in Las Vegas, with Paris, Planet Hollywood and Flamingo being the most speculated properties.

“Well, we’re at 23,000 rooms today. You remove rooms from Rio and then you remove a property, depending on the property, let’s say 3,000 to 4,000 rooms,” Reeg said during his company tour. . call for fourth quarter resultsin response to a question about selling property on the Strip.

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Flamingo has 3,450 rooms and, well, calling it dated would be nice. The casino was built in 1946, and although it has been updated over the years, it needs a lot of work. Selling the casino would achieve Reeg’s goal of reducing capacity while providing much-needed cash.

“So you’re going to be down to, call it, 16,000, 17,000 rooms in the market. That’s about a quarter of our existing capacity,” the CEO added.

The problem is that Caesars can’t just sell Flamingo to the highest bidder.

How could the sale of Caesars Flamingo get complicated?

VICI properties (VICI) – Get the VICI Properties Inc reportwhich owns the underlying real estate on which many Caesars properties are located, “has rights of first refusal to Bally’s, Flamingo, the Linq, Paris and Planet Hollywood through an agreement reached with Eldorado Resorts in June 2019 “, reported.

The real estate company also owns the land under many MGM properties, including its Strip casinos. Vici could buy Flamingo and then lease it so Caesars can operate. This deal gives Caesars money, but it doesn’t cut its room supply.

Losing Flamingo, however, could be a long-term blow for Caesars. The lower-end property sits across from upscale Caesars Palace and south of mid-range Harrah’s and Linq. Flamingo borders Linq Drive, an iconic Caesars property that recently served as a key site for the NFL Draft.

Caesars and MGM dominate the south and center of the Las Vegas Strip. Selling Flamingo to another casino operator probably doesn’t generate enough cash to accommodate another competitor in the area.

Any acquiring company would likely view Flamingo as a total rebuild, which could open the door to an ownership that challenges Caesars and MGM. It might be worth it for $2 or $3 billion, but with a supposed price tag of $1 billion, selling Flamingo to Vici and continuing to operate the casino might be Caesars’ best bet.

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