US Sports Betting Update – Caesars Sportsbook & Casino turns profitable a year ahead of schedule
Caesars Entertainment reported that its online sportsbook and casino division swung into profit in October following a series of backend improvements. The Nevada-based company posted a $38 million adjusted EBITDA loss for its digital division when delivering its Q3 results this week. However, that is down from a $163 million loss during the same period a year ago, and Caesars reported that the online sports betting and casino division “inflected to positive EBITDA” during the month of October.
“We are extremely pleased,” said chief executive Tom Reeg during the company’s earnings call. “That’s 12 months ahead of the schedule that we anticipated. Caesars Digital reported strong revenue growth in the quarter and a smaller than expected EBITDA loss driven by improved operating efficiencies.”
The Long Road Towards Profitability
Caesars Entertainment became a major player in the online sports betting industry when it wrapped up a $4 billion takeover of William Hill last year. The company rebranded William Hill’s online sportsbook and casino as Caesars Sportsbook & Casino. It has since sold off all non-US assets of William Hill to 888 Holdings, while it has rolled Caesars Sportsbook out into many more states.
It is now one of the most extensively available online sportsbooks in the country, with operations in Arizona, Colorado, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, Nevada, New Jersey, New York, Pennsylvania, Rhode Island, Tennessee, Virginia, West Virginia and Wyoming. The online casino is live in Michigan, New Jersey, Pennsylvania and West Virginia.
Caesars Entertainment has invested very heavily in promotions, sponsorship deals and marketing activities in an effort to turn Caesars Sportsbook into a market leading brand. In total, the company will have invested $1.1 billion in its digital division, Reeg said during this week’s earnings call. It has launched the largest welcome bonuses in the country, loads of additional promotions and plenty of odds boosts, while it has bankrolled several TV commercials and signed on as the official sportsbook of several major sports teams.
The goal over the past year has been to build up market share. It has been happy to operate at a loss in order to build up the player base, but it now plans to shift its focus towards achieving profitability. That will require it to pull back on promotional spend and marketing costs, while also improving its general hold percentages.
Mattress Mack Could Crush Caesars This Month
Caesars Sportsbook is now generally the No. 3 or No. 4 online sports betting brand in the states in which it operates. It typically trails FanDuel and DraftKings, and it jostles for position with BetMGM. Reeg appears to be happy with its current position, and he said that Caesars Sportsbook will be “living in this band of market share” as it begins delivering regular profits.
Reeg added that the digital division has a “good shot” of earning an overall profit for 2023. He said that most states in which Caesars operates will be in their second year, so it will not need to invest as heavily in attracting new customers via large sign-up bonuses. It will soon expand into Maryland and Ohio, but the focus will be on existing markets.
There will also be a pullback on investments in partnerships with leagues and pro teams. Reeg revealed that the company is currently spending $200 million per year on those deals, but they will begin to drop off over the next few years. Some will be renewed for lower fees, while “a fair amount” will simply end, boosting the digital division’s margins in 2024 and 2025.
Prior to that, Caesars Sportsbook’s chances of earning a profit in Q4 of this year may hinge on whether the Philadelphia Phillies can get the better of the Houston Astros in the World Series. Famous bettor Jim “Mattress Mack” McIngvale, who owns a furniture store in Houston, wagered $3 million at Caesars Sportsbook winning the World Series back in May. He took a price of +1000 (10/1), so he stands to net a $30 million profit if the Astros can get the better of the Phillies. They opened up a 3-2 lead in the best-of-seven series by beating the Phillies on Thursday night, and the action now reverts to Houston. As such, Caesars now makes the Astros the -600 (1/6) favorites for the World Series, so Mattress Mack is in line for a large payout.
Reeg Resists Spinning Off the Digital Division
Football bettors struggled in October following a series of upsets in the NFL. However, Reeg said that Caesars’ digital division would have been profitable even without those sportsbook-friendly results. Eric Hession, the president at Caesars Sports & Online Gaming, said improvements to the backend and advanced analytics. The stats team from the retail business has created models for Caesars Sportsbook’s oddsmakers to be more accurate with pricing and offer in-play odds deeper into games, which has helped drive “really solid double-digit holds” on certain days.
“We’re increasing our uptime and our percentage of in-play hold and in-play volume, which naturally translates into a higher hold product,” said Hession. “In addition, our percentage of parlays has steadily grown and really improved in the third quarter relative to the second and first quarter. A lot of that is due to some enhancements that we made on the tech side to improve the ability for customers to visualize and to place their parlay bets.”
Some shareholders have suggested spinning off Caesars’ digital business as a standalone company. Reeg did not rule it out if it would provide shareholder value, but he said his preference was to keep them together. “I’d say that our competitive advantage here is tying it to the existing brick-and-mortar business and our Caesars Rewards database,” he said. “And it would be my preference that that remains 100% owned by the parent company. If you get to different shareholder bases for the two businesses, there’s a complexity introduced that you see in – you can see that in some of our peers in terms of when you get to different shareholder bases in the same business.”