Posted on: December 28, 2020, 09:42h.
Last updated on: December 28, 2020, 10:35h.
Last week, Caesars Entertainment (NASDAQ:CZR) said it’s selling Caesars Southern Indiana to the Eastern Band of Cherokee Indians (EBCI) for $250 million. It’s a move that sets the stage for the operator to derive added financial benefit from its most iconic brand and one of the industry’s largest loyalty programs.
The sale of the venue was widely expected, because Eldorado Resorts – the company that purchased Caesars earlier this year for $17.3 billion – previously pledged to the Indiana Gaming Commission (IGC) that it will divest three venues in the Hoosier State. Still, Union Gaming analyst John DeCree sees value for investors in the deal’s fine print.
Although the sale of Caesars Southern Indiana comes as no surprise, given it was mandated by the Indiana Gaming Commission before year end, the devil is in the details,” said the analyst in a recent note. “As part of the transaction, Caesars announced a long-term agreement with EBCI for the continued use of the Caesars brand and Caesars Rewards loyalty program at the Southern Indiana property.”
DeCree rates Caesars stock a “buy,” with a $100 price target, implying upside of more than 35 percent from where the shares trade at this writing.
For Caesars Stock, More Benefit Than Meets the Eye
The Nevada-based gaming company operates venues under the Caesars, Harrah’s, and Horseshoe brands, among others. But Caesars is, by far, the most well-known, and the one with the most cache, providing the firm opportunities to cash in on that recognition in a cost-effective fashion.
As part of the Indiana deal with ECBI, Caesars will generate annual fee income of more than $6 million by allowing the tribe to retain the Caesars name on that venue. It will permit the buyer to continue offering the Caesars Rewards loyalty program to patrons, according to Decree.
“This marks the first move towards optimizing and monetizing the Caesars Rewards database as previously discussed by management,” said the analyst. “We believe this will be just the first of many licensing and branding agreements that will evolve into a lucrative, high-margin, fee stream for the company.”
When Eldorado completed its takeover of “old Caesars” in July, that transaction created a massive influx of new members to Caesars Rewards. Based on pre-merger figures, there are approximately 65 million participants in the loyalty platform.
There are six tier levels: Gold, Platinum, Diamond, Diamond Plus, Diamond Elite, and Seven Stars.
Other Branding Efforts
The operator is planning to rename Harrah’s New Orleans, which is the only casino in that city, with the Caesars brand.
Earlier this year, the company was able to wring $20 million out of the Bally’s mark, selling that label to Twin River Worldwide Holdings, with the buyer becoming Bally’s in the process.
The next moves for the Caesars brand and the rewards program haven’t been revealed. But given the company’s penchant for selling regional venues to smaller operators with less brand recognition, there should be more opportunities for licensing revenue via either the label or Caesars Rewards.