In January 2015, Caesars Entertainment Corporation filed for bankruptcy protection in Chicago, Illinois. At that time, the hope for the casino giant was that the court would agree to its plan to relieve about half of its $18.4 billion in debt. Caesars Entertainment Corporation owned and operated about 50 properties throughout the world.
In a statement, Caesars CEO Gary Lovemen announced the all of the properties would remain open. They would also continue to operate as usual. This included hosting both events, meetings, and allowing customers to use their loyalty points. The casino-hotel giant even promised to keep lining up entertainer to perform at the casinos and hotels.
Caesar Entertainment’s bankruptcy, which didn’t include the corporation and its’ affiliated companies, wasn’t a surprise. The question now isn’t how the Caesar’s plans to move out of bankruptcy, but will it attract buyers.
Caesars Entertainment Puts its Bankrupt Casino Unit For Sale
In October, the bankrupt portion of Caesars Entertainment was put on the market. The package included Caesars Palace Las Vegas and 37 other casinos. This has caused many interested in the bankrupt operating unit to question what is not being offered for sale. For example, one thing is not included in the sale is the most critical piece—casino’s big-data customer loyalty program.
The Caesars’ Deal May not Result in any Takers
Potential buyers are hesitant. By purchasing the casino-operating unit, a buyer would potentially put themselves in the middle of a complicated and very costly bankruptcy. To take a big risk like that, but not see a return may not be worth the asking price. The big-data customer loyalty program would be a huge draw at a time when consumer spending is on the rise. This would make the regional gaming asset a high commodity.
Many junior creditors and analysts have suggested that Caesars Entertainment isn’t interested in selling its bankrupt unit. They also doubt the casino will attract any serious bidders. Why are analysts and creditors so negative about the casino attracting any bidders? Look to court documents filed by Caesars. According to court documents, it was noted that the actual bidding process probably wouldn’t result in any offers. The operating unit itself also claimed in the court documents there’s no guarantee a successful bid will translate into a successful close.
Skepticism Grows about the Deal because of Loyalty Program
Another reason for the doubt about Caesars being serious about its offer to sale the casino operating unit it the loyalty program. Many industry players claim the casino-hotel giant doesn’t have clear control of the program. The Total Rewards program was created by Gary Loveman, former CEO of Caesars. The program has become the industry’s largest loyalty program.
The way to loyalty program works is simple. Gamblers acquire points each time they spend money at casinos in the outlying markets. These markets are located in areas like along Iowa’s Gulf Coast. In exchange for gambling there, they receive points to redeem at the casino’s Las Vegas mega-resorts.
The program has approximately 45 million members. What’s more interesting to potential bidders wanting the program included in the sale is the information on members. Things like members’ spending habits would provide instant value to any investor who purchased the bankrupt casino operating unit.
Caesars May Not have the Ability to Offer its Rewards Program in the Deal
Many industry insiders and analysts may not realize one important thing. Caesars is a complex operating structure. The casino-hotel giant owns the loyalty program. Its non-bankrupt unit, Caesars Enterprise Services, actually controls the program’s licensing agreement. This fact puts places the program out of reach of the bidders wanting to buy the casino operating unit.
For those bidders interested in the bankrupt unit without the loyalty program, the bankruptcy would cause hesitation. The bankrupt portion of Caesars actually owns the company’s flagship casino, Caesars Palace Las Vegas. Octavius Towers, another casino owned by the casino-hotel giant is owned by another non-bankrupt unit. The Octavius Towers is only for high rollers. The portion of the company that owns that is Caesars Entertainment Resort Properties. Anyone interested in owning the Las Vegas and high roller casinos will be disappointed. The latter isn’t up for sale.
The Major Problem for Caesars Entertainment
Many major companies who have filed for bankruptcy like General Motors have sold assets quickly to raise money. The money was raised for two reasons: to satisfy creditors and keep the value of business high. Caesars has taken a different, bitter approach to its bankruptcy filing. This alternative approach has angered many junior creditors. Some such as Appaloosa Partners, Inc. have questioned the casino giant’s intentions for filing bankruptcy.
For example, junior creditors filed lawsuits challenging the way Caesars transferred its assets prior to the bankruptcy. They claim Caesars actually “looted” the bankrupt casino operating unit for its best assets. Taking the units assets left the portion of the casino with little to no money to pay creditors and debt holders.
Caesars claim all transfers are completed prior to the bankruptcy filing were legitimate. In fact, it claims it contributed more than a $ 1 billion of its own money to the bankruptcy plan.
Unsecured creditors are also unhappy with the casino-hotel giant’s new reorganization plan. Their attorneys representing the unsecured creditors claim without prime assets as part of the deal, there will be no best price sale. This means the bankrupt unit will not sale or sale at a low value.
Ultimately, the sale of the bankrupt unit will depend on if Caesars puts together an attractive sales package. An attractive sales package may include other more viable things the casino owns like Penn National Gaming Inc. Only time will tell.