Caesars-Eldorado Merger Approved By NJ Regulators As Megadeal’s Final Hurdle

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A $17 billion casino company merger — the largest of its kind in the world — is complete now that New Jersey regulators on Friday approved the deal to link Eldorado and Caesars Entertainment as a new business dubbed “New Caesars.”

As the last of more than 20 states whose approval was required to make the deal happen, New Jersey found itself in the catbird seat.

Restrictive covenants that prevented various potential development — and tax revenue — at the former Atlantic Club and Showboat casinos as well as the Claridge Hotel?

Those were to be gone, per the terms of state Division of Gaming Enforcement officials this week.

The end of those covenants, however, appeared to have struck a nerve. Hard Rock and Ocean — the two newest Boardwalk casino properties and potentially facing new competition down the road — applied for, but were denied, a chance to address Casino Control Commission Chairman James Plousis and Commissioner Alisa Cooper, the other voter.

Still, the start of Friday morning’s meeting was delayed for 90 minutes, and Plousis noted that the Division of Gaming Enforcement’s insistence that New Caesars lift each deed restriction “greatly complicates this matter.”

Plousis added that the “perceived ills” from the deed restrictions are “not related to the merger plan that is before us today.”

So Plousis, citing the unique economic landscape of the Atlantic City casino industry in the COVID-19 era, concluded that “the benefit of more time to allow for study and deliberation” was needed to consider at a later time whether the deed restrictions should be lifted.

In other words, that is a win for all Atlantic City Boardwalk casino operators – if a potential longterm loss for city and state taxpayers.

Look for casino “sprucing up”

As for Caesars and Harrah’s casinos as well as Eldorado’s Tropicana purchase last year, the new company agreed to spend $400 million in upgrades to the three properties over the next several years.

Eldorado CEO Thomas Reeg told staff of the state Casino Control Commission and Division of Gaming Enforcement on the first of three days of testimony that Caesars had allowed its Atlantic City casinos to “deteriorate competitively.”

“The room product at Caesars is….. supbar — I’ll say that politely,” said Reeg, while acknowledging substantial employee reductions and lobbies that need to be upgraded to “make a guest want to come in, rather than to turn around.”

Steve Callender, Eldorado’s senior vice president of operations on the East Coast, agreed that the Caesars casino “needs a lot of work.”
“People want to be wowed when they come to these properties,” Callender said. “Harrah’s is in better shape, obviously, but it still needs work on some of its rooms and an upgrading of the pool area, which is a little bit tired.”

New Jersey didn’t make it too easy

Even though New Caesars agreed to abide by 40 different recommendations made by the state Division of Gaming Enforcement, an agency official said after the end of two days of testimony on Thursday that “the division’s concerns remain” and that “we do not share Eldorado’s optimism that New Caesars’ operating performance will return to pre-shutdown levels by the end of 2021.”
And while the division official conceded that New Caesars’ commitment to the $400 million in upgrades to the three properties (after what an Eldorado attorney said “I wouldn’t call prodding…”) was “virtually unprecedented,” it was added that “the fund should be considered to result in a state of improvement to where [the casinos]already should have been.”
 The would-be new company also has agreed to commit to keeping all three properties open for at least five years, and to have no employee layoffs of more than 50 per property unless DGE grants approval to do so.
The two witnesses on Thursday were economists who analyzed the impact of the proposed merger on the city’s casino industry. Timothy Watts, who was hired by Eldorado, said that the merger would not reach what state regulations describe as “undue economic concentration” by one entity, even if the Bally’s sale to Twin River was not pending.
Watts added that the combination of each company’s loyalty programs would be a “primary benefit” for consumers from such a merger.

Is this deal not quite ideal?

But Dr. Martin Perry, who was commissioned by the DGE, said that the proposal was “a huge merger, in terms of Atlantic City.” Perry added that it would have been better for the city if the merger instead had included either the larger Harrah’s casino or both Bally’s and the adjoining Caesars casino.
Perry, whose analysis of Atlantic City casino deals dates back 25 years, said that it would have been very helpful if New Caesars erased those deed restrictions preventing development at the former Showboat, Claridge, and Atlantic Club properties.
Such restrictions “are incredibly perverse in terms of competition,” Perry said, adding that “in some sense, it ought to be illegal.”
Reeg and his colleagues stressed that the renowned Caesars Rewards program was a key to the deal, although it is unclear how that program might be affected.
The merged company will “create a stronger and more resilient company,” Reeg told sometimes skeptical regulators.

Who will run this new show?

Eldorado will have control of the new company in spite of the retention of the Caesars name, with operations to be based out of Reno and Las Vegas.
But a number of Atlantic City-based executives will remain in key positions, Reeg added, and Eldorado’s corporate preference to have local leaders run operations will replace the Caesars model.
“We see excitement at the local level — they kind of have their hands untied,” Reeg said.
A number of the new company’s Las Vegas strip properties could be on the auction block later this year, Reeg suggested.
Eldorado last year took a 20% stake in the William Hill US sportsbook company, and the new business would have potential overlaps in the Atlantic City casino sportsbook industry.
Caesars operates more than two dozen sportsbooks in Nevada, New Jersey, Iowa, Indiana, New York, Pennsylvania, and Mississippi. William Hill operates in the first four of those states.
There could be a “monetization” of some of the sportsbook deals to outside sources in the next 12 to 18 months, Reeg suggested.

Reeg said he is mindful of the ongoing struggles of Atlantic City employees at the new company’s properties. He said of the COVID-19 pandemic that “my household has dealt with it personally,” and that as the son of a union carpenter, he has experienced the upheaval of company layoffs.

About half of the company’s casino workers have been able to return to work, Reeg said.
The second-to-last hurdle for the deal was cleared on Monday, when the Indiana Horse Racing Commission joined the state’s gaming commission in approving the merger.
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John Brennan

John Brennan has covered NJ and NY sports business and gaming since 2002 and was a Pulitzer Prize Finalist in 2008, while reporting for The Bergen County Record.

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