Disappointing Online Betting Results Hamper Caesars’ Q4 Outlook

J.P. Morgan analyst Joseph Greff has adjusted Caesars’ Q4 Las Vegas Strip cash flow estimate to $485 million from $499 million, highlighting several negative factors that hurt revenues. However, this new estimate still marks a strong result considering Q4 2023’s $489 million figure. Greff also adjusted his price target for Caesars’ shares, lowering it from $58 to $57.

F1’s Unimpressive Turnout Had a Ripple Effect

Greff justified his revised forecast by highlighting modest gambling volume declines, a middling table game hold of 22%, and unimpressive margins due to the Las Vegas Grand Prix’s underwhelming turnout. Several factors contributed to the lower demand for this event. Exorbitant initial pricing, a lack of competitiveness, and unfavorable weather all contributed to less-than-stellar visitor numbers, with prices for seats for the main events plunging 60%.

The F1 Grand Prix’s diminished appeal noticeably impacted Las Vegas’ broader hospitality sector, which counts on these types of events to attract visitors. Hotels, restaurants, and entertainment venues suffered from the ripple effects of weaker demand tied to the high-profile race, as much of their preparations for a big turnout were wasted.

The Online Sector Presents Further Challenges

Caesars Digital, the company’s foray into the online sports betting vertical, also faces headwinds. Greff adjusted his estimate of Caesars Digital’s cash flow contribution, lowering it significantly from $51 million to $26 million. He attributed these results to more bettor-friendly event results and a broader industry-wide trend of lower-than-anticipated returns in online sports betting.

These results significantly contrast BetMGM, one of Caesars Digital’s primary rivals in the online vertical. Although BetMGM experienced substantial losses in 2024, experts expect the operator to shift toward positive EBITDA in 2025, leveraging MGM’s significant investments throughout 2024. The company has successfully expanded the scope of its online service worldwide, contrasting with Caesars Digital’s more conservative approach.

Despite ongoing challenges, Caesars had success elsewhere, especially in its regional operations. The company’s new casino in Danville, Virginia, alongside the rebranded Caesars New Orleans, performed admirably. These properties helped sustain a $408 million cash flow projection for Caesars’ regional properties, offsetting headwinds in the Strip and setting a positive example for Caesars’ broader portfolio.

Greff remained optimistic regarding Caesars’ mid-term prospects, remarking on its robust cash flow generation and debt-reduction efforts. However, he also tempered his optimism with a lack of near-term catalysts, particularly in Las Vegas, where a slowdown in revenue growth and margin pressures could lead to underperformance in early 2025. Caesars must carefully balance its priorities, adapt to shifting consumer preferences, and stand strong against rising competition.