The owner of Caesars Sportsbook is now forecasting that its digital unit will enter into profit in 2023 after reporting a negligible fourth-quarter loss of $5 million, a massive year-over-year improvement compared to the $305 million loss sustained in the same period in 2021.
That progress by Caesars Entertainment Inc.'s legal sports betting unit represents a milestone for the Reno-based operator and further vindication of a strategic decision to heavily reduce marketing spend in 2022, which paved the way for rival sports betting sites to follow suit.
"Caesars Sportsbook delivered significantly improved operating results during the fourth quarter which sets the foundation for a strong 2023," Caesars CEO Tom Reeg said in remarks accompanying the release of the casino operator's Q4 and FY2022 earnings results on Tuesday.
"[...] We're anticipating that Digital on a full-year basis will be an EBITDA contributor for us this year. And when I say that, I'm talking about overall and both verticals, I expect sports betting and iGaming to be EBITDA positive this year for us."
The digital turnaround helped Caesars slash its year-over-year (YoY) Q4 net loss to $148 million on net revenue of $2.82 billion, a nearly two-thirds reduction from the $434 million net loss it posted in the same quarter of 2021 on net revenue of $2.59 billion. This trimmed its 2022 quarterly earnings per share loss to ($0.70) as compared to ($2.03) in Q4 2021.
Mattress Mack torpedoed digital Q4 profit
Caesars Digital, which comprises its sportsbook and smaller iGaming unit, would have turned a profit in the final quarter of 2022 had it not been for the $30-million payout to Jim “Mattress Mack” McIngvale on his winning November World Series bet on the Astros.
During his earnings call remarks, CEO Reeg could not even bring himself to mention McIngvale's name during his earnings call remarks to analysts.
"In digital, as you saw in our results, we were nearly breakeven," said Reeg. "Our well-publicized MLB exposure around the World Series was about a $30-million swing. So on a hold-adjusted basis, we are well into the positive in the fourth quarter."
Reeg expects to see a "modest" loss for Caesars Digital in the first quarter due to the operator's "launch cost" in Ohio which saw the company roll out both mobile and retail sports wagering operations the Buckeye State went live on January 1.
Nevertheless, the Caesars CEO was bullish that his company's interactive segment would, at last, generate positive earnings for 2023 overall after cumulative losses of $1.1 billion at Caesars Sportsbook since the launch of its sports betting app in August 2021.
Caesars currently operates in 28 U.S. states, 21 of which offer its Caesars online sports betting app, as well as in the legally regulated sports betting market in Ontario — Canada's largest province.
Caesars Sportsbook will soon become available in Massachusetts when the Bay State launches online sports betting on March 10, just in time for March Madness.
Las Vegas biggest driver of Q4 earnings
Caesars saw its Q4 performance spearheaded by its Las Vegas operation, which maintains its status as the company's biggest earnings driver. Las Vegas saw its YoY Q4 net income rise by 17% to $295 million on $1.15 billion of revenue as compared to a net income of $252 million on $1.04 billion in the same period of the previous year.
"Our fourth quarter delivered another set of strong operating results as both our Las Vegas and Regional segments each set a new fourth quarter record for Adjusted EBITDA," Reeg said.
"Additionally, our Las Vegas segment set a new full-year record for Adjusted EBITDA. Caesars Sportsbook delivered significantly improved operating results during the fourth quarter which sets the foundation for a strong 2023. Consumer demand remains strong in all of our verticals, and we are optimistic for the year ahead."
For 2022 as a whole, Caesars saw its net loss drop to $899 million on revenue of $10.8 billion, a healthy 11% reduction in the net loss of $1.02 billion it sustained in 2021 on revenue of $9.6 billion.
Parlays remain money makers
Another important takeaway from Tuesday's earnings call was that Caesars improved its hold rate by 100 basis points in the fourth quarter. According to Eric Hession — the president of Caesars Sports and Online Gaming — this was due to the increasing percentage of parlay wagers in the overall mix.
"The percentage of [same game parlays and multi-game parlays] as a function of our overall bets is steadily rising," said Hession in response to a question from Macquarie analyst Chad Beynon.
"This is kind of the third year that we have good data on it. And we're continuing to see improvements. And as you know, the hold in those products are much higher.
"We've also done a better job merchandising it. So if you go on our app now, you'll see we have pre-canned parlays, so they're effectively prebuilt. Right now, they're the same for everybody. But in the future, we'll be able to use some segmented marketing to display different pre-canned parlays, which I think will be really — customers will be really receptive to that."
