Caesars Entertainment has reported record third-quarter adjusted EBITDA earnings of $1 billion in the third quarter of 2022, a 15% year-over-year increase over the $870 million recorded in the same period last year.
Caesars’ Q3 group revenue also grew on a YoY basis, rising by 6.4% to $2.88bn (Q3 2021: $2.68 billion) owing to earnings gains across all three of its core business segments.
"Results in the quarter also reflect a new quarterly record for our brick-and-mortar properties, led by a new all-time high third quarter EBITDA performance in our regional segment and continued strength in Las Vegas," said Caesars Entertainment CEO Tom Reeg in a statement accompanying Tuesday's earnings report.
Much of the increase came from Caesars Digital, the division which houses Caesars Sportsbook and online casino and saw its Q3 revenue soar to $212 million, a whopping 121% YoY rise from the $96 million earned in Q3 2021.
The legal sports betting unit correspondingly took a major step towards the break-even point, reporting $63 million in Q3 net losses, a 66.8% YoY improvement over the $190 million net losses in the same period last year.
Caesars Digital's adjusted Q3 EBITDA losses came to $38 million, versus a loss of $164 million a year ago and a sharp improvement over the $69 million in losses reported in Q2 2022. This was the mobile division's best quarterly performance since rebranding their betting sites to Caesars Sportsbook in August 2021.
"Caesars Digital reported strong revenue growth in the quarter and a smaller than expected EBITDA loss driven by improved operating efficiencies," said Reeg.
Caesars' also posted third-quarter earnings of $0.24 per share as compared to a loss of $1.08 per share in Q3 2021. The EPS figure came in well above consensus industry analysts' estimates of $0.15 per share.
"As you look into October, [this] was the strongest month in the history of Las Vegas for Caesars," added Reeg. "We did over $200 million of EBITDA in October, which is up double digits versus last year on a consolidated basis."
One of the principal takeaways from the conference call that followed the release of the Q3 earnings report was the confidence CEO Tom Reeg expressed in Caesars Sportsbook's prospects for the coming. year.
"October Digital inflected to positive EBITDA for us. So, we are extremely pleased that's 12 months ahead of the schedule that we anticipated," said Reeg. "Most of you are aware we've got a fairly high-profile liability out there with the Astros. So that will have -- that will be a swing factor in whether the fourth quarter is positive as a whole, but we'd expect that we have inflected, and Digital will be a contributor as we move forward. So that's extremely exciting news for us."
Parlays boosted hold rates and profits
A key driver of the improved digital results has been the increased share of parlay wagering, which has contributed to increased hold rates.
"We're increasing our uptime and our percentage of in-play hold and in-play volume, which naturally translates into a higher hold product," said Brian Agnew, Caesars Entertainment Senior VP of Finance, Treasury and Investor Relations. "In addition, our percentage of parlays has steadily grown and really improved in the third quarter relative to the second and first quarter... a lot of that is due to some enhancements that we made on the tech side to improve the ability for customers to visualize and to place their parlay bets.
Digital sportsbook's losses have reached an "inflection point"
Reeg also revealed that he believes that the substantial losses recorded by Caesars Sportsbook since its launch are now in the process of reversing and that the digital division is fast approaching profitability.
Caesars adopted an alternative strategy to that of their three rival sportsbooks — FanDuel, DraftKings, and BetMGM — by taking a more conservative approach this year regarding promotional spending in most big states. In the face of a massive debt load and huge losses at Caesars Sportsbook, the company decided that it would be financially prudent to abandon the aggressive loss-leading advertising and promotional inducements needed to gain or protect market share.
As a result, Caesars saw its market share for sports betting in New York, the largest wagering market in the U.S., tumble by 21% as of September compared to February, when it led FanDuel and DraftKings with a 41% handle share and 46% revenue share.
Having previously announced a two-year, billion-dollar plan to launch and expand the adoption of its mobile sports betting app, Caesars wound up canceling more than $250 million in planned promotional spending this year.
During the earnings call, Reeg offered his thanks to shareholders for their "patience" during the company's road to profitability. Caesars has seemingly succeeded in making the painful shift from heavy spending on customer acquisition to turning a profit on its online wagering operations, which most industry experts regard as a necessary evolution in a maturing online gaming sector.
The Caesars CEO also confirmed that the sportsbook division has implemented "significant changes...in the last 60 days" and that, as a result, "cash has flowed immediately to the bottom line with no degradation in market position."
Spin-off and asset sale addressed
Another point brought up during the conference call was the possibility of a spin-off Caesars sportsbook, a notion that was immediately shot down... although the door was left slightly open to the idea.
"I'd say that our competitive advantage here is tying (Caesars Sportsbook) to the existing brick-and-mortar business and our Caesars Rewards database, and it would be my preference that that remains 100% owned by the parent company," said Reeg. "We're constantly focused on how do we drive shareholder value. If you get into a market where that ultimately makes sense, and that's the way to increase the pie for shareholders in total. Certainly, that's something we would consider."
Reeg added that in the recent market environment, there hasn't been much value placed on digital assets, "So it's a very easy decision as we sit here today."
