Caesars Entertainment expects fourth-quarter adjusted EBITDA to come in at a range of between $947 million to $967 million, a spectacular 63%-66% year-over-year increase over the $581 million posted in the same period in 2021.
Even more impressively, the Caesars Digital division — which houses its legal sports betting operations — had cut its AEBITDA losses to a mere $4 million to $6 million, considerably less than the $25 million in losses the industry analysts forecasted for the quarter.
This marks a spectacular reversal of fortune for Caesars, which posted a $305 million loss in the same period in 2021 and a marked improvement over its Q3 2022 shortfall of $38 million — and means profitability for the sportsbook may be coming very soon.
The Las Vegas-based gaming giant also anticipates revenue of $2.81 billion to $2.83 billion for the final quarter of 2022, beating street estimates of $2.78 billion, and exceeding the $2.59 billion recorded in Q4 of 2021.
These were the biggest highlights of the preliminary earnings snapshot released by Caesars on Monday as part of its 8-K filing with the Securities and Exchange Commission (SEC).
Caesars Digital division reaches magical inflection point
Paired with minor losses, YoY digital revenue in Q4 is also expected to more than double to between $236m and $238m as compared to the $116 million posted in the fourth quarter of 2021.
The encouraging results effectively demonstrate that Caesars' online sports betting arm has now attained the magical inflection point that will likely see Caesars Sportsbook turn profitable in the first quarter of 2023.
For over a year now, the road to profitability for the major online sports betting sites is equivalent to the search for the Holy Grail.
Aside from beating consensus analysts' estimates, arguably the biggest takeaway from Caesars' Monday earnings forecast was that its sportsbook division was on the brink of becoming profitable, the single most important benchmark for assessing gaming industry performance.
Following the Monday announcement, shares of Caesars Entertainment (CZR) rose above $52 per share on Tuesday, more than $3 higher from Monday's opening price of $49. However, its stock subsequently closed at $51.09 on Wednesday before dropping to just above the $50 level in after-hours trading.
Nevertheless, the initial two-day surge in Caesars' share prices was confirmation that Wall Street investors were collectively impressed with the company's anticipated fourth-quarter figures.
Faith in the promise of digital division fulfilled
The robust fourth-quarter earnings projections fulfill the faith of Caesars Entertainment CEO Tom Reeg in the long-awaited turnaround in his company's loss-leading sportsbook unit.
During the company's Q3 earnings call in November, Reeg revealed that Caesars Sportsbook had recorded its first profitable month ever.
"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 during his somewhat prophetic Q3 earnings call remarks in November.
Caesars was the first of the major U.S. sportsbooks to shift strategic gears at the beginning of 2022.
Seeking to reduce the company's debt load and limit the massive losses generated by its digital arm, Caesars Sportsbook drastically scaled back on the aggressive, loss-leading advertising and promotional inducements that the operator and other market leaders used to gain or protect market share.
The legendary Vegas outfit had guessed correctly that the time was ripe to focus on the bottom line rather than market share growth, responding to shifting Wall Street expectations concerning the regulated U.S. betting industry.
When full-year 2022 figures for the U.S. regulated sports betting industry are released next month, it is expected that Caesars Sportsbook — as it did in 2021 — will once again rank as the fourth largest U.S. operator by market share, trailing FanDuel, DraftKings, and BetMGM.
Meanwhile, Caesars Sportsbook is currently the third leading operator in the state of New York, the largest market in the country, having initially led the field at the beginning of 2022 by offering record promotional offers to customers.
Mattress Mack's win proved a bust for Caesars' Q4 results
Remarkably, Caesars Digital would in fact have registered a profit in Q4 had the sportsbook not met with the misfortune of having to hand over a whopping $30 million cheque to Jim "Mattress Mack" McIngvale in November.
That marked the largest-ever payout on a single legal sports bet in U.S. history, the result of Mack placing a $3 million bet at 10/1 odds for his hometown Houston Astros to win the 2022 World Series, which they did.
Interestingly, Caesars CEO Reeg had alerted investors in early November that Mack's bet might well tip the sportsbook's quarterly earnings into minus territory.
Now, Caesars Digital is poised not only to register its first profitable quarter in Q1 2023, but most analysts believe that it will also be profitable for the year as a whole, especially in light of down-trending U.S. inflation rates and other positive signs that the U.S. economy this year might not dip into recession after all.
Path to sportsbook profitability
Should Caesars Sportsbook turn a profit in the first quarter of 2023, it would become the second U.S. operator to record a full quarter of profitability. Previously, in September, FanDuel became the first sportsbook to post a profitable full quarter in Q3 of 2022 and expects to report a profit in Q4 and for 2023 as a whole.
FanDuel is owned by the Irish global gaming operator Flutter, however, which means that Caesars would have the distinction of being the first U.S.-owned sportsbook to achieve the profitability milestone.
But Caesars might yet be beaten to the finish line by PENN's Barstool Sportsbook which reported a profit for the month of October and has yet to release its Q4 results which could see PENN become the first U.S.-owned operator to turn the corner.
