The prospect of Caesars Entertainment terminating its American sports betting joint venture with William Hill’s U.S. subsidiary helped sink any chance of the United Kingdom-based company being acquired by a private equity firm.
That’s one reason, analysts said, William Hill agreed Wednesday to a $3.7 billion buyout by Caesars that expands the casino giant’s sports betting footprint in the U.S.
Macquarie Securities gaming analyst Chad Beynon said the deal could add almost $2.5 billion in equity value to Caesars, which currently operates 54 gaming properties in 16 U.S. states.
Through a previous deal, Caesars owns 20% of William Hill US, which operates 12 branded sportsbooks at Caesars’ properties in Nevada, Iowa, and New Jersey. William Hill will rebrand additional Caesars sports betting facilities and launch the Caesars Sports Book by William Hill mobile app in Indiana, Pennsylvania, New Jersey, and Nevada.
Las Vegas-based William Hill US has more than 170 retail locations across 13 states and has a 29% market share of the U.S sports betting business. Most of William Hill’s sportsbooks are not associated with Caesars. The company employs more than 400 people. Joe Asher is the CEO of William Hill US.
“Bottom line, we think owning the entire U.S. William Hill-Caesars business would increase Caesars’ value from $4 billion to $6.5 billion,” Beynon told investors Thursday.
Roth Capital Partners gaming analyst David Bain had a similar reaction, nearly doubling his current target price for Caesars.
“We anticipate near-term price target increases due to the Caesars-William Hill deal and believe stock momentum could be further fueled by continuing third quarter 2020 upward consensus revisions,” Bain wrote.
Caesars Palace sportsbook, now managed by William Hill/Courtesy photo via Caesars Entertainment
Shares of Caesars, traded on the Nasdaq, closed at $56.06, up $1.57, or 2.88%.
Jefferies gaming analyst James Wheatcroft, who is based in London, thought William Hill was worth more than the agreed-upon price.
“Caesars Entertainment is well-placed to realize the full upside,” he wrote.
Legal sports betting is currently taking place in 18 states and Washington D.C. Tennessee is expected to launch the activity online on Nov. 1, and three other states could go live early next year. Three states – including Maryland and Louisiana, where Caesars operates casinos – have sports betting referendums on their Nov. 3 ballots.
Caesars would be the operator of a casino in Danville, Virginia if a ballot measure is approved by the city’s voters. Virginia is one of the states that has legalized sports betting but is still waiting to launch.
The deal
Caesars expects to raise $1.7 billion through a stock sale and an additional $2 billion in new debt to fund the transaction, which William Hill executives said they would take to the company’s board for approval. The transaction is subject to state gaming regulatory approvals and sign-off by the Federal Trade Commission. The deal is not expected to close until the second half of next year.
William Hill had been entertaining an offer from private equity giant Apollo Global Management, but Caesars could have ended its venture with William Hill US if Apollo had acquired the parent company.
Caesars said the debt would be secured by William Hill’s non-U.S. businesses, which the company will look to sell. William Hill has closed more than 700 storefront betting locations in Britain after regulations were imposed that limited the maximum stake on gaming machines. The company’s rivals in Europe are GVC Holdings and Flutter Entertainment.
Tom Reeg, Caesars CEO
In a statement, Caesars CEO Tom Reeg said the company’s goal was to combine its land-based-casinos, sports betting, and online gaming in the U.S.
“William Hill’s sports betting expertise will complement Caesars’ current offering, enabling the combined group to serve our customers in the fast-growing U.S. sports betting and online market,” Reeg said in a statement. “We look forward to working with William Hill to support future growth in the U.S.”
Stifel Financial gaming analyst Steven Wieczynski complemented Reeg and the Caesars’ team on the deal.
“We believe the potential William Hill acquisition is another example of how this management team thinks outside the box and creates long-term shareholder value with very little associated risk,” Wieczynski said in a research note published a few hours before the agreement was announced.
He highlighted Caesars’ database of 60 million customers across the country, indicating that it could be used to cross-sell products across retail and mobile platforms.
Also, both Caesars and Williams Hill US have media partnerships with ESPN. Caesars Sportsbook by William Hill is the exclusive odds provider and co-exclusive sportsbook link-out provider to ESPN. William Hill also has a relationship with CBS Sports, and Caesars has a marketing partnership with the National Football League.
“(The) partnerships should also support (Caesars) marketing efforts and allow them to not have to ‘buy business,’” Wieczynski said.
William Hill US growth
Through the company’s purchase of Las Vegas-based CG Technologies in August, William Hill acquired the contracts to manage sports betting operations at the Venetian Las Vegas, the Palazzo, Tropicana Las Vegas, Cosmopolitan of Las Vegas, Palms, and Silverton. All are located on or near the Strip. William Hill also manages the sports betting operations for five downtown Las Vegas resorts: The Strat, the Downtown Grand, Binion’s, the Plaza, and Four Queens.
The company operates retail sportsbooks in Michigan, New Jersey, Indiana, West Virginia, Illinois, Colorado, and Iowa, and is online in Iowa. It is also a licensed sports betting provider in numerous casinos in Mississippi and New Mexico and serves as the exclusive risk manager for the Delaware and Rhode Island sports lotteries.
In Atlantic City, William Hill sportsbooks operate at the Ocean Casino Resort and the Caesars-owned Tropicana, Bally’s, and Harrah’s. It also runs the sports betting operation at the Monmouth Park racetrack in Oceanport near the Jersey shore.
In August, William Hill opened a sportsbook – the first of its kind in the U.S. – at the Capitol One Arena in Washington D.C. that features wagering kiosks.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
