Caesars-William Hill merger provides a windfall payment for another casino company By Howard Stutz, Executive Editor, CDC Gaming Reports November 10, 2020 at 7:30 pm Caesars Entertainment is spending $3.7 billion to acquire sports betting giant William Hill, but another casino operator stands to make up to $75 million on the deal. Las Vegas-based Golden Entertainment is entitled to compensation from William Hill, according to a securities filing in the United Kingdom associated with the merger. The potential payment was confirmed by Golden during the company’s quarterly conference call last week. The payment is due because William Hill’s subsidiary, William Hill U.S., operates Golden’s race and sports betting facilities in Nevada, which includes the STRAT Hotel & Casino in Las Vegas. In an Oct. 26 research note, Deutsche Bank gaming analyst Carlo Santarelli revealed the existence of the “Golden Contingent Payment Agreement,” which is contained in the “Scheme Document” related to the William Hill-Caesars transaction. “While we would not underwrite the entirety of the $75 million, we believe a healthy portion is reasonable,” Santarelli wrote. “We believe the impact to (Golden’s) shares … could be material and positive. As such, we believe the disclosure is worth flagging.” The document – similar to a financial transaction prospectus – is only available to William Hill stockholders. The company did not respond to a request for the document that was sent to William Hill’s corporate communications office in London. William Hill shareholders are scheduled to vote on the merger with Caesars on Nov. 19. Santarelli, who declined comment beyond his research note, wrote Golden was entitled to compensation through an “exit event,” defined as either an “initial public offering or a change of control.” Santarelli asked Golden President Charles Protell about the potential settlement during the conference call’s question and answer session. The William Hill US sportsbook at the STRAT on opening day in 2019/Photo via Marc Meltzer on Twitter @meltzvegas “It’s certainly our expectation that when that transaction closes, we would receive all of that payment,” Protell said. “But obviously, the deal has to close first. So beyond that, we wouldn’t want to make any comment. We’re obviously hopeful that it closes and look forward to that sometime next year.” In his Oct. 26 note, Santarelli said that “a payment of this magnitude” could allow Golden to reduce a portion of the company’s debt – $1.2 billion as of Sept. 30 – which would boost the value of the company’s stock. Roth Capital Partners gaming analyst David Bain cited the payment as one reason why he boosted his target for Golden to $26 per share. The company’s stock closed at $15.89 on the Nasdaq Tuesday. William Hill US CEO Joe Asher declined to comment, citing next week’s shareholder vote. Golden and William Hill have a long relationship in Nevada that predates the Supreme Court’s May 2018 ruling that opened the rest of the U.S. to legal sports betting. William Hill placed kiosks inside Golden’s tavern operations throughout the state where customers could fund their mobile sports wagering accounts. After Golden acquired the Stratosphere (since renamed STRAT), two Las Vegas locals properties, and Aquarius in Laughlin in 2018, Golden became the company’s sports betting provider in Nevada. Protell hinted the relationship would continue. Golden plans to add sports betting to the Rocky Gap Casino in Western Maryland next year after voters overwhelming approved the activity last week. Protell also foresees William Hill as the company’s partner in Montana, should the state’s current sports betting regulations be expanded. “We do have a partnership with William Hill throughout Nevada and the intent (is) to have that same relationship in Maryland and, hopefully, Montana, at some point in the future,” Protell said. “These are specific relationships around sports wagering.” Prior to the merger announcement, Caesars owned 20% of William Hill US, which operates 12 branded sportsbooks at Caesars’ properties in Nevada, Iowa, and New Jersey. William Hill is rebranding Caesars’ sportsbooks and will launch the Caesars Sports Book by William Hill mobile app in Indiana, Pennsylvania, New Jersey, and Nevada. William Hill US has more than 170 retail locations across 13 states and a 29% market share of the U.S. sports betting market. In addition to the Caesars properties, William Hill’s Strip presence includes Circus Circus and Sahara. Through its acquisition in August of rival CG Technologies William Hill took over sports betting at the Venetian, Palazzo, Tropicana, and Cosmopolitan. Caesars CEO Tom Reeg said last week the company will use the Caesars-William Hill brand with its owned and operated properties. “And for third-party properties, you should expect that the William Hill brand will live on in the U.S.,” Reeg said. Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.