It was a time of huge change in Sin City and Caesars Entertainment made one great move (by accident) and did something it may pay for going forward.
Las Vegas entered 2022 with a whimper. After a year that had been ruined due to covid, it seemed like the turning of the calendar would mark a new beginning for the Las Vegas Strip.
The Consumer Electronics Show (CES), one of Las Vegas’s largest conventions, which had been canceled the previous year, would make a full return in all its glory. That, as you might know, did not happen due to the omicron variant putting pressure on companies to back out.
Many of the biggest names canceled their in-person participation turning an event that was supposed to be a return to glory, into a sad muted affair. CES, however, was not a sign of things to come. By March Madness time, Caesars Entertainment (CZR) – Get Free Report and MGM Resorts International (MGM) – Get Free Report reported near-record crowds as did the other big players on the Strip.
That was followed by Caesars hosting the NFL Draft, a massive event that even closed part of the Strip, and a full-on return to normal in the second half of the year. It was a very strong year for Caesars, but two major events stand out when you look back at the company’s 2022.
One seems like a small thing, but it actually isn’t. The other may turn out to be a huge blessing in disguise for the company.
Caesars Will Regret This Las Vegas Strip Move
Loyalty programs drive repeat business in Las Vegas. Caesars has/had one of the best with its Caesars Rewards program, but the company got rid of a key benefit for Diamond and higher-level members without much fanfare. The problem is that the perk that was removed was the main differentiator between Caesars’ loyalty program and MGM’s.
Before the pandemic hit, Caesars offered a Laurel Lounge for top-tier loyalty members in most of its Strip casinos. The lounge offered a small buffet and free drinks as well as a somewhat quiet space near the casino floor. It was open to Diamond-level members or higher.
These are relatively high-level gamblers, and while Diamond-Plus-level members (and higher) now get four drink vouchers in place of the now-closed, likely-to-never-open lounges, Diamond members simply lost the perk–a perk which did a lot to make low-level high rollers feel special.
Closing the Las Vegas Strip Laurel Lounge locations (some Caesars regional properties still have them) removed a major incentive for Caesars gamblers to stay loyal to the brand. That could open the door for MGM, which has worked to improve its MGM Rewards program, to steal some of those customers.
Caesars Almost Made a Big Mistake
For most of 2022, Caesars talked during its earnings calls about selling one of its Las Vegas Strip assets. The move was supposed to both create some cash to pay down some of the $15.5 billion in debt it took on when it merged with Eldorado Resorts in 2020 while also letting the company raise the value of its Strip rooms by having fewer of them.
For much of the year, there was speculation as to which property would be sold with Planet Hollywood, Paris Las Vegas, and Flamingo all popping up in rumors. Ultimately it turned out that Flamingo was the property with the for-sale sign, but a deal was not closed.
CEO Tom Reeg explained why the deal failed during his company’s second-quarter earnings call.
“I’d also like to touch on the strip asset sale and say that we intend to keep all of our strip assets as we move forward,” he said. “We ran into a market where the cash flow of the asset continued to increase the ability of buyers to raise financing, making it a very easy decision for us to keep. I know that despite us talking about how this is and was a discretionary process for us, it created an unnecessary overhang in the stock. And I apologize to all of our shareholders for that.”
The economy saved Caesars from selling a property that, while it does need major investment, would be impossible to replace going forward. Trying to sell was a short-term move that made no long-term sense as the value of Strip assets has steadily risen and selling would have been Caesars shedding an asset that would enhance a rival or create a new one.
By not selling, really by not being able to sell, Reeg has dodged a bullet by not making a move that very quickly would have looked foolish.