Reeg and Caesars: Insights from Icahn on Digital Business Strategies
Last week, Tom Reeg, CEO of Caesars Entertainment, made waves during a major gaming conference as the company faces pivotal decisions regarding its future direction.
In recent discussions, Caesars has indicated a strong interest in potentially spinning off its digital operations, which hold considerable promise amid the surge in online gaming. Notably, investor Carl Icahn, whose influence has been felt in numerous sectors, reached a critical agreement with Caesars that involves expanding the company’s board to better include diverse perspectives.
“I’m eager to include Carl in our discussions,” Reeg stated during an interview with iGB. “We share a strong working relationship.”
Navigating Long-term Viability in Digital Ventures
Caesars’ recent financial report revealed impressive overall revenue of $11.2 billion for 2024, with approximately $1.2 billion stemming from its digital segment—this part of the business saw a robust 20% growth compared to the previous year.
Furthermore, the adjusted EBITDA from digital operations hit $117 million, vastly surpassing the $38 million recorded in 2023. These promising figures allowed Caesars Digital to affirm its ambitious target of reaching an annual EBITDA of $500 million.
Hints about a possible separation of the digital segment were initially made last December, suggesting that the online gaming platform was outpacing the wider market. The performance of the standalone Caesars Palace online app also showed significant improvements.
Analysts mention that such a divestiture could clarify the digital unit’s market value. However, Truist analyst Barry Jonas cautioned that profitability is essential for attracting investment in this firm.
Reeg had previously indicated during February’s earnings call that keeping all operations unified made the most sense from an operational perspective. Yet, he now believes the opportunity is ripe for evaluating the digital business independently.
Caesars: A Case Study in Strategic Growth
Before making any final decisions, Reeg emphasized the need to demonstrate that the digital enterprise can scale effectively.
The challenge lies in ensuring that the successes of the online segment are reflected in the company’s stock price. Reeg noted that if this alignment is absent, Caesars possesses various strategies to unlock hidden value.
Currently, analysts target Caesars Digital revenues to reach approximately $352 million. If Caesars surpasses these expectations and operates at an EBITDA multiple of 12.5x, it could lead to a standalone valuation of roughly $4.4 billion for the digital division—a comparison that highlights how traditional rivals often thrive at multiples between 15x and 25x.
Icahn’s Influence and Shared Vision
Carl Icahn’s history with Caesars goes back seven years and began with a significant acquisition of shares that eventually climbed to 25%. After influencing the board with his insights and prompting a major sale to Eldorado Resorts in 2020, Icahn recently re-engaged with the company, increasing his stake in the "new Caesars."
Following the appointment of two Icahn-linked directors to the board, Reeg shared a unified vision: “Carl and I see the same potential in this undervalued asset, particularly in the digital space.”
Icahn has praised Caesars’ leadership for debt reduction efforts, but the company still carries a significant debt load, totaling $12.3 billion as of the end of December 2024. This financial pressure underlines the importance of rapidly advancing the digital segment.
Upcoming Earnings and Future Outlook
As interest around Caesars builds, it faces challenges alongside broader economic uncertainties, reflected by a nearly 20% drop in stock value year-to-date. Investors are now poised for additional insights into the company’s digital strategy during its upcoming quarterly earnings call on April 29.
Analysts predict a loss of $0.18 per share for the first quarter—a notable improvement compared to the previous year—and revenues of approximately $2.79 billion, signaling a modest growth trajectory.
Reeg has refrained from setting a firm timeline regarding decisions on a possible spin-off but remains optimistic about the digital division’s potential.
“Our objectives are clear, and we’re focused on achieving them,” Reeg concluded during his conversation with iGB.