Caesars and Eldorado need the approval of Indiana to maximize the value of their proposed merger. At least one regulatory body, the Indiana Horse Racing Commission (IHRC), apparently has little love for Eldorado’s potential acquisition of Caesars.
A report produced by IHRC staff doesn’t recommend the commission granting a transfer for Caesars’ licenses to Eldorado. The findings also suggest restrictions that the commission should place upon Eldorado if it does grant the transfers.
Why the IHRC commissioned a study into Eldorado
When Caesars acquired its Indiana racetracks from Centaur Holdings in November 2017, it didn’t have much trouble arranging a transfer of Centaur’s licenses from the IHRC. As a matter of fact, the recent IHRC report speaks favorably of Caesars’ operation of horse races.
“Another thing to consider is the level of satisfaction of the stakeholders with the state of the industry. When evaluating Indiana by this measure, the situation has not changed too much since the May 2018 report. With only one year under the new operators, Caesars, overall the environment has been good from a racing perspective. There have been a few changes noticed, but it doesn’t appear to have created any serious problems.”
Overall, the report speaks glowingly about the current status of horse racing in the Hoosier State. Last year, Eldorado announced it had reached a tentative agreement to purchase Caesars lock, stock, and barrel.
Just this week, the Federal Trade Commission conditionally approved the acquisition. Eldorado has to sell two of its properties prior to executing the deal, and another current Caesars property after the sale closes. None of those properties are within the borders of Indiana.
Part of the transfer will be Eldorado taking over operations of the current Caesars-managed racetracks in Indiana. That’s why the commission paid for a study into Eldorado, to protect what it sees as a very good thing it has going with current Indiana racetracks.
The report minced no words on Eldorado’s suitability
One sentence in the report’s conclusion makes the staff’s opinion of the prospect of Eldorado taking over Caesars’ licenses very clear.
“In short, it is impossible for Commission Staff to offer its enthusiastic or unqualified recommendation for the approval of ERI’s permit application.”
The summary pointed to what it has interpreted as disinterest in horse racing and aversion to spending capital to improve the properties Eldorado currently owns. The report referenced dilapidated grandstands at current Eldorado tracks, for example, and speculated whether economic downturns would only exacerbate Eldorado’s decisions to prioritize other gambling verticals.
The report does mention a March letter from Eldorado that sought to reassure the IHRC. The findings go on to effectively state, however, that Eldorado’s actions speak louder than its words.
This represents a significant problem for Caesars and Eldorado, as it could pose a roadblock to the acquisition.
Caesars’ dire straits and Eldorado’s salvation
Essentially, Eldorado is stepping in to to save the various brands and properties owned by Caesars. Things haven’t necessarily been going too well for Eldorado lately, however.
Both companies reportedly lost a collective billion dollars due to coronavirus-related property closures. The hope for both companies was that the “merger” would act as a rising tide that lifts all ships.
Such deals are common in business. The enhanced size of a new company allows for greater access to working capital. That, in turn, often leads to more profitable operations.
If the IHRC declines a transfer of Caesars’ licenses, that doesn’t necessarily mean the sale is off. Eldorado could sidestep that issue by selling Caesars’ Indiana racetracks. That’s an option Eldorado may actually be looking at already.
Looking at the possibility of asset sales in Indiana. He also said a Las Vegas divestiture is possible in the first four to 24 months. Calls the company's Las Vegas portfolio "a little heavy," but he loves all the properties they'll soon own and will have a tough time losing one.
— Rick Velotta (@RickVelotta) July 8, 2020
That may not be inevitable, however. The commission’s report did suggest a framework for conditionally allowing Eldorado to take over Caesars’ racing licenses.
The hoops Eldorado may have to jump through
The report listed 22 specific conditions that it recommended the IHRC attach to the approval of the license transfers, should it decide to grant them. As that number suggests, they are exhaustive.
They include enhanced calls for Eldorado to cooperate with other organizations like the Horsemen’s Association. The conditions also call upon Eldorado to present an annual racing operations plan.
Right now, the prospect of Eldorado seamlessly incorporating Caesars’ Indiana horse racing venues into its operations looks grim. If the IHRC does decide in Eldorado’s favor, the company will undoubtedly face additional scrutiny.