Land-Based From the Top: What's going on at Caesars? April 29, 2019 | By Tim Poole With Carl Icahn and Tilman Fertitta investing in the casino behemoth, Tim Poole examines the constant headlines regarding Caesars Entertainment over the past few months Caesars: The key players Carl Icahn – Firmly placed within the globe’s top 100 billionaires, Icahn’s estimated net worth extends to $17.7bn. The activist investor had a history of success on Wall Street, before lifting Tropicana Entertainment out of bankruptcy and eventually selling it for $1.85bn in April 2018. Icahn spent the first months of Donald Trump’s presidency as an advisor to the White House, but left following questions about a potential conflict of interest. Icahn’s investment portfolio extends to a number of different industries, having acquired shares in an array of firms, including Lyft, Ebay, PayPal and Hertz – one of Mark Frissora’s former companies. Tilman Fertitta – The 61-year-old has a reported net worth of $4.8bn. He owns the NBA’s Houston Rockets, restaurant and entertainment firm Landry’s and Golden Nugget Casinos. In October, Fertitta proposed a reverse merger with Caesars, where the operator would be the majority party in a joint venture with Golden Nugget. Caesars however, rejected the deal and was concerned its $9bn debt would dwarf Fertitta’s net worth. While Icahn now owns close to 10% of the casino chain, Fertitta purchased four million shares – a less-than-1%- stake – at around the same time; he remains interested in some form of M & A with the operator moving forward. Anthony Rodio – A trusted Icahn deputy, Rodio was CEO of Tropicana Entertainment between 2012 and 2018 (joining the firm in 2011) and helped the billionaire investor transform the company, increasing net revenue by more than 50%. Boasting over 37 years of casino-industry experience, Rodio began his gaming career in 1980, working for Harrah’s Entertainment, Trump Marina Hotel Casino, Atlantic City Hilton Casino Resort and Penn Gaming along the way. The executive has a proven track record in this sector, but his involvement with Caesars thus far is limited to merely being considered as one of many candidates for the CEO role. Mark Frissora – The outgoing Caesars President & CEO’s departure was announced last November, after just over three years with the company – and scheduled for February 2019. Several months on though, the veteran executive maintains his role, with the operator struggling to find a replacement – or perhaps delaying one until Caesars’ future is any clearer. Frissora’s pre-Caesars experience since 2000 lies outside gaming, having led Tenneco, a supplier of automotive emission and ride control products, as Chairman and CEO until 2006. Frissora then spent eight years in the same role at car rental company Hertz. You don’t need to use generally accepted accounting principles to be fascinated by what’s going at Caesars Entertainment right now. The casino giant is in a state of limbo and is proving to be an intriguing case study within the gaming industry. Currently, the executive that would appear to be in pole position is Carl Icahn, the world’s 63rd-richest person, according to Forbes, and proud owner of a 9.8% stake in Caesars, as of February 2018. Tilman Fertitta, who now controls a stake worth less than 1% of the operator’s market cap, might just be the second in line, keeping all others at bay but refusing to tussle with the leader of the pack. Operationally speaking, Caesars keeps advancing at pace. Its 2018 net revenue rose, albeit by a marginal 3%, to $8.39bn, while a profitable Q4 saw expectations defied. Caesars’ multi-state agreement with DraftKings meanwhile, is as forward-looking a deal as we’ve seen in the US market. The fact it has negotiated to receive equity in the daily fantasy sports and sports betting giant, considering CEO Jason Robins spoke of the importance of DraftKings’ independence in the February edition of Gaming America, proves the firm is still a smooth operator. Uncertainty about who sits in the boardroom extends to uncertainty about the company’s future in general To an extent, this relates to Icahn’s plans for M & A activity, as he re-emphasised his belief that selling or merging the operator would be its best strategy when his seat on the board was confirmed. Icahn confirmed his stake in Caesars on 19 February and immediately set his stall out, requesting board representation and a hand in appointing the operator’s new CEO. Caesars responded amicably, no doubt aware of the benefits a man worth an estimated $17.7bn can bring to the table. This is an activist investor, we must add, who has already turned around a previously bankrupt casino chain in Tropicana Entertainment. But this is where Caesars’ unique situation comes further to the fore: its search for its next CEO. We all know investment, financing and accounting can be done creatively; the biggest firms in the world can put a positive spin on a net loss in more ways than one. Usually however, a company will limit its creativity when it comes to the captain steering its ship, i.e. its CEO. Except appointing a new commander hasn’t been anywhere near a straightforward process for Caesars, with Mark Frissora having announced his departure as the operator’s President and CEO last November. By February, Frissora was supposed to have left his role. His exit point has now been extended to April and there is no clear sign of who will eventually replace him. One of the standout breadcrumbs in the trail so far has been Icahn’s wish for current Affinity Gaming CEO Anthony Rodio to succeed Frissora; the investor is additionally adamant the outgoing exec must not be awarded a further extension to his time in charge beyond April. Rodio was instrumental during Icahn’s turnaround of Tropicana, where the role of CEO was also his. The Caesars board is willing to consider the Affinity Gaming man as a candidate – but he has only been in his latest role since October. Uncertainty about who sits in the boardroom extends to uncertainty about the company’s future in general. Icahn has urged the Caesars board to orchestrate a company sale and there appears to have been no lack of effort on the operator’s part in this department. MGM Resorts International, Eldorado Resorts and Fertitta’s Golden Nugget have all been suggested as potential suitors at some point. Agreeable terms however, are yet to be met. Caesars' share price is fixed within the spectrum of $8 and $9 at the time of writing, but it’s in a state of constant flux, with minor swings either way highly frequent amid the turmoil. Unlike its 2018 revenue performance, the most recent trend in this area is certainly not an upward one. Since the bankruptcy of its main operating unit in 2015, Caesars’ balance sheet has not transformed into any easier a read for prospective investors. In fact, if there’s one thing that isn’t uncertain, it’s that the casino behemoth is riddled with debt. So, while the present strategy at Caesars is far from conventional, the future is far from clear. Does the operator bow to Icahn’s wishes? Does the billionaire have designs to take genuine control within the company’s structure? How involved will Fertitta be in its development? We shall see, but if the current trend continues, plenty of noise should be emanating from Caesars in the coming months.