Eldorado Resorts continues to evolve at a rapid pace, maybe more revolutionary than evolutionary.
The latest event in Eldorado’s transformation was closing on the agreement with British bookmaker William Hill in which Eldorado now owns 20 percent of William Hill US and 13.4 million shares of London-listed parent William Hill plc.
Under the agreement, William Hill will place its sportsbooks in all current and future Eldorado casinos. The agreement also makes Eldorado international, with William Hill US having operations in St. Kitts and the Bahamas, and Eldorado’s stake in William Hill plc giving it financial interests in the United Kingdom and in online gaming.
The agreement follows another with the Stars Group, the international online gaming, poker and sports betting company, that will operate skins in Eldorado’s markets in exchange for a revenue share, $25 million in stock, another possible $5 million of stock, and perhaps more equity later.
At present, the dollar figures are relatively small. In 2017, the operating profit for William Hill US was $28.5 million, making Eldorado’s share $5.7 million. The 1.6 percent stake in parent William Hill represents about $32 million in stock value as of this writing. That compares to Eldorado’s market cap around $3.5 billion.
Likewise, Eldorado’s $25 million stake in The Stars Group is just a sliver of that company’s $4.8 billion market cap.
Business agreements, of course, are made for what will happen, not what has happened. And the potential from this agreement for Eldorado appears significant.
Certainly, sports betting in the U.S. is in its infancy and operating profits and equity value at William Hill US should grow by multiple amounts. Likewise, stock of William Hill plc, though taking it on the chin with lower betting limits on machines in UK betting shops, can be several times today’s value. It was more than double less than a year ago.
The agreements strike us as wise. Eldorado now does more than participate in the growth of sports betting, and likely online gaming. They give the company recurring revenue and the prospect of asset appreciation as the Stars Group and William Hill expand in these growth markets. And they provide business and further geographic diversification.
Just over four years ago, Eldorado was a small private company owning namesake Eldorado Casino in downtown Reno, half of adjacent Silver Legacy and a riverboat casino in Shreveport, Louisiana.
Then came the acquisitions: MTR Gaming, through which Eldorado became a public company, adjacent 1.5 casinos in Reno from MGM, Isle of Capri, Tropicana Entertainment, Grand Victoria.
Today, Eldorado operates 27 casinos in 13 states and serves such major markets as Chicago, Dallas, Houston, St. Louis and Philadelphia.
The mode of operation has been to grow profits by reducing expenses and increasing efficiencies, in part by adjusting marketing to focus on profitable players. That emphasis has meant EBITDA growth to keep debt levels manageable.
This transformation is a testament to Chairman Gary Carano who has broken out of the comfort zone of a small family company to become a national corporation and now, with the latest moves, dipping the corporate toe internationally and online.
Sometimes, the best decisions aren’t financial ones. When Carano hired Tom Reeg as CFO he brought in an architect of transformation. In September, Carano stepped up to executive chairman and placed Reeg in the CEO seat.
It was a natural move. Like the willingness to grow Eldorado into a national powerhouse of regional gaming, Carano and Reeg appear to be taking the next steps in the company’s revolutionary transformation.
