Caesars to trim $200m sports sponsorship portfolio amid rising marketing costs

Caesars has said it expects to lapse or renew at a lower cost more than $200m worth of existing sponsorship agreements over the next three years as part of a strategy to reduce marketing costs.

The admission was made during the group’s Q3 2022 earnings call, as Caesars reported a whopping 120% year-on-year (YOY) growth in revenue from its digital division, which encompasses both online sportsbook and icasino assets.

Answering questions on how the firm’s digital segment might generate increasing profitability over the next three years, Caesars CEO Tom Reeg cited the “significant opportunity” afforded in growing the group’s igaming business over its more prevalent sportsbook operations.

“We think we now have the right leadership in place to attack [icasino]. So, we think that will grow from what’s a fairly small contributor today into a much more meaningful contributor,” Reeg explained.

Reeg went on to espouse his belief in an industry-wide shift away from expensive marketing deals designed to support state launches to a more cost-efficient marketing footprint in the future for operators.

“There were a number of partnership deals signed up with media partners, with teams, with leagues that all kind of run three to five years or, even in our case, from the middle of last year. So, you’ll have some running off in a year and you’ll have more running off over the next three years,” Reeg explained.

“There were assumptions made in terms of what you were willing to pay for those sponsorship opportunities — those partnership opportunities that were based on customer generation, driving new customers to your platform.

The Caesars CEO continued: “Obviously, we’ve got much more data today than we had before and you’re not going to be, in virtually all of these cases, a launch situation anymore.
“For us, that’s something that runs in north of $200m of annual expense. And you should expect as though – and for now, that’s a fixed expense for us.

“As long as those contracts are in place, you should expect some of them will live in a form that may not be as expensive as it is today,” Reeg added, suggesting there could be EBITDA savings from this renegotiation in both 2024 and 2025.

Expanding on the performance of the Caesars Digital segment, particularly its EBITDA losses which narrowed to just $38m, down from $164m 12 months prior and transitioning to a positive figure during October, Reeg suggested the firm was 12 months ahead of schedule with proposed savings.

“I’d expect to be around breakeven, but I’d expect that we’ve got a really good shot at an EBITDA contributor on a full-year basis in 2023. Obviously, that’s subject to hold but we feel very, very good about where we are,” Reeg explained.

“In terms of promotional environment, we’ve talked for a very long time about how customers as they come in, in new states, are taking advantage of sign-up offers and that’s your highest promotional spending.

“We’ve got, obviously, a mix this year of states, most of which are in their second year – if not second full year – of operation during the football season.

“So, your promos are to your existing customers. That’s typically a much smaller promotional bite than new sign-ups. But I’d also say, we have the ability to segment customers now, which we didn’t last year,” he added.

The better-than-expected performance of the digital segment, in comparison to its land-based counterpart which could only manage a combined 6% in revenue growth (from both Las Vegas and regional casinos) prompted analysts to question whether a potential spinoff was in the works.

Reeg was firm in his rebuttal of such overtures, suggesting the presence of both land-based and online presented a “competitive advantage”, a benefit achieved by the integration of the Caesars Rewards database.

“It would be my preference that digital remains 100% owned by the parent company,” Reeg said.

“If you get to different shareholder bases for the two businesses, there’s a complexity introduced that you can see in some of our peers in terms of when you get to different shareholder bases in the same business,” he added.

However, the Caesars CEO did not rule out a potential future deal, highlighting the firm’s attitude to being “constantly focused” on driving value for its shareholders.

“If you get into a market where that ultimately makes sense, and that’s the way to increase the pie for shareholders in total, certainly, that’s something we would consider,” he said.

“In the recent market environment, there hasn’t been much value placed on digital assets. So, it’s a very easy decision as we sit here today,” Reeg added.