Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Will Casinos Die at Caesars Entertainment?

The conventional wisdom is that coronavirus will kill or devastate the casino industry. In July, Caesars Entertainment (NASDAQ: CZR) proved that thesis with a desperate merger with Eldorado Resorts.

Eldorado Resorts bought Caesars Entertainment Corp (NASDA: CZR) for $17.3 billion on 20 July 2020. Marketwatch claims the resulting company, which they will call Caesars Entertainment, will be the world’s largest casino operator.

The new Caesars could operate over 55 casinos in 16 US states, Marketwatch claims. In addition, the new Caesars will operate in Egypt, the United Kingdom, Canada, Dubai, and Macau.

Caesars is the World’s Largest Casino Operator

However, Caesars will sell casinos in Kansas City, Missouri, South Lake Tahoe, California, and Shreveport Louisiana, Marketwatch predicts. Additionally, Caesars could sell casinos in Evansville, Indiana, Elizabeth, Indiana, and Hammond, Indiana. Caesars will also sell Bally’s Atlantic City.

Consequently, Caesars will operate some of America’s best known casinos. Caesars casinos in Las Vegas will include; Caesars Palace, the Flamingo, the Rio off the Strip, Paris Las Vegas, Planet Hollywood, Harrah’s Las Vegas, the Linq Hotel, Harrah’s Las Vegas, Bally’s, and Cromwell.

Moreover, Caesars will operate three casinos in Atlantic City; the Tropicana, Ceasars, and Harrah’s. Eldorado Resorts owned 26 casinos in 12 states before Caesars acquisition.

What Value Does Caesars have?

Mr. Market paid $41.32 for Caesars Entertainment (CZR) shares on 14 August 2020. Unfortunately, all El Dorado and investors are buying could be empty hotels and slot machines that gather dust.

I think Caesars sold out because coronavirus killed its business. For example, Caesars Entertainment reported a -$123.18 million quarterly operating loss on 31 March 2020. That operating loss grew to -$78.33 on 30 June 2020.

Moreover, Stockrow estimates Caesars’ revenue shrank by 80.15% in the quarter ending on 30 June 2020. Consequently, Caesars reported a quarterly common net loss of -$100 million on 30 June 2020.

Tellingly Stockrow records no Caesars’ cash flow for the last quarter. However, Caesars reported a quarterly operating cash flow of $681.75 million on 31 March 2020. Plus, Caesars Entertainment had $710.75 million in cash and short-term investments on 31 March 2020.

The above numbers reflect Caesars’ finances before the merger. However, I think such numbers show Caesars was collapsing or facing bankruptcy before the merger.

Caesars has no Value

Brick and mortar casinos were in big trouble before coronavirus. Caesars, for instance, declared bankruptcy in 2017.

Now one of the greatest brands in the industry has narrowly avoided collapse. I predict the new Caesars will struggle for survival.

In addition, I predict Caesars will have to close or sell many casinos to survive because the pandemic could last through 2021. Most experts believe no COVID-19 vaccine will be available until mid-2021, Bloomberg claims.  

Thus, we could face another year of social distancing, masks, and people afraid to travel or gamble in public. I predict casino gambling will be a hard sell under those conditions.

Investors need to Avoid Casinos

Given that reality, I advise investors to avoid all casino stocks including Caesars (NASDAQ: CZR) and MGM Resorts International (NYSE: MGM).

I do not see how casinos can make money until we bring coronavirus under control. Investors need to stay out of the casino industry until we know that COVID-19 is under control.

My prediction is that more casino operators will collapse over the next year as coronavirus destroys the remains of their business. Expect to see some historic casinos close as this industry struggles for survival.

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