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Caesars’s Loss Narrows as Revenue Comes Up Short

Caesars Entertainment Corp. (CZR) posted a narrower loss in the second quarter, while revenue slipped 0.3 percent as the casino operator drew fewer gamblers.

Net loss shrank to $212.2 million from $241.7 million a year earlier, when the Las Vegas-based company wrote down the value of its land in Macau, China. The largest casino owner in the U.S. ended the June period with $23.7 billion in debt outstanding.

Caesars Entertainment is seeing fewer visits to its casinos and less willingness to gamble, particularly among younger guests, Chairman and Chief Executive Officer Gary Loveman said on a conference call with analysts yesterday. The company is spending $1 billion upgrading hotels and adding attractions such as a giant Ferris wheel in Las Vegas to appeal to non-gamblers.

Sales fell to $2.16 billion, compared with the $2.19 billion average of analysts’ projections. The sales reflect weakness in consumer spending on gambling that may continue, said John Kempf, an analyst at RBC Capital Markets in New York.

“We’ve seen this from all the operators and July doesn’t seem like it’s turning,” said Kempf, who has an underperform rating, the equivalent of sell, on the stock.

Caesars Entertainment, which was acquired in a leveraged buyout by Apollo Global Management LLC (AP) and TPG Capital LLP in 2008 and went public last year, said on July 10 that it plans to offer about $1.18 billion in stock in a new unit for its emerging online gambling business. The company is using the stock sale to finance investments and shore up its balance sheet as competition intensifies in casino properties.

Credit-Default Swaps

Credit-default swaps tied to the company’s debt, which typically climb as investor confidence deteriorates, increased 0.5 percentage point to 53 percent upfront today, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s in addition to 5 percent a year, meaning it would cost $5.3 million initially and $500,000 annually to protect $10 million of Caesars Entertainment’s debt.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. Investors and traders use the contracts to hedge against losses on corporate debt or to speculate on creditworthiness.

Caesars Entertainment shares rose 2 percent to $15.89 at 10:17 a.m. New York time. They have more than doubled this year.

Online Gambling

Caesars Growth Partners, jointly run by Caesars Entertainment and Caesars Acquisition Co., will run businesses offering social and mobile games, a regulated online gambling division, as well as Baltimore and Las Vegas casinos.

The U.S. gambling industry has struggled to return to its pre-recession 2007 peak as consumer interest has remained weak. Penn National Gaming Inc. (PENN), an operator of 28 casinos and racetracks that competes with Caesars Entertainment and MGM Resorts International (MGM), last week trimmed its profit outlook for the year on bad weather and “suicidal” marketing tactics by rivals.

The Wyomissing, Pennsylvania-based company cited intense rivalry in the region near Cincinnati after Caesars Entertainment opened a new location there and weaker-than-expected results from newer casinos in Columbus and Toledo, Ohio. Revenue from Caesars Entertainment’s Ohio properties has been weaker than expected, Loveman said.

The company’s results in the same period last year included a $101 million impairment charge on its Macau land.

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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