Caesars Entertainment in Search of a Winning Hand

There's been no shortage of coverage of Caesars Entertainment's (NAS: CZR) dire financial situation at The Motley Fool. Since the stock's IPO, I've been extremely wary of the company's debt, and I'm not sold on its questionable end markets. Before long, the company is going to have to come up with a way to raise cash to fund its floundering operations.

One asset that may have some value is the popular World Series of Poker. Analysts are starting to speculate that the series of poker tournaments may be a good asset to sell, and frankly, it might be one of the only assets worth selling. But this raises a conundrum similar to the one that MGM Resorts (NYS: MGM) , Wynn Resorts, and Las Vegas Sands (NYS: LVS) faced during the financial crisis when MGM decided to sell Treasure Island. Is it worthwhile to sell a quality asset for short-term debt relief if it leaves the remaining business in a worse condition?

If the long-term prospects of a business are strong, it may be (think Las Vegas Sands and Wynn Resorts in 2008), but if the long-term prospects are dim, you're just kicking the can down the road.

The stranglehold of debt
The driver of asset sales would be the company's $19.9 billion pile of debt, an outstanding issue that resulted in Fitch Ratings lowering its outlook on the company from stable to negative. Investors may be looking for more yield in the future when debt maturities come due, especially with regional gaming on the decline at Caesars' resorts.

The problem for Caesars is that the World Series of Poker is one of the few assets worth holding on to. The World Series of Poker is one of the best brands in poker, and if gaming is legalized on a national level, it would undoubtedly be one of the big winners. MGM Resorts, with its partnership with Boyd Gaming (NYS: BYD) and Bwin.Party, would be in place for another strong position, but the World Series of Poker would likely be the winner here, giving the company a lucrative spot in the market. Yet legalizing poker is a big question mark.

One of the roadblocks is that if the Republicans win the election, Las Vegas Sands CEO and majority owner Sheldon Adelson has the party in his pocket. He's had private meetings with top Romney officials, including Paul Ryan, and I seriously doubt online gaming would pass while his checkbook is out, given his aversion to online gaming in the past.

Between a rock and a hard place
With $19.9 billion in debt, it's hard to see how Caesars will get itself out of its current hole. The best hope for the company is the legalization of online gaming nationwide. Right now, states are in control of the online gaming space and Bally Technologies (NYS: BYI) and International Game Technology have already been approved for online gaming licenses in the U.S., giving them the ability to supply systems and services to casino operators. If the spread of online gaming continues, it could be the difference maker for Caesars.

The challenge is staying solvent in the meantime. We've been talking about online poker becoming legal for nearly a decade, and it has yet to take place on a federal level. The World Series of Poker is a great asset, but if Caesars sold it or spun it off, I'm afraid it would be the beginning of the end. There aren't many growth prospects in domestic gaming at the moment, and Caesars would be giving up one of the best opportunities it has.

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