Caesars Entertainment (CZR) Chief Executive Tom Reeg spent $17.3 billion when his former company, Eldorado Resorts, bought the casino giant in 2020, The new company kept the Caesars name and took on roughly $13 billion in debt at the time of the deal.
The combined company owns casinos all around the U.S. and properties in the U.K. Egypt, Canada, and Dubai as well as a golf course in Macau. Caesars, which Reeg still leads, also dominates the Las Vegas Strip, owning Caesars Palace, Paris Las Vegas, Planet Hollywood, Harrah’s Las Vegas, the Flamingo, Linq Hotel, Cromwell, and Bally’s (which is being rebranded under the company's Horseshoe name) as well as Rio, which is off the Strip.
It's a massive operation that has passed MGM Resorts International (MGM) as the largest casino operator in the world.
Reeg has, however, made clear that his company needs to get a little smaller. Since Eldorado completed the purchase, he has talked about selling one of the company's Las Vegas Strip properties, and that appears to be happening. But it's not that simple.
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Las Vegas Looks to Sell Flamingo
Reeg believes that Caesars has too many rooms on the Strip, That hurts its pricing power. The company has been exploring selling one of its Las Vegas properties, with Paris, Planet Hollywood, and Flamingo being the properties most speculated about.
"Well, we're 23,000 rooms today. You're taking out the Rio rooms, and then you take out a property, depending on which property it is, let's say 3,000 to 4,000 rooms," Reeg said during his company's fourth-quarter-earnings call, in response to a question about selling a Strip property.
Flamingo has 3,450 rooms and, well, calling it dated would be kind. The casino was built in 1946, and while it has been updated over the years, it needs a lot of work. Selling the casino would accomplish Reeg's goal of cutting capacity while also bringing in some much-needed cash.
"So you're going to be down to, call it, 16,000, 17,000 rooms in the market. That's about one-quarter of our existing capacity," the CEO added.
The problem is that Caesars can't simply sell Flamingo to the highest bidder.
How Could Caesars Flamingo Sale Get Complicated?
VICI Properties (VICI), which owns the underlying real estate that many Caesars properties sit on, "has rights of first refusal on Bally’s, Flamingo, the Linq, Paris, and Planet Hollywood by way of a deal reached with Eldorado Resorts in June 2019," Casino.org reported.
The real estate company also owns the land under many MGM properties including its Strip casinos. Vici could buy Flamingo and then lease it back for Caesars to operate. That deal gives Caesars some cash, but it does not cut its supply of rooms.
Losing Flamingo, however, could be a long-term blow to Caesars. The lower-end property sits across from the high-end Caesars Palace and to the south of the mid-tier Harrah's and Linq. Flamingo borders the Linq promenade, a signature Caesars property that recently served as a key site for the NFL draft.
Caesars and MGM dominate the south and central Las Vegas Strip. Selling Flamingo to another casino operator likely does not generate enough cash to welcome another competitor to the area.
Any acquiring company would likely view Flamingo as a total rebuild, and that could open the door for a property that challenges Caesars and MGM. That might be worth it for $2 billion or $3 billion, but with a rumored $1 billion price tag, selling Flamingo to Vici and continuing to operate the casino might be the best choice for Caesars.
