Caesars Entertainment’s planned growth spin-off will rely heavily on free-to-play gaming proceeds in the run-up to broader U.S. online gambling liberalization, according to its listing prospectus.
The spin-off, Caesars Growth Partners, will initially comprise two casinos and the Caesars Interactive subsidiary, which includes separate online gambling and free-to-play gaming businesses. Shares in Caesars Growth Partners will list at $9.43. The company hopes to raise around $1.18bn with the offering. The spin-off is principally intended to shield Caesars’ top-performing units from its $21bn debt load. The plan was endorsed by the Nevada Gaming Control Board last week and awaits final approval from the Gaming Commission. The performance of Caesars Interactive has long been a source of market intrigue. Quarterly results for the segment are not disclosed. But in a 200-page listing prospectus last week Caesars revealed that free-to-play gaming accounted for 44 percent of pro-forma sales at Caesars Growth Partners during its fiscal first quarter ended March 31, 2013. Total revenue for the quarter was $151.6m. Free-to-play games brought in $66.6m, up from $41.3m in the same period last year. Online gambling by contrast generated just $2m, unchanged compared to the prior-year quarter. The 61 percent increase in first quarter free-to-play sales was driven mainly by Caesars Interactive’s December 2012 acquisition of Buffalo Studios, operator of the popular Bingo Blitz franchise. Still, its free-to-play business, like others in the space, is being driven by and is heavily dependent on casino-themed games, namely slots. In the prospectus Caesars said Slotomania, Caesars Interactive’s mobile and social casino app, accounted for 70 percent of first quarter free-to-play sales, up from 68 percent last year. Caesars also flagged up that only around 1.2 percent of Caesars Interactive’s monthly unique free-to-play users buy virtual chips, which enhance game play but cannot be redeemed for cash.
Krejcik said Caesars Interactive boasts a large number of so-called “whales,” which typically represent less than 15 percent of a free-to-play game’s paying users but account for more than 50 percent of its sales. Caesars warned however that despite Caesars Interactive’s success the free-to-play space has become increasingly competitive and that entry barriers remain low. It also warned that regulation in North America and elsewhere could stymie Caesars Interactive’s free-to-play business. Caesars Interactive booked 65 percent of free-to-play sales from North America in the first quarter. So far gambling regulators in the region’s bellwether jurisdictions, including Nevada, have not sought to clamp down on the sector. While Caesars Interactive has seen free-to-play sales skyrocket from $53.9m in fiscal 2011 to $193.3m in fiscal 2012, its online gambling business remains well off of that pace. Although Caesars Interactive runs games in the United Kingdom, France and Italy it is betting the United States that will become its chief online gambling growth market.In the listing prospectus Caesars said Caesars Interactive has received online licensure in Nevada, where it plans to launch poker later this year in partnership with 888 Holdings. In New Jersey, meanwhile, the unit’s license application remains pending. Analyst estimates for the New Jersey and Nevada online markets vary widely. Nevada is worth between $35m and $60m in annual revenues, analysts have said, and New Jersey between $262m and $463m, according to GamblingData. Caesars said it expects Caesars Interactive to capture a large share of both markets, echoing earlier bullish comments from Caesars chief Gary Loveman.Chris Krafcik, GamblingCompliance
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