Caesars Entertainment's CEO Discusses Q3 2012 Results - Earnings Call Transcript

| About: Caesars Entertainment (CZR)

Caesars Entertainment (NASDAQ:CZR)

Q3 2012 Earnings Call

October 31, 2012 5:00 p.m. ET


Jacqueline Beato - Director of Investor Relations

Gary Loveman - CEO

Eric Hession - Senior VP, Finance and Treasurer


Shaun Kelley - Bank of America Merrill Lynch

Susan Berliner - JP Morgan

Richard Hightower - ISI Group

James Taylor

Greg Roselli - UBS

Kevin Coyne - Goldman Sachs

Peter Dalena - Citigroup


Good afternoon. At this time, I would like to welcome everyone to the Caesars Entertainment third quarter 2012 earnings call. [Operator instructions.] Thank you. Ms. Beato, you may begin your conference.

Jacqueline Beato

Thank you. Good afternoon, and welcome to the Caesars Entertainment third quarter results conference call. Joining me today are Gary Loveman, chief executive officer; and Eric Hession, senior vice president of finance and treasurer of Caesars.

Following our prepared remarks this morning, we will turn the call over for your questions. A copy of our press release and a replay of this conference call will be available in the Investor Relations section of our website at

Before I turn the call over to Gary, I would like to call your attention to the following information. The Safe Harbor disclaimer in our public documents covers this call and the simultaneous live webcast at The forward-looking statements made during this conference call reflect the opinion of management as of the date of this call. There are risks and uncertainties with such statements, which are detailed in our filings with the SEC.

Please be advised that developments subsequent to this call are likely to cause these statements to become outdated with the passage of time. We do not intend, however, to update the information provided today prior to our next quarterly conference call.

Further, today we are reporting third quarter results and first 9 months' results. These results are not necessarily indicative of results in future periods. Also, please note that prior to this call, we furnished a Form 8-K of this afternoon's press release to the SEC.

Property EBITDA and adjusted EBITDA are non-GAAP financial measures. Reconciliations of net loss to property EBITDA and net loss to adjusted EBITDA can be found in the tables in our press release.

This call, the webcast, and its replay are the property of Caesars. It is not for rebroadcast or use by any other party without the prior written consent of Caesars. If you do not agree with these terms, please disconnect now. By remaining on the line, you agree to be bound by these terms.

I would like to turn over the call to our CEO, Gary Loveman. Gary?

Gary Loveman

Thank you Jacqueline and thanks to everyone for joining us this afternoon. Before turning to the third quarter, I’d like to take a few moments on recent hurricane Sandy at our properties and colleagues in Atlantic City.

As you know, Atlantic City was hit quite hard by this powerful storm, causing substantial flooding and damage. First and foremost, I’d like to report that all of my colleagues there are accounted for and safe, and I’d like to express my gratitude for the efforts of all of our people who worked diligently to evacuate our guests in a safe and orderly manner and to secure and protect our properties.

The Atlantic City properties were closed on Sunday afternoon in preparation for the storm and in compliance with the state’s evacuation order. While we’re still completing a full evaluation of the condition of the properties, I’m pleased to report that none of them appear to have suffered extensively.

The major infrastructure in Atlantic City also appears to be intact, and we’re optimistic that it will be able to reopen in the next several days. In Pennsylvania, Harrah’s Philadelphia was closed on Monday afternoon and it reopened uneventfully this morning.

Our insurance coverage in Atlantic City carries a single, $25 million deductible and covers both property damage and business interruption across our footprint. Based on what we know at the moment, we do not expect to exceed the deductible.

Let me turn now to the third quarter. In the third quarter, strong growth in our interactive businesses increased customer spend per trip here in Las Vegas and year over year EBITDA growth in Atlantic City. On the positive, we were offset by softer results in other regional markets.

We attribute these regional results to challenging macroeconomic conditions that negatively influenced guest behavior at these markets, as well as the impact of some new competitors in certain jurisdictions.

During the quarter, we made significant progress on the execution of our strategy, the strategy I’ve described to you on prior calls, which is designed to position the company for growth, particularly when economic conditions improve, and to take advantage of the liberalization of policies related to gaining domestically and internationally.

Specifically, this strategy is focused on the expansion of our distribution network and focusing our capital deployment into growth markets, both online and on land; leveraging our scale to drive efficiency in the way we run our business and attract best in class talent; investing in our core business, our leading marketing capabilities, and brands; and strengthening our capital structure and improving our balance sheet.

Each of these points is illustrated by our efforts in Las Vegas, where we’re dually focused on serving our longtime customers and upgrading our facilities, as well as developing innovative new experiences such as The Linq to attract new customers to Vegas and our properties here on the Strip.

To this end, we intend to make significant additional investments in our Las Vegas properties in 2013. With the opening of the Octavius Tower and luxury villas and the new Bacchanal Buffet - just named the best buffet in Las Vegas by USA Today - we’ve already enhanced the facilities of Caesars Palace.

We’ll begin taking reservations this month for Nobu Hotel at Caesars Palace, which will begin welcoming its first guests at the beginning of the year. Finally, we plan to open the new Gordon Ramsay pub here in the coming months as well as Ruth’s Chris Steak House at Harrah’s Las Vegas early next year.

When we announced the sale of Harrah’s St. Louis to Penn, we said we’d redeploy capital into projects and regions that present the best opportunities for higher returns. In 2013 we plan to use a portion of these proceeds and the capital we obtain through it to update many properties across our Las Vegas footprint.

One example of our plans here is the upgrade of the Imperial Palace, which we are rebranding The Quad. We will renovate significant portions of the property, including the casino, public spaces, and guest rooms. The reconfiguration of the casino and its entrances will enable direct access to and from The Linq as customers move north and south on the east side of the Strip and makes The Quad the most easily accessible casino on the Strip.

At The Linq, we’re excited about the progress we’ve made in both leasing and construction in the three months since we were last together. So far, more than two-thirds of the 230,000 square feet of leasable space has been committed to tenants, including the Rock and Roll Hall of Fame, the Brooklyn Bowl, Ghirardelli, Yard House, Tilted Kilt, F.A.M.E., Sprinkles, Tequila Ranch, and Coke.

We’re confident that this set of tenants, along with the High Roller observation wheel and the planned festival space will create an unparalleled and accessible entertainment experience that will change and reinvigorate Las Vegas’ center resort quarter.

Those of you that visited us recently will see that the support platform for the High Roller observation wheel has begun to take shape. We’re on pace to open the dining and retail offerings in phases beginning in the second half of next year, and we plan to open the High Roller early in 2014.

Finally in Vegas, we’re in the final stages of securing financing to convert Bill’s Gamblin’ Hall & Saloon to a boutique lifestyle hotel. This project will include remodeling the guest rooms and common areas, as well as the construction of a 65,000 square foot rooftop pool and day club/night club, which will be managed by our colleague, Victor [Drake].

Our strategic initiatives are also evident in Atlantic City, where our approach is to work on stimulating new segments of visitation in the market concurrent with efforts to seek efficiencies that address the market’s need to align gaming supply with demand.

With respect to the attraction of new visitors, particularly mid-week, we’re pursuing a plan to develop a robust meetings business in Atlantic City. To build this business, we intend to develop an approximately $140 million convention center with the support of the New Jersey Casino Reinvestment and Development Authority at Harrah’s Atlantic City in the marina. We will seek to secure financing for the difference between our equity contribution and that of the CRDA.

The opportunity to develop a meetings business in Atlantic City is significant. We will focus on attracting corporations and associations to host their meetings in Atlantic City, and take advantage of the other amenities already available there. Presently, Atlantic City has less than 1% of the $16 billion market for meetings and conventions in the northeastern part of the United States.

The meetings business will generate revenue on its own, and absorb hotel room and restaurant capacity during non-peak mid-week periods. The facility we have proposed would bring 100,000 square feet of usable meeting space, state-of-the-art technology and audiovisual capabilities, and be connected to the Harrah’s property at the marina.

The second part of our strategy in Atlantic City is to ensure that our cost base is aligned with the revenue generating opportunities as they exist there today. We’ve consolidated capacity at our properties where we can generate meaningful cost savings without sacrificing the experience of our guests. These efforts resulted in our ability to grow year over year EBITDA in the third quarter despite experiencing revenue declines.

Before turning to updates on our development pipeline, I’d like to spend a few moments on our marketing and loyalty programs. We’re extremely proud of the leadership position we’ve long occupied in this space, and we’re making new investments in technology and in people to ensure that we maintain that position. These efforts are at the core of our business, as it has been for many, many years, and are critical to the future success of the company.

The relaunch of Total Rewards conducted earlier this year is already yielding encouraging results. The expanded program is enabling us to gain new insight into the non-gaming behavior of our customers, which helps us better tailor guest experiences and attract repeat business, spurring incremental revenue.

Since the beginning of the new Total Rewards program April 1, we’ve nearly doubled the percentage of non-gaming revenues associated with Total Rewards members in Las Vegas. We’re enhancing our database and analytics capabilities to make certain we realize the maximum potential of our more than 40 million members. Our investments in this space are a top priority, and we’re working with leading startups and established leaders to ensure the big data capabilities remain world-leading at our company.

It’s a testament to this work that earlier this summer Colloquy, which surveys executives in the loyalty industry, recognized Caesars with its most prestigious honor, the Master of Enterprise Loyalty award.

Also in marketing, we’re enhancing our online and mobile platforms to improve our customer acquisition and booking efforts. At the end of this year, we’ll relaunch the website to improve customer experience and maximize direct booking revenue. The new site will more tightly integrate our non-gaming offerings, allowing us to help customers plan their experience with us in Vegas, Atlantic City and other markets.

We’re also completely redesigning our mobile web offering, as we currently see some 20% of the visits to coming from mobile devices, and we expect, like everyone else, this trend will continue over time.

We’re also developing additional mobile tools for our customers to use while on property, such as our beverage iApp, which has greatly improved casino poured beverage service. This application won an Information Week 500 award for innovation.

We’ve also been very active in using social media as a marketing tool. We have more than 1.5 million Facebook fans and more than 250,000 Twitter followers.

Finally, in the third quarter we ran our second annual Great Race to Rewards promotion, which rewards customers who see us on multiple properties across our network. More than 100,000 of our customers participated in this promotion, and increased the number of properties they visited during the third quarter by half, and their gaming activity by a quarter, when compared with the third quarter of 2011.

Let me turn now to new markets. Horseshoe Cleveland, our joint venture project with Rock gaming, which opened in May, is demonstrating that the urban casino concept we’ve developed with Rock is working. Since the opening, we’ve welcomed nearly 2 million customers and registered 141,000 new Total Rewards members.

Horseshoe Cincinnati will be another truly urban casino, with three outward-facing restaurants to engage pedestrians and support existing cultural nightlife and sports attractions in the city. The property is expected to open in spring 2013, and will have 100,000 square feet of gaming, 2,300 slot machines, 73 table games, and a 31-table World Series of Poker room. We anticipate this property will create 1,700 jobs.

We also plan to open the Thistledown VLT facility near Cleveland in the first half of 2013. In Baltimore, the investment group that we’re leading is in the process of refining and completing our detailed construction drawings and is in the process of seeking construction permits. We expect to begin construction in the second quarter of next year, with a targeted opening in the middle of 2014.

You may have heard there’s an election in Maryland that involves a question on gaming, assuming that you’re not dead or otherwise not exposed to technology. If the voters of Maryland choose to allow [us six license] and table games in the state when they go to the polls next week, the property will provide table games as well as VLTs. We expect the addition of table games will make our property much more competitive in the regional market, and more attractive to Total Rewards customers from all around the country.

In Massachusetts, we’re preparing our bid for the license in the eastern region of the state, with our partners at Suffolk Downs. We’re excited about the prospects of entering this important market with a Caesars-branded property.

Now let me turn to Caesars Interactive Entertainment and our efforts in the online space. We’re pleased with the ongoing performance and growth prospects of Playtika, our social and mobile games company. Our presence in this business presents the opportunity to operate in parts of the world where we can’t operate land-based casinos or online real-money gaming.

Since we last spoke, there has been little federal legislative progress related to online poker. While we continue to pursue this avenue for the legalization of online poker, we have shifted some of our focus to the legalization of online gaming in key states. Caesars Interactive Entertainment is very well-positioned, whether online gaming in the United States becomes legal through federal legislation or state by state.

We believe our well-known WSOP and Caesars brands, the significant real-money gaming experience of our management team, and the opportunity to integrate online experiences into Total Rewards will provide us with a competitive advantage in the pursuit of state licenses and the acquisition of customers when this market becomes available.

I hope many of you were up literally all night watching the World Series of Poker final table last night, as our final three players worked their way down to our winner from Maryland, a young man who took home a little over $8 million last night.

Finally, I’d like to turn your attention to our financial position. As you can see, there’s a great deal of investment in our future underway. Concurrently, the board and I are highly focused on taking action to further improve our capital structure.

During the quarter, we issued $750 million in new first-lien notes, used to refinance and extend approximately $1 billion of first-lien debt maturing in 2015-2018 and beyond; converted more than $100 million of revolver commitments into term loans with a 2018 maturity; and added cash to the balance sheet.

At the end of the third quarter, Mr. Hession had $2.2 billion in liquidity as our treasurer. We’ll be aggressive in our efforts to refinance our debt, extend our maturities, and maintain ample liquidity.

And with that, I’ll turn the call over to Mr. Hession.

Eric Hession

Thank you Gary, and thanks again everybody for joining our call today. We reported third quarter net revenue of $2.2 billion, up 0.4% from the year ago period. Adjusted EBITDA also increased 0.4% to $484.5 million, compared with $482.5 million in the year earlier period.

We recorded an operating loss of $220.6 million compared to income from operations of $179.8 million in the prior year, mainly due to an impairment charge of $419 million, comprised of $247 million related to goodwill intangibles, $127 million related to trademark intangibles, $32 million related to gaming rights, and $13 million related to land in Biloxi, Mississippi.

We recorded a net loss in the third quarter of $505.5 million, compared with a net loss of $164 million in the year ago period. Diluted loss per share for the quarter was $4.03. We had approximately $22.3 billion face value of net debt at the quarter end, including $1.2 billion of cash, not including restricted cash.

This net debt for the year includes $750 million of debt issued during the quarter. However, since the funds were held in escrow during the closing date in October, cash proceeds from the transaction are represented as restricted cash, and are not included in this figure.

System-wide, rate of customer gaming trips in the third quarter were down 4.9% from the prior year, while rate of spend per trip was up 1.3%. Hotel occupancy was relatively flat, while cash ADR was down 1.7% compared with the prior year, with our system-wide hotel revenues up 0.6%.

In Las Vegas, net revenues increased 0.3% for the quarter, and property EBITDA fell by 5.2% as results were impacted by Linq construction activities, which have affected primarily Harrah’s, Imperial Palace, and Flamingo, reducing property EBITDA by approximately $5-10 million.

For the quarter, total hotel revenues were relatively flat year over year, with occupancy in the mid-90s, while cash ADR decreased but 2.2%. While overall trips declined 0.4% in the region, compared with the prior year period, both trips and spend per trip improved in our overall most important VIP segment. Overall spend per trip increased by 7.8%.

The Atlantic City region had net revenue decline by 4.1%, as visitation was adversely affected by increased local and regional competition. Property EBITDA increased by 11.5%, as we were benefited from significant cost structure improvements and lower property tax expenses due to the reduced assessments on our properties.

This margin improvement is a result of our management team’s focus on realigning the cost structure in Atlantic City, a key tenet of our strategy in the region. Lodger-rated trips fell by 4.5%, while spend per trip decreased 2.8% in the quarter. Non-lodger-rated trips and spend per trip decreased 5.1% and 4.1% respectively.

In our other markets, which encompass domestically wholly owned properties outside of Las Vegas and Atlantic City, rated trips during the third quarter decreased 6% while spend per trip was down 0.6%. Note here that Harrah’s St. Louis is classified as a discontinued operation, and the results are not included in these metrics for both year periods.

In the Louisiana Mississippi region, revenues were down 8.7% while property EBITDA was down 6.8%, as visitation in the region was impacted by Hurricane Isaac, which resulted in Harrah’s New Orleans and Grand Biloxi closing for several days during the quarter.

Hurricane Isaac had approximately a $4 million impact on property EBITDA overall for the region in the quarter. There were approximately 250 rooms out of service at our Grand Biloxi property immediately following the hurricane, and they have since reopened with only a few remaining out currently.

In the Iowa Missouri region, net revenues decreased 2.4%, while property EBITDA increased 30.4%. The increase was primarily due to reduced property operating expenses as a result of refinements in the estimates related to discontinued operations associated with the sale of our St. Louis property.

Performance in Iowa was solid during the quarter, while Missouri results were impacted by increased competitive pressure from a new entrant in one of our markets. I’ll remind you that these results do not include the Harrah’s St. Louis due to its pending sale.

In the Illinois Indiana region, net revenues increased 1.3%, while property EBITDA was up 19.2%. The increase in property EBITDA reflects higher revenues and reduced property operating expenses resulting from our cost savings initiatives.

Trips in this region were down in the quarter, mainly as a result of the new entrant in the Chicago market. The impact of the new competitor has begun to annualize in the third quarter. However, the competitive effects were mitigated by positive year over year impacts of the Sherman Minton Bridge closure that began to impact our southern Indiana property in early September 2011.

The other Nevada properties outside of Las Vegas saw net revenues decline 4.8% while property EBITDA declined 5.9% as the region was impacted by competitive pressure from nearby tribal casinos in California.

Net revenue on our managed, international, and other segments increased 40.3%, driven by strong performance in Playtika and the first full quarter of management fees from our Horseshoe Casino [unintelligible] in Cleveland.

Finally, as Gary mentioned, we had $2.2 billion in liquidity at the end of the third quarter, which includes unrestricted cash on our balance sheet and revolver availability. This liquidity figure does not include the previously mentioned transactions to improve our overall capital structure, the proceeds of which were held in an escrow account at the end of the quarter while all of our closing conditions were met, including required regulatory approval. As I mentioned, this transaction subsequently closed in October, and the funds were released from escrow and into our cash accounts.

In summary, we’re keenly focused on aligning our cost structure with current market opportunities and are beginning to see the benefit from these efforts as our margin expansion continues to cross the regions. We’re also optimistic about the developing trends in Las Vegas and are investing to take advantage of those dynamics.

With that, I’ll pass it back to Gary for his final remarks.

Gary Loveman

Thank you Eric. In recent years, our industry has faced headwinds from a generally weak economy, exacerbated by some poorly timed capacity additions, particularly in Vegas and Atlantic City. [unintelligible] we’re taking the strength of our offerings and hub markets, while expanding our distribution network into emerging markets, positions us to build relationships with customers who we hope will visit us in these new geographies as well as in our destination markets.

While our business continues to face near-term challenges, we’re investing in our properties, our brands, and our marketing and loyalty programs to ensure that we’re well-positioned to benefit as conditions improve.

For all those reasons, I’m very optimistic about the future growth of the company. And with that, operator, we’ll open the line for questions.

Question-and-Answer Session


[Operator instructions.]Your first question comes from the line of Shaun Kelley.

Shaun Kelley - Bank of America Merrill Lynch

Gary, sorry we weren’t able to watch the World Series of Poker last night, since I know myself and a variety of other people on the call probably didn’t have power. But that said, just was wondering, I have a few kind of property level questions. First was related to Atlantic City. Clearly much improved margin performance in that market this quarter. So Eric, it sounded like a lot of that was going to be sustainable and had to do with the property tax assessments, but was there anything else there? Because as we look at the numbers, a $20 million year over year decline in revenue and up $10 million in EBITDA seems like a very impressive amount of cost to have reduced on a year on year basis.

Gary Loveman

I’m going to take a swing at that, Shaun, and then I’ll let Eric respond. I do want to point out that there were a number of saloons available in upper Manhattan somewhere where you could have enjoyed the World Series of Poker.

But turning to Atlantic City, we’ve done two things in Atlantic City in parallel. The first is to attack institutional sources of high cost. Property taxes were one. The somewhat antiquated nature of the regulatory system there was another. Both of those have been remedied to a meaningful degree.

And then of course our management team there has had to try to reconstruct their operating scheme to reflect a level of revenue that has chased itself down and down. And I think what you see in the results of the third quarter is, I think, a very successful effort on their part to catch up to that decline, and hence we have the benefit of reduced operating expenses from both constituent [unintelligible].

Eric Hession

The only thing I’d add is that while we do expect the benefit from the tax reduction to persist in future quarters as well as our efforts to reduce the general cost structure, we did have the year over year benefit of having the shutdown in the prior period for a couple days, not [being in existence].

Shaun Kelley - Bank of America Merrill Lynch

Right, just the year on year impact from Hurricane Irene last year, right?

Eric Hession


Shaun Kelley - Bank of America Merrill Lynch

Second question was just Eric, you mentioned in the prepared remarks a little bit about Missouri and what sounds like possibility a reversal or a catch up in cost accrual related to estimates for the discontinued operations there. Could you give a little bit more color on what that is and maybe quantify that?

Eric Hession

As you know, in the prior quarter we booked estimates of the impact from the St. Louis divestiture, and as we’ve been moving forward with the actual divestiture and determining the impact to specific departments, we’ve continued to refine our estimates of the allocated costs that go into the entity, some of which will go away and some of which will be transferred into the St. Louis operations.

And as a result, we determined that our prior estimate needed to be adjusted, and the impact of that was booked in this particular quarter. From a dollars perspective, it was approximately $9 million. So excluding that one-time change to the quarter, the region still would have been slightly positive on a year over year EBITDA basis.

Shaun Kelley - Bank of America Merrill Lynch

Last question would be on Las Vegas. We got one of your competitors view toward the market and toward, you know, maybe things were a little soft in the third quarter, which we can see on the top line from your side at least, outside of the VIP segment. But Gary, just any color on what you’re seeing in the fourth quarter? The group business seems like it was a little soft on the third, but are you seeing bookings pick up at all or any improvements or signs of life on the overall Las Vegas market sequentially, so fourth quarter versus third?

Gary Loveman

I don’t think you’re going to see a big difference in the fourth quarter versus the third, recognizing there are large portions of the fourth quarter that are seasonally low anyway. I understand Jim was a bit more optimistic about convention and meeting business trends in ’13 and ’14, and I think we’re encouraged by those trends in ’13 and ’14 as well, but I don’t see anything in the fourth quarter that’s especially notable.


Our next question is from the line of Susan Berliner.

Susan Berliner - JP Morgan

I have a handful of questions. I guess just starting with the Cotai golf course, can you just, I guess, a lot of press reports are talking about you guys looking to sell that. Is that true? And what would you do with the proceeds? I don’t believe there’s any exclusions on what you can do with the cash.

Gary Loveman

It is true that we are considering the sale of the golf course in Macau. I’ve been quoted repeatedly now in various press reports about my view that it is unlikely that an American operator who is not already licensed in Macau will find themselves licensed in the foreseeable future.

As a result, I think given the appeal of this land and its desirability to others whose use may be more beneficial than ours, we ought to consider a transaction with it. So we are doing that. Whether or not any such transaction will happen remains to be seen. Eric, do you want to comment on, if there were to be a transaction, how the proceeds are restricted or not restricted?

Eric Hession

Sure. Sue, as you know, the golf course is a non-loan party to the credit agreement, and therefore it does fall under the requirement that it needs to be reinvested in CEOC, but it doesn’t necessarily need to be reinvested in loan party. So it can be used for loan parties or non-loan parties over a 15-month period.

Susan Berliner - JP Morgan

And then just a few on cash. Just one housekeeping. Can you give us the breakdown of cash at the various entities?

Eric Hession

The cash at the consolidated level is $1.189 billion. At CEOC, it’s $989 million. [CMBS] has $120 million of cash in various entities. There’s $81 million at our parent company, and that makes up the $1.189 billion. And that, just for your models, to help out, the intercompany loan has about $616 million.

Susan Berliner - JP Morgan

And I guess on cash outlays, you guys didn’t change your capex at all for 2012. I’m assuming 2013 is going to be significantly higher, because obviously you sound like you’re doing a lot within Las Vegas. Any guidance for us there?

Eric Hession

We actually did change our capex guidance for 2012 slightly. For CEC, it’s between $520 million and $560 million. Primarily that will be spent in the CEOC entity, which is $480-510 million, and the balance will be at CMBS, so $40-50 million. So on a consolidated basis, down about $70 million from our prior estimate.

Regarding 2013, generally you’re correct. We have mentioned how our focus is going to be on continuing to reinvest in the business, in particular allocating the funds that are going to be generated from the sale of the St. Louis property into areas where we identify higher return potential. A lot of that is going to be in Las Vegas next year, and we’ll be targeting some specific room renovations at properties around the city.

Susan Berliner - JP Morgan

My last question was just regarding any cash outlays for Baltimore and Massachusetts in Q4 or ’13. How should we be thinking about that?

Eric Hession

We haven’t provided guidance on the specifics of the timing of the cash outlays for those, but they shouldn’t be significant.


And our next question is from the line of Rich Hightower.

Richard Hightower - ISI Group

The press release mentioned some high-end strength in Las Vegas on the international side, and I’m comparing that to the statement also where you said promotional allowances were a little bit higher for the quarter, and I’m wondering if there’s any connection between the two.

Eric Hession

Between the increase in the highest play and the promotional [outs]?

Richard Hightower - ISI Group


Eric Hession

In general, the reinvestment levels in the extreme high end international customer tends to be higher than otherwise seen from the domestic perspective. I’d say, however, this quarter it’s not necessarily a result of the two. I think the reinvestment levels were slightly higher in the quarter but not necessarily driven by shifts from the international play.

Richard Hightower - ISI Group

And then second question, just briefly, I’m wondering if you could comment maybe on the internal deliberations as far as disclosing more on CIE and some of the performance metrics there? And maybe with one side of that coin being maybe a higher valuation from the market if we get more information, on the other hand being sort of competitive issues and not disclosing too much.

Gary Loveman

I think you framed the problem exceedingly well. One of the interesting things about these games is that you can get on Facebook and on Android and you can see how these games rank in terms of their use by customers, literally every day. And so I think you can get a very good sense of the level of popularity they enjoy, and with some assumptions, figure out on your own what kind of level of revenue and profitability is possible for them to generate. We have not seen it to be in our interest at this point to break out this with any high degree of specificity yet. There may come a time when we will, but we don’t believe we’ve crossed that point yet.


Our next question is from James Taylor.

James Taylor

Just pushing a little more on that managed international other segment, obviously it was up nicely year over year. Can you maybe just give us a little more detail about what drove the increase in managed? I know it was likely Cleveland, but how those numbers work? And then I guess just on a housekeeping basis, was Playtika fully consolidated before you bought the remaining 49%, or did you just start consolidating at the beginning of this year?

Gary Loveman

The answer to the second question is yes. Eric, you want to talk about the omnibus category?

Eric Hession

The managed category is primarily driven by Cleveland. The reason why you’re seeing a very large jump in the revenues, which I think you’re particularly referring to, is because of the way that the management agreement is set up, the employees are Caesars Entertainment employees. So all of the expenses associated with the employee piece are run through our books, and therefore we book revenue and expense in equal amount associated with their pay, benefits, and so forth. So you’ll see that continuing as we move forward in each quarter, and as we add Cincinnati and Thistledown to the structure.

James Taylor

And I’m guessing you won’t answer this, but can you tell us what the same-store interactive revenue growth was?

Gary Loveman


James Taylor

Okay. I’ve got to try. Just one other housekeeping, did hold have any meaningful impact in the quarter? Particularly the high end in Vegas. Obviously things move around a lot there.

Gary Loveman

No, hold did not have a meaningful effect on our numbers in the third quarter.

James Taylor

And obviously the cost save story continues to be a good one. I’m just curious if you can maybe frame the opportunity for us a bit, or even just kind of describe the types of things you are focused on now given that the top line environment is somewhat stagnant, still, throughout the whole country.

Gary Loveman

Let me say a word or two about this and then Eric can elaborate. You know we ran a programmatic initiative to very radically restructure the way the company’s work is done, and to put our best people into bigger responsibilities. Those are not related to the number of people serving guests at the front line, and they have ongoing, highly beneficial effects on our cost.

As we move to 2013 and we look at what else we have to do to work in an environment with limited top line growth, we continue to find ways to operate the business more efficiently. For example, much more sophisticated scheduling technologies that will allow us to anticipate how many people we’ll have in the facilities and at what times, and make sure that we staff in a much more precise way against anticipated demand patterns.

So we continue to introduce tactics of this sort, that help us really hold ourselves to a higher level of efficiency as we continue to work in a difficult demand environment.

Eric Hession

Specifics, just to talk about the renewal on the particular add-back, in the quarter we experienced about$50.8 million of cost savings and have identified yet to be achieved savings that we will expect to materialize over the next six quarters or so of $204.3 million. And the primary areas of those, as Gary mentioned, are associated with continual refinement of business operations, refining our marketing tactics, centralization, doing additional efforts with respect to just the base cost structure of the taxes and other [unintelligible].


Our next question is from the line of Greg Roselli.

Greg Roselli - UBS

Did you guys buy back any more debt in the quarter, and if not, then why?

Eric Hession

We evaluate the uses of our cash on a continual basis, and determine where it’s best to allocate it, whether it’s to proceed with a development project, to buy back debt, or to use for general corporate purposes. We just determined that we didn’t use it to buy back debt during the quarter.

Greg Roselli - UBS

And because we’re not going to hear from you for a while, can you give us your thoughts on online gaming’s chances in the lame duck session?

Gary Loveman

You’ve seen a lot of political debate among the parties about online gaming and the potential for its movement in the lame duck. I’m not terribly optimistic. I think it’s possible, but I think there’s some very pressing issues for the country’s finances that remain in front of the Congress in the lame duck session, and surely we all hope they get attention. It’s possible that the online gaming question will be called in that period, but I think it’s probably less likely rather than more likely.


Next question is from Kevin Coyne.

Kevin Coyne - Goldman Sachs

First, in Vegas, I was just wondering about the investment in the rooms. Is that something you think you need to do just to hold demand, and your theoretical ADR, or can you quantify what the expected increase in ADR will be after the investment?

Gary Loveman

I think I’d phrase your question slightly differently. We think we need to do it to sustain these properties’ position in a market with a very high quality room product that competes against us. But we do anticipate we will enjoy a meaningful ADR improvement once the renovations are complete.

So if you take, for example, one of our towers at Bally’s, which has rooms that are in need of renovation, we sell those at a discount as a result of their current circumstances. And once they’re renovated, I think we’ll see a meaningful improvement in ADR as we have with some of the other, older buildings like a Flamingo, where we’ve done some very, I think, innovative renovations of those rooms and we’ve enjoyed an almost immediate improvement in ADR.

Kevin Coyne - Goldman Sachs

Second, just turning to AC, I know you went through the details of the conference center. Historically, there hasn’t been a strong demand for the corporate meeting space down there. Obviously a new competitor came in and is targeting that. I was just wondering, is that something you’re seeing that is developing as well, the demand for that space? Or was it, perhaps, a reverse inquiry from meeting planners that has said, hey, if you guys had a nice facility, we could drive more demand to your properties?

Gary Loveman

More the latter. And I would point out that unlike a standalone business like Rebel, we’re very meaningfully in that business in Vegas of course, but also in Tahoe and New Orleans and other markets. So we’re in contact with meeting planners from major corporations all the time, and we host them as the site of their meetings constantly.

And we have nothing to offer them of a caliber that they would demand in a market like Atlantic City. Atlantic City has a state-owned, or regionally owned convention and exposition center, but it does not have meeting space at a level that would compete with what these companies find in Vegas or Chicago or other markets.

So we are seeking to develop a new market, and offer them the amenities that go with the meeting that are available at Harrah’s Atlantic City that have not been available in Atlantic City before, where the facility is not contiguous to things the meeting attendees would enjoy, like the hotel room and the restaurants and the gaming and nightlife and the rest.

So we think this is a very interesting experiment, and if it’s successful it’s something we hope either we or others in Atlantic City will do more of.


Our final question is from Peter Dalena.

Peter Dalena - Citigroup

Any update on the timing for an appointment of a CFO?

Gary Loveman

I think it’s getting closer. This is an important job for me, and for the company, and given our capital structure and the demands of working with Eric and other things involved in this job, we’ve been very discriminating about who we want to have in the position. And I’ve taken my time looking for a person that I’m enthusiastic about, and I think we’re near the end of that process. So stay tuned.

Peter Dalena - Citigroup

There were some press articles a while ago on London Clubs International, that it might not be a core business going forward. Any thoughts with respect to potentially looking to sell that?

Gary Loveman

No. We get approaches from people about assets of ours all the time, as you can imagine, when we have as many as we do. And we entertain those approaches, but we don’t have anything on the London Clubs in the large that we’ve entertained or worked on recently.

Ladies and gentlemen, thanks for joining us this afternoon. That will conclude our call.

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