The “frugal Scot” may be just a notion, but surely Caesars Entertainment Chairman and CEO Gary Loveman was hoping there was a grain of truth in the saying when he appointed Donald Colvin to be the company’s chief financial officer late in 2012. After all, for a company with more than billion in debt, it’s important to watch every penny.
Rather than be apprehensive of the company’s financial shape when he was first offered the position, Colvin says it appealed to him.
“I’ve had very good experiences in the past working for companies that had a lot of debt,” he explains. “My previous employer had a mountain of debt, no cash flow and not much revenue, with a terrible share price. So, I did an analysis before I took that job and found that underlying that debt was a strong business. I did the same thing before taking this job. When I joined this company a year ago, the stock was around $4. Now it’s around $20, so my analysis wasn’t too faulty.”
Colvin reminds investors that Caesars’ debt was simply a result of bad timing economically.
“When the company was taken private, the financing was put in place pre-recession,” he says. “So there is a certain excess of debt on our balance sheet that we have to work with. But that doesn’t need to be fixed by a liquidation or a painful bankruptcy. It can be fixed by an adult-to-adult conversation. Eventually we will find our way forward. Yes, we have excessive debt, but the business is strong and the prospects are good.”
Recently, a company called Caesars Acquisitions (CAC) was spun off from the main company. Colvin says the company will be the vehicle for any future expansion for Caesars Entertainment.
“CAC is a vehicle for us to use for some exciting future expansion opportunities,” he says. “The first opportunity will be Horseshoe Baltimore, which is now under development, but there are other opportunities that we are currently considering. This allows us to consider these opportunities outside of the main company because we still have that debt issue hanging over us here.”
Colvin says the company has also refinanced some of the debt that pushed back maturity of these bonds, which totaled $4.65 billion, in an SEP arrangement.
“So basically we have three legs to the company now,” he says. “CZR, which includes Caesars Palace and most of the properties; we have the growth opportunities within CAC; and you have these remaining properties that are in an SEP.”
Colvin says CAC allows Caesars to remain active in examining expansion opportunities because it is not subject to the debt that seemed to sideline Caesars’ efforts in South Korea and Massachusetts.
“The situation in South Korea had little to do with our debt level,” he explains. “We are still active there and we are making progress with a major developer.
“In Massachusetts, we left there for many complicated reasons unrelated to our debt level. I can tell you there are many projects we are actively examining and we have the means to execute those projects.”
Included under the CAC umbrella is Caesars Interactive, which is directing the company’s online gaming play. Colvin says recent legalization in New Jersey gives Caesars a chance to prove the power of its brands.
“The populous state of New Jersey will show the quality of our products,” he says. “And we have a bricks-and-mortar presence there that will help, as well. And our experience as one of the two companies approved to operate in Nevada will also help. We have great brands and a great team, so we should be successful. How big that market is, however, is the wild card.”
One of the biggest assets of Caesars Entertainment is the data it has captured through its Total Rewards program. Colvin says the financial value of that asset is substantial.
“We’re developing excellent analytics in the gaming part of our business, and our efforts are designed to make it a much more comprehensive analytics tool,” he says. “We’ve also made great strides with the non-gaming hospitality guest.”
Colvin affirms that Caesars remains interested in Asia, citing South Korea and Vietnam as attractive locales, but he says Japan is a “very attractive opportunity.”
“What we have to understand, however, is unlike the trains, the speed of any gaming legislation moves at a very Japanese pace,” he says.