Caesars Palace on the Las Vegas strip has almost 3,900 rooms and gaming space the size of two football pitches.
But its parent company, Caesars Entertainment, is staking its future on UK bookmaker, William Hill, which has been struggling in its home market and is little known in the US.
Caesars’ offer — which follows a rival bid from US private equity group Apollo — values the FTSE-listed group at about $2.9bn. Its chief executive, Tom Reeg, called a potential tie-up “a truly exciting prospect”.
But why has an 86-year-old UK bookmaker, whose share price has long trailed larger industry rivals, become such a prize?
“William Hill might seem like small fry for a casino giant like Caesars, but it is the key to unlocking the value of [Caesars’] existing William Hill US partnership and tap fever on Wall Street for US sports betting and online gaming assets,” said James Kilsby, US managing director of the industry research firm Gambling Compliance.
Unlike the UK, where sports betting has been allowed for more than a 100 years, wagering on sports in the US has only been legal in states outside of Nevada since 2018, after the Supreme Court overturned a federal ruling banning the practice.
The market has grown rapidly — New Jersey, the first state to legalise sports betting following the Supreme Court decision, reported that $668m was placed on wagers during August, more than double the amount spent in the same month in 2019.
H2 Gambling Capital estimates that if all US states legalised sports betting and online gaming, the overall market size could be $10bn, but others have said as much as $35bn. State governments are expected to prioritise legislation to boost tax receipts that have been decimated by the coronavirus pandemic.
The loosening of regulations has boosted the share prices of US-based operators, with investors realising the size of the online opportunity during the pandemic. Caesars, for example, has rallied nearly ten-fold since March despite the mandatory shutdown of casinos. The share price of MGM, which has a joint venture with GVC, the owner of Ladbrokes Coral, has trebled in the same period.
But few of the big US gambling groups have any digital — or sports betting — expertise. Without William Hill’s expertise running sports betting and online casino operations in the mature European market, Caesars would have to start from scratch to take advantage of the opportunities arising.
William Hill was the first UK bookmaker to secure a presence in the US when it bought a Nevada-based betting operation for $50m in 2012.
Caesars owns 20 per cent of William Hill’s US business as part of a joint venture that gives the bookmaker first rights to offer sports betting in Caesars’ 54 casinos across the US, where the activity is legal.
Philip Bowcock, William Hill’s former chief executive who negotiated the deal with El Dorado, which bought Caesars this year, said the casino operator wanted “to outsource [its] digital expertise”.
Analysts have warned that not every US group will emerge as a winner as the betting market opens up.
Ed Birkin, an analyst at H2 Gambling Capital, said: “If you listen to what operators are saying about their market share potential in the US, and add up all their ambitions, you get to a lot more than 100 per cent, which clearly isn’t possible. Once the market has settled down, you’re going to end up with some big losers compared to their stated ambitions.”
Caesars has moved rapidly to gain a footing in new markets, announcing this month that it would be the sole provider of sports betting odds to the TV network ESPN.
William Hill offers betting in 12 US states, the broadest geographical reach of any sports betting company, and a successful bid would boost Caesars’ share of the profits. The UK group expects to launch in two more by the end of the year. It estimates that its US business, which made up 8 per cent of overall group revenue in 2019, accounts for about 29 per cent of the US sports betting market.
Analysts at Morgan Stanley said the UK bookmaker had “the strongest market access arrangement of any operator” and would also benefit from deals it has made with the TV network CBS and the National Football League.
William Hill’s US presence is at odds with its home market, where the bookmaker has lost market share to nimbler rivals that have expanded online. The combination of growth in digital betting, harsh UK regulation against gaming machines in betting shops and pressure from the pandemic has prompted the company to close more than 800 of its 2,300 high street sites.
One person close to the UK business said that when it carried out an equity raise at a valuation of 128p per share in June, convincing top shareholders to buy in had been a struggle.
While some analysts have argued that Caesars’ 272p-per-share offer undervalues William Hills’ US assets, a gambling industry banker said it was a good premium given the regulatory outlook in the UK, where a review of gambling legislation is expected this year. “The risk inherent in the business . . . could be £1 per share negative,” they said.
Caesars said it planned to break up William Hill and seek a buyer for its UK and European operations.
Potential interest for its betting shops could come from Fred Done, the millionaire owner of Betfred, who has built a 6 per cent stake in William Hill since investing in the business last year. Its online operations could attract private equity buyers such as CVC Capital Partners, which used to own SkyBet, or Apollo, which previously owned the former Caesars, having acquired it in 2008 in a $31bn leveraged buyout.
Apollo has backed away from a bid for the whole of William Hill, said people briefed on the negotiations.
One top-20 shareholder in William Hill warned that even if Apollo did try to gazump Caesars, the revelation on Monday that the US operator could pull its partnership in the US if William Hill was sold to the private equity firm was a “poison pill”.
Greg Johnson, an analyst at Shore Capital, said terminating the joint venture and losing William Hills’ expertise would not be in Caesars’ best interest.
He recognised a mutual dependence between the two groups. “In effect [Caesars and William Hill] need each other,” he said.
Additional reporting by Kaye Wiggins, Chris Flood and Siobhan Riding