Caesars Bid for William Hill Is Gamble on Sports-Betting Values

Call it theDraftKings Inc. effect. Since the sports-betting operator announced plans to gopublic last December, its shares have soared nearly sixfold. Though the companyloses money and had revenue of just$430 million or so last year, the business boasts a market value of $20 billion.

Everyone in gambling has eyed that run-up and pondered how to get in on the action, especially Tom Reeg, the canny chief executive officer ofCaesars Entertainment Inc. In July, he suggested combining his online business with the U.S. sports-betting operations ofWilliam Hill Plc. Now, under pressure fromApollo Global Management, he’s offering $3.7 billion (2.9 billion pounds) for all of William Hill.

What’s behind all this is the explosion in sports betting since the U.S. Supreme Court ruled in 2018 that states outside of Nevada could legalize such wagering if they choose. Now, 22 states and the District of Columbia allow sports betting. Revenue could rise eightfold to $8.4 billion annually by 2024, according to Vixio GamblingCompliance, a research firm.

While the legalization of sports triggered the excitement, the real prize is other forms on online wagering.

In New Jersey, the largest state to offer online sports and casino wagering, sportsbook operators learned they can quickly capture a big share of other online bets. The market leaders in the state are DraftKings and FanDuel, a division of Irish bookmakerFlutter Entertainment Plc.

Online gamblers bet more and play more, Golden Nugget said in a presentation earlier this year. Since the profit from slot machines is more predictable than football wagers, online casino betting is viewed as a lucrative new business opportunity. Both are expected to grow as more states, which have seen their tax revenue crimped by the coronavirus, look to increase revenue by legalizing more types of gambling.

Which leads back to William Hill, an 86-year-old bookmaker whose betting parlors are ubiquitous in its native U.K. Under Reeg, Caesars’ predecessor company Eldorado Resorts acquired 20% of the British company’s U.S. gambling business in 2018, putting both in a position to quickly exploit the expansion of sports betting.

Then last week, Bloomberg News reported that Apollo had approached William Hill about buying the British betting house. The buyout group, which controlled Caesars for 11 years after a badly timed and unprofitable leveraged buyout, hadn’t given up on gambling. Earlier this year, the company took Italian sports betting operator Gamenet private and, flush with cash, is looking for deals.

Caesars’ partnership in William Hill’s U.S. business is Reeg’s ace in the hole — one that may lead William Hill’s board tofavor its offer. The company could yank its casinos and racetracks from William Hill, which operates sportsbooks in locations such as Caesars Palace in Las Vegas. There are about 56 of them in all.

There are risks for Caesars, too. The company, which completed its big merger with Eldorado in July, is still trying to digest that deal. To finance the William Hill purchase, it isoffering as many as 34.5 million new shares to the public, about $2 billion worth, along with additional borrowings, further burdening its balance sheet at a time when business is in crisis and casinos are trying to win back customers scared off by the coronavirus.

Largest in U.S.

William Hill is the largest operator of sportsbooks in the U.S., running the action for a number of casino owners including the Cosmopolitan,Las Vegas Sands Corp. and the Palms. Those companies may not want to continue partnering with William Hill if a competitor like Caesars takes over.

Regulatory changes may also be coming in William Hill’s home markets. Sports betting, both online and off, is more established in Europe, and regulators there have been more aggressive about raising taxes and limiting the bets in parlors. More changes could be afoot, such as limits on advertising, as the U.K. reviews its betting rules, according to James Kilsby, an analyst with GamblingCompliance.

Las Vegas-based Caesars said in a filing Monday it would likely seek a buyer for the non-U.S. portion of William Hill — a business Roth Capital Partners estimates could fetch $2 billion. But the real windfall would be a public offering of the two companies’ combined online businesses at a DraftKings-like valuation, a number Roth puts at more than $10 billion.

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