Eldorado, Caesars Deal Faces Difficulties with Regulators

The coronavirus has put a crimp on the casino gambling industry’s hopes in the United States. Nevada has shut down all its casinos, and nationwide, there isn’t a single gambling establishment still open.

Workers have been furloughed and the precariousness grows every day. A silver lining has been the fact that the Senate has voted to support the gambling industry, a part of a $2 trillion relief effort designated to try and bolster the economy as much as possible in the midst of the COVID-19 outbreak, which is only setting in.

Yet, to some companies, the coronavirus pandemic could mean a lot. After negotiating one of the most important takeover deals in the gaming sector with Caesars Entertainment Corp, Eldorado Resorts may now have to at least temporarily reconsider their next move.

The deal in which Eldorado Resorts is taking over Caesars Entertainment Corp. should have been completed by late March or failing that – early April, but with the complete lockdown of the gambling sector in the U.S., this has posed its own new challenges that the company hasn’t foreseen.

Yet, Eldorado Resorts and Caesars seem to do what every well-seasoned company does in times such as these – stand firm in the face of economic headwinds that would nevertheless pass.

However, what the timeliness of regulators’ final approval is what matters the most here, allowing the entities to complete their merger. The deal is estimated at $17.3 billion which is a challenging enough amount to pull together even in quieter times.

What Could Happen with the Merger?

For starters, the merger is in the companies’ best interest. Both Caesars and Eldorado would want to see regulators in states where the two companies own business give their approval. Yet, this approval is likely to be delayed now as more pressing matters have been brought up, watchdog officials have noted.

While some watchdogs have already cleared the deal, Tony Alamo, the chair of the Nevada Gaming Control Board (NGCB), has told the New York Post that the deal might not be considered important enough to be pushed through right away.

According to Alamo, there are more pressing matters, clearly alluding to the unfolding pandemic that has paralyzed the gambling sector in the United States. In New Jersey, another key market for both established gambling behemoths, the NJ Casino Control Commission won’t convene until May 13 – the information coming straight from the horse’s mouth, Jim Plousis, chair of the Commission.

The issue with the deal in the present context is that regulators will try to ensure the safety of the industry as a whole first, rather than give priority to the Eldorado takeover, regardless of its size and significance.

Yet it may as well be argued that clearing the takeover is in the industry’s best interest.

Eldorado Is Paying Fees to Caesars

While the uncertainty continues, Eldorado continues to pay fees to Caesars at a rate of $2.3 million a day, and if the deal is cleared at Nevada’s earliest convenience, the fee could still have reached estimated $100 million by the time all matters have been settled.

One worrying clause is that, if the deal fails to clear, Eldorado will have to pay a $837 million penalty fee. While Eldorado seems to be in good financial standing, it has been reported that the company has already tapped into some of its excess money.

Eldorado could further lose another $215 million in the second quarter if the company’s casinos remain closed through June, Cowen, an investment bank based in New York, has reported.

Sources cited by the New York Post even suggested that if the deal fails to clear, “this could push Eldorado into bankruptcy,” unless it finds alternative cash. Eldorado presently employees some 15,500 with Caesars responsible for another 64,000.

With this said, regulators might want to consider the deal between the two entities at shorter notice as, while the survival of the gambling industry as a whole is important, it starts by covering significant bid players, such as Eldorado and Caesars.

Outside the pandemic, there is no reason for Eldorado not to see the deal completed, and circumstances shouldn’t flounder the deal.

Yet, the sector is bracing for a rather rocky future. According to Alamo, Nevada is unlikely to re-start its industry all at once. Rather, the Silver State will have to bring things back up in phases.