Hold Your Horses: IHRC Report Details Negative View Of Eldorado-Caesars Merger

Caesars and Eldorado require Indiana’s approval to fully capitalize on their proposed merger. It seems the Indiana Horse Racing Commission (IHRC), at least one regulatory authority, doesn’t have a high opinion of Eldorado’s potential takeover of Caesars.

The IHRC staff’s report does not advise the commission to approve the transfer of Caesars’ licenses to Eldorado. The report also proposes limitations that should be imposed on Eldorado by the commission, should it decide to permit the transfers.

Why did the IHRC commission a study into Eldorado?

Caesars experienced little difficulty in arranging the transfer of Centaur’s licenses from the IHRC when it purchased its Indiana racetracks from Centaur Holdings in November 2017. In fact, the latest IHRC report commends Caesars’ operation of horse races.

Another factor to take into account is the stakeholders’ satisfaction level with the industry’s state. When Indiana is assessed by this criterion, the situation hasn’t significantly altered since the May 2018 report. After just one year with the new operator, Caesars, the overall environment has been satisfactory from a racing viewpoint. A few changes have been observed, but they don’t seem to have caused any severe issues.

The report generally praises the current state of horse racing in the Hoosier State. Eldorado, last year, declared that they had made a preliminary agreement to buy Caesars in its entirety.

This week, the acquisition was conditionally approved by the Federal Trade Commission. Before the deal can be executed, Eldorado must sell two of its properties. After the sale is closed, another property currently owned by Caesars must be sold. None of these properties are located in Indiana.

A portion of the transfer will involve Eldorado assuming control of the existing Caesars-managed racetracks in Indiana. This is why the commission funded a study into Eldorado, in order to safeguard the successful operation it currently shares with Indiana racetracks.

The report was blunt about Eldorado’s suitability.

The staff’s opinion on the possibility of Eldorado taking over Caesars’ licenses is explicitly expressed in one sentence of the report’s conclusion.

Simply put, the Commission Staff cannot give a wholehearted or unequivocal recommendation for the approval of ERI’s permit application.

The summary interpreted disinterest in horse racing and reluctance to invest in the improvement of Eldorado’s current properties. The report noted the rundown grandstands at Eldorado’s existing tracks as an example, and questioned whether economic downturns would further affect Eldorado's choice to focus more on other gambling sectors.

The report references a letter from Eldorado to the IHRC in March, aiming to provide reassurances. However, the findings essentially convey that Eldorado’s actions have a greater impact than its words.

This could constitute a substantial issue for Caesars and Eldorado, as it may impede the acquisition.

Caesars’ critical situation and Eldorado’s rescue

In essence, Eldorado is intervening to rescue the assortment of brands and properties that Caesars owns. However, things have not been particularly smooth for Eldorado recently.

Both firms allegedly suffered a joint loss of a billion dollars due to property shutdowns linked to the coronavirus. The aspiration for both entities was that the “merger” would function as a rising tide that elevates all boats.

Business often sees such deals as they are common. The increased size of a newly-formed company provides better access to working capital. This frequently results in operations that are more profitable.

The sale may not be cancelled if the IHRC refuses a transfer of Caesars’ licenses. Eldorado can avoid this problem by selling Caesars’ Indiana racetracks, an option they may already be considering.

However, it may not necessarily be inevitable. The commission’s report proposed a framework that would permit Eldorado to conditionally acquire Caesars’ racing licenses.

The obstacles Eldorado may have to overcome

The report recommended the IHRC to attach 22 specific conditions to the approval of the license transfers, should they decide to grant them. This number implies that the conditions are exhaustive.

The conditions stipulate that Eldorado should collaborate with other organizations such as the Horsemen's Association, and also require Eldorado to submit an annual plan for its racing operations.

At present, the possibility of Eldorado successfully integrating Caesars’ Indiana horse racing venues into its operations appears bleak. Should the IHRC rule in Eldorado’s favor, the company will unquestionably be subjected to further scrutiny.