IHRC Staff Not Enthusiastic About Eldorado/Caesars Deal, Doubts ERI Pari-Mutuel Commitment

Posted on: July 7, 2020, 09:56h. 

Last updated on: July 7, 2020, 01:16h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Just days before a scheduled discussion, Indiana Horse Racing Commission (IHRC) staff expressed concerns about Eldorado Resorts Inc.’s (NASDAQ:ERI) $17.3 billion takeover of Caesars Entertainment (NASDAQ:CZR).

Indiana Racing Commission Concerns Over Eldorado/Caesars
Hoosier Park in Indiana, one of two Indiana racetracks Eldorado will control when it completes the Caesars takeover. But state regulators are expressing concerns about the buyer’s pari-mutuel commitments. (Image: The Herald Bulletin)

In a report to the IHRC, commission staff says it’s impossible “to offer its enthusiastic or unqualified recommendation for the approval of ERI’s permit application,” citing the operator’s track record at Scioto Downs in Columbus, Ohio –- one of the racetracks it currently operates. Caesars runs Hoosier Park and Indiana Grand, two racinos that will join the Eldorado portfolio when the acquisition is finalized.

Additionally, it is unclear to Commission Staff that ERI would remain as committed to horse racing if Indiana Grand and/or Hoosier Park are affected by economic downturn or fall short of expected revenues following the table game build-out,” according to the staff report.

The IHRC staff concerns come to light ahead of what’s slated to be a busy stretch on the regulatory front for Eldorado. The Nevada Gaming Control Board (NGCB) and the Gaming Commission (NGC) are scheduled to take up the matter tomorrow, followed by the Indiana Gaming Commission (IGC) on Friday.

The transaction is on IHRC’s July 13 agenda and the New Jersey Casino Control Commission (NJCCC) is expected to vote on the takeover on July 15. The Federal Trade Commission (FTC) approved the deal last month.

‘Two Sides of ERI’

Previously, there was speculation that the IHRC would have concerns about Eldorado’s pursuit of Caesars. That’s because of Eldorado’s perceived lack of horse racing experience. But the operator previously controlled tracks in Pennsylvania and West Virginia.

In the report to the commission, IHRC acknowledges it’s difficult to reconcile “two side of ERI as an organization.” One side being an operator showing commitment and enthusiasm for advancing Hoosier Park and Indiana Grand. The other being a group “clearly disinterested in horse racing since entering the industry in 2014,” according to the staff document.

Eldorado entered the pari-mutuel business via the 2014 merger with MTR Gaming. Since then, the operator divested some racetrack assets, and IHRC staff claims the gaming company is “strongly averse” to spending the money needed to bolster the horse racing facilities it currently owns.

There’s another element of the ERI/Caesars transaction that the IHRC is taking issue with. When the buyer announced the offer in June 2019, it unveiled a series of agreements with real estate company VICI Properties (NYSE:VICI), including the possible sales of the property assets of Hoosier Park and Indiana Grand. The pact is the form of a put/call agreement, meaning Eldorado can require VICI to buy those assets or the property firm can do so on its own.

The agreement goes into effect between Jan. 1, 2022, and Dec. 31, 2024, and ERI claims this arrangement isn’t part of its Indiana horse racing permit application, according to the staff document. The report says IHRC previously outlined reservations about a race track reaching an operational deal with a real estate investment trust (REIT), of which VICI is one.

Reed Report

As part of its efforts to assess Eldorado’s pari-mutuel capabilities, IHRC hired Douglas Reed of Racing, Gaming and Entertainment, LLC. Reed has decades of experience in the industry and is well-known in horse racing circles.

Reed visited Mountaineer Racetrack in West Virginia, which ERI sold last year, as well as Pompano Park in Florida and the aforementioned Scioto Downs, coming away with a batch of scathing comments.

Reed said he interviewed horsemen at Scioto Downs that also raced at Hoosier Park and the competitors said there’s no comparison between the two venues, adding that the Ohio track has become more “run down” since Eldorado took control.

At Pompano Park in Florida, stakeholders told Reed they’re concerned about pending litigation that’s prompting Eldorado to consider dropping its pari-mutuel license in favor of a jai alai permit. That track is a racino with the Isle Casino in Pompano Beach.

“Unfortunately, it’s very difficult for Commission Staff to read through Reed’s Second Report and come away with any optimism about ERI’s history of managing racing properties,” according to the staff document. “ERI’s management style to this point has been the antithesis of the management style that has been encouraged, expected, and largely received from Centaur and Caesars.”