One Group of Caesars Entertainment Creditors Sues Another Group of Creditors

The Caesars Entertainment Corporation bankruptcy proceeding got a little more complicated this week when one group of creditors sued another group of creditors. The junior lienholders, who currently have a lawsuit against the Caesars Entertainment Operations Company (CEOC), are now suing the first lienholders.

The group of bondholders say the reorganization of CEOC is designed to benefit Caesars and the first lienholders, while leaving the junior bondholders holding the debt. A reorgization of CEOC last summer moved several key casinos from the Operations Division to the parent company, in what many analysts saw as an attempt to hide assets for an eventual bankruptcy proceeding. When the long-awaited bankruptcy plan occurred in January 2015, the first lienholders agreed to the plan, but the junior bondholders sued CEOC to collect their assets.

Bloomberg Discusses the Lawsuit

Bloomberg reported on Monday that the bottom tier of Caesars lenders were filing a lawsuit against creditors who are going along with the plans of Apollo Capital, which owns Caesars Entertainment. The suit, which was filed in Chicago on Friday, argues that collateral pledges made by the top- and middle-tier bondholders are “legally suspect” and should be overturned.

Those who read about the gambling industry probably know that Caesars Entertainment holds about $23 billion in debt. About $18 billion of that debt is tied up in the Caesars Entertainment Operations Company, usually referred to as CEOC.

Debt Restructuring Plan

In the restructuring plan, CEOC would be divided into two divisions. One would continue to handle the operations side of the business and hold about $9.5 billion in debt, but with its assets denuded. The other unit would be a real estate property investment division with about $8.5 billion in debt, but holding the opportunity for payouts on the investments.

The top- and middle-tier creditors would be given stock in the property investment division, thus giving them a chance to be paid back what they are owed. The lower-tier bondholders are not a part of that plan, but are being made to remain vested in the operations unit, which has huge debt and little room for growth.

Caesars Entertainment Business News

Despite another impending lawsuit, shares of Caesars Entertainment went up 11% on Monday. Gaming media outlets laughed about the increase, because it seems to make no sense in the face of what appears to be years of lawsuits and bad press. Whether Caesars and its allies win the lawsuits or not, they appear to most people to have conducted bad business and it’s likely to make it harder for the company to invest in the years to come.

One reason for optimism might have been Gary Loveman’s recent quotes on the future of online poker, especially how daily fantasy sports is likely to change the dynamics of the gaming industry. Online gambling legislation has been frustrating to the departing Caesars CEO, who described the inability of U.S. state legislatures to approve online poker rooms to be “one of the great frustrations of the years I’ve been in this industry.”

Gary Loveman on Online Poker

Loveman said he continues to be amazed that “something that is so intellectually straightforward has been do difficult to execute” has only been legalized in three states. Legalization has been stalled in California due to the Indian gaming interests’ inability to agree whether PokerStars should be allowed in the state. So long as Pechanga and its allies block legislation, no online poker is going to be played legally. Pechanga believes it is worth the millions they are losing each year to keep PokerStars, the #1 poker site in the world, out of the market.

Legislation has stalled in Pennsylvania and Illinois, too. Louisiana, Indiana, Mississippi, and Washington all tried to push through legislation, but those states were considered less likely to license online gambling sites. But California and Pennsylvania have seen repeated attempts stall. Gary Loveman suggested Sheldon Adelson’s anti-gambling campaign for RAWA was partly to blame.

Gary Loveman on Daily Fantasy Sports

Gary Loveman believes the rise of daily fantasy sports betting is going to open the door for online poker, though. DFS sites like DraftKings and FanDuel not only operate legally, but have sponsorship deals with the NBA, NHL, and Major League Baseball. Not only do they have league-level deals, but they have individual sponsorship deals with many of the teams in those leagues. The same goes for individual NFL teams, though not the NFL front office itself.

Eventually, Loveman believes the sports leagues’ double-dealing will catch up to it. While taking money from daily fantasy sports betting sites, they try to ban traditional sports betting in 46 states because of “the integrity of the game“.

The stance is boldly hypocritical and continues to win court battles on narrow legalistic points. Eventually, a judge is going to throw out the PASPA law, says Loveman, and sports betting will be legal in this country (at the federal level).

When it does, it’s only a matter of time before online poker is legal. Gary Loveman said, “Once that Rubicon [legalized sports betting] has been crossed, I think poker will very naturally fall in because it has an awful lot of similarities.“