- Investor hasn’t officially declared he’s turning activist
- He would like to see Caesars spin-off digital unit
- That could distract from debut reduction, says research firm
Carl Icahn hasn’t officially signaled that he’s turning activist with his Caesars Entertainment (NASDAQ: CZR) investment, but he has shown an interest in seeing the casino operator unlock shareholder value via a spinoff of its interactive gaming arm. A research firm believes that could be a distraction from debt-paring efforts.
In a new report, GimmeCredit analyst Kim Noland points out that Caesars recently added two directors with ties to Icahn to its board. That could signal that the billionaire investor could be ready to push the gaming company to unload its digital business, which could come at the detriment of reducing liabilities.
While Icahn and his representatives agreed to the customary standstill, their involvement may promote the maximization of share value ahead of management’s clearly stated intent to prioritize deleveraging this year,” says Noland. “Icahnʼs activism combined with significant macroeconomic uncertainty, including the probability of a recession arising from tariff policies, calls into question Caesarsʼ ability to reach its target leverage ratio of 4x by the end of 2026.”
When Icahn revealed his new Caesars investment last year, he said at that time he wasn’t considering activism. However, activist investors can take a variety of approaches, including pushing for board seats and prodding companies to consider parting with underappreciated assets. Caesars Digital checks the latter box.
Caesars Still Needs to Reduce Debt
Led by CEO Tom Reeg, Caesars management was in part installed by Icahn when he pushed for the 2020 acquisition of the casino operator by Eldorado Resorts, the company Reeg previously ran.
One of the reasons Icahn, some other investors, and Wall Street have been supportive of Reeg and his team is the ability of the executive to reduce debt. They’ve done an admirable job of that over the past several years, but Caesars had more than $12 billion in outstanding liabilities at the end of 2024, confirming reduction of those obligations would be a priority this year. Management confirmed as much.
Nolan said that with Caesars’ earnings before interest, taxes, depreciation, and amortization (EBITDA) likely to be flat this year due to macroeconomic issues, including tariffs, the operator would likely need to find ways of significantly boosting earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) to realize its goal of slashing debt. That task could be harder if it opts to spin off its digital unit.
“In order to achieve its target level of debt to EBITDA, the company needs to either increase adjusted EBITDAR by a considerable amount (8%-9%) or reduce total debt substantially. Although recently opened casinos like Caesars Virginia will augment cash flow, such may be offset by weaker financial results due to a recession,” adds the GimmeCredit analyst.
Caesars Might Want to Hold Onto Digital Biz
While there’s been ample talk regarding the operator’s plans for iGaming/online sports betting business and management has entertained the idea of unlocking its value, Caesars may also be compelled to retain it for the time being.
As Noland points out, that business is growing more rapidly than the operators’ land-based assets, including those in Las Vegas. Additionally, broader market uncertainty could make it difficult for Caesars to wring adequate value from a spin-off of its online gaming unit.
“While the companyʼs development pipeline still promises to add nicely to free cash flow in 2025, and capex is projected to be $500 million less than last year, management could be distracted from its goal of cutting debt by an activist agenda that attempts to spin off the high growth digital business or otherwise raise its valuation profile,” concludes Noland.
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