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Caesars Entertainment’s neutral stance in California’s bitter battle over the legalization of sports betting could lead to the casino being the eventual winner once the ballots are counted.

CEO Tom Reeg told analysts last week that Caesars is staying on the sidelines as proponents of the two referendums vie for voter approval in November.

Debate over Proposition 26, which would authorize retail sportsbooks and is backed by a coalition of tribal casinos, and Proposition 27, a mobile sports betting referendum that funds seven sports betting operators, has already become heated.

Gaming industry consultant Brendan Bussmann said the debate reminds him of California’s failed attempt to legalize online gaming last decade.

“The Caesars could be the only winners of the election no matter what,” he said. “In a hotly contested political campaign around sports betting on both initiatives, there are bound to be some mixed feelings when the dust settles.”

Reeg cited the company’s partnership in two Indian casinos in California as a reason why Caesars is staying out of the fray, even with predictions of a sports betting market that could generate more than $3 billion in annual gaming revenue.

“I’m struggling to think of a jurisdiction we wouldn’t go to in the US if it opened up,” Reeg said in response to a question about California from Macquarie Securities gaming analyst Chad Beynon, who asked about the company’s positioning in the state.

“We want to be everywhere, but as far as California, we’re not part of any initiative,” Reeg said.

That doesn’t mean the company won’t find its way to the Golden State and should issue a pass.

For nearly two decades, Caesars operated Harrah’s Southern California in San Diego County for the Rincon Band of Luiseño Indians. In 2019, Caesars opened Harrah’s Northern California near Sacramento for the Buena Vista Rancheria Band of Me-Wuk Indians.

Depending on how the vote goes, Caesars would tie its Caesars Sportsbook store to either property. The company has a history of operating sports betting in conjunction with Indian casinos through tribes in North Carolina and Arizona.

“We don’t want to conflict with tribal interests when we partner with them,” Reeg said. “So we stayed neutral in California the whole time. You should expect that to be the case in any state where tribes are in conflict with commercial interests.”

Caesars, one of the nation’s four largest sports betting companies by revenue, is notably absent from the coalition of seven national sports betting providers — DraftKings, FanDuel, BetMGM, WynnBet, Bally’s Interactive, Barstool Sports and Fanatics — backing Proposition 27. If approved, mobile sports betting will take place in California in cooperation with tribal casinos.

Caesars’ neutral stance also saves the company money. According to PlayCA.com, tribes, sports betting operators and other parties gave a combined $365 million for and against the two referendums.

Bussmann, director of Las Vegas-based B2 Global, said Caesars took a smart approach “by not investing millions of dollars in a dicey political race to the bottom. Based on the ads I saw recently in California, (it) looks like a no-holds-barred battleship game.”

In Arizona, Caesars has a retail sportsbook at Harrah’s Ak-Chin near Phoenix, a casino the company has operated in partnership with the Ak-Chin Indian community since 1994. Caesars also has mobile sports betting in the state through an agreement with Major League Baseball’s. Arizona Diamondbacks. The company recently opened a sports bar that has a sports betting facility at Chase Field in downtown Phoenix.

In North Carolina, Caesars operates retail sportsbooks at Harrah’s Cherokee and Harrah’s Cherokee Valley River for the Eastern Band of Cherokee Indians, a partnership that began in 1997. The casinos are the only two sportsbooks in the state that have not approved mobile sports betting.

Reno-based Eldorado Resorts, where Reeg was CEO when the company bought Caesars in 2020 after a $17.3 billion buyout, inherited the Indian gaming contracts.

He was surprised by the long-term nature of the agreement. Typically, Indian casino management jobs last for seven years.

“I’ve never seen that before. [It] was a unique position when we bought Caesars,” Reeg said.

A spokeswoman for Proposition 26 said the Rincon and Buena Vista tribes were not part of the coalition that launched the initiative in 2019. However, both tribes are members of the California Nation of Indian Gaming Association, which supports the proposal.

Rincon is part of a coalition with the San Manuel Band of Mission Indians of Southern California and the Wilton Rancheria of Northern California that pushed for tribal-only mobile sports betting. A potential referendum is postponed until the 2024 election.

Caesars Executive Vice President Eric Hession said the company offers sports betting in 24 states and the Canadian province of Ontario. Caesars operates mobile sports betting in 18 jurisdictions.

In the second quarter, Caesars’ digital platforms – sports betting and iGaming – generated revenue of $152 million, up nearly 30 percent from a year earlier. However, total cash flow recorded a loss of $69 million. Reeg said the company made cuts to promotional budgets and reduced costs associated with customer acquisition efforts to reduce losses in July, which is part of the third quarter.

“Given that we almost became profitable in July, I am extremely confident that we will be a profitable business until at least the fourth quarter of 2023,” he said.

Most major sports betting operators have suffered losses related to high promotional spending, and Caesars, due to the launch of an improved technology platform last year, has been playing catch-up.

“Caesars was able to maintain share with significantly reduced marketing and promotional activities, and upcoming product enhancements should further improve customer acquisition and retention,” CBRE gaming analyst John DeCree wrote in a research note following the company’s earnings release. “This work remains underappreciated and represents significant progress.”

California’s potential market, be it retail sports betting, mobile sports betting, or both, could drive up customer acquisition costs. And with 12 percent of the total US population, California is too lucrative an opportunity to pass up.

That figure is what’s driving DraftKings CEO Jason Robins and his company to support Proposition 27. He said the message was the initiative’s language, which includes using 85 percent of revenue to fund homeless programs and mental health efforts.

“There are a lot of benefits for California and we’re focused on trying to articulate that to voters,” Robins said last week on his company’s second-quarter earnings call. “I still believe we’re going to get this over the line.”

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