On June 26, 2020, the Federal Trade Commission (“FTC”) entered into a settlement agreement that allowed Eldorado Resorts, Inc. (“Eldorado”) to acquire Caesars Entertainment Corporation (“Caesars”) for $17.3 billion.
Eldorado agreed to acquire Caesars for $17.3 billion on June 24, 2019. Eldorado is a provider of casino entertainment and hospitality services, operating 23 casino gaming properties. Caesars is a similar provider, operating 53 casino gaming properties in 14 states and in 5 countries outside the United States.
The FTC determined that Eldorado’s proposed acquisition of Caesars would likely cause substantial competitive harm to the casino services markets in South Lake Tahoe, Bossier City-Shreveport, and Kansas City.
In the South Lake Tahoe area market, Eldorado currently operates the MontBleu Casino and Spa (“MontBleu”), while Caesars operates Harrah’s Lake Tahoe Hotel and Casino and Harveys Lake Tahoe Hotel and Casino. All three casinos are located in Stateline, Nevada. In the Bossier City-Shreveport market, Eldorado operates the Eldorado Shreveport Casino (“Eldorado Shreveport”). In the same market, Caesars offers casino services at two properties, Horseshoe Bossier City Hotel and Casino and Harrah’s Louisiana Downs. In Kansas City, Missouri, Eldorado operates the Isle of Capri casino and Caesars operates Harrah’s Kansas City Hotel and Casino.
The FTC found that Eldorado and Caesars are close competitors in the three markets and that the acquisition would substantially lessen this competition and incentivize Eldorado to raise prices while also diminishing its incentive to improve the quality of its services and amenities. These effects would be detrimental to casino customers in these markets.
The FTC also concluded that significant entry barriers exist, so entry is unlikely to be timely. Regulations limit the number of available casino licenses and inhibit the expansion of gaming operations. Obtaining regulatory approval is a lengthy and costly process. Additionally, Louisiana and Missouri have issued all available casino licenses. For this reason, entry in those markets is currently restricted.
The proposed consent agreement sets forth that Eldorado must divest its MontBleu casino and its Eldorado Shreveport casino to Twin River Worldwide Holdings, Inc. (“Twin River”). Further, the divestitures must conclude by the earlier of 12 months from the closing of the acquisition; or 30 days from the date Twin River receives all regulatory approvals.
Independently from its acquisition of Caesars, Eldorado is selling its Isle of Capri casino in Kansas City, Missouri. According to the consent agreement, Eldorado must consummate the sale of Isle of Capri within 60 days of the closure of the acquisition. If this condition is not met, the FTC has the option to require Eldorado to divest Isle of Capri to an approved buyer within 12 months.
Additionally, Eldorado and Caesars are required to abide by the Order to Separate and Maintain Assets until the divestitures are completed. Eldorado and Caesars are thus required to maintain the viability, marketability, and competitiveness of their assets while the divestitures are in progress. A monitor will ensure the parties comply with the Order to Hold Separate and Maintain Assets, the consent agreement, and the divestiture agreements. After the divestiture, the parties are required to provide transitional services to the acquirer of the assets for up to 12 months.
According to the FTC, complying with the consent agreement would result in no changes to market concentration in the three areas and prevent competitive harm.
Commissioner Chopra’s Dissent
In his dissent, Commissioner Chopra expressed that he views the acquisition as risky and having no benefit to competition, casino customers, and those working in the casino services market. While Commissioner Chopra agrees that the acquisition is unlawful, he believes the FTC should not enter into agreements with prolonged divestitures.
According to Commissioner Chopra, an agreed upon divestiture must fully restore competition and the new competitor must be ready and able to compete on day one. He notes this is not possible under the proposed consent agreement. The prolonged divestitures of Eldorado’s two casinos to Twin River can be completed at the earliest of 12 months after acquiring Caesars, or 30 days after Twin River receives regulatory approval. Commissioner Chopra expressed that prolonging the divestiture necessitates adding other risky provisions to the consent agreement. Additionally, he disapproves with the FTC’s proposal to have Commission-appointed property managers operate the casinos until the buyer is ready to take over. Chopra believes this appointment is outside of the FTC’s role. Potential anticompetitive harms are also evident to Chopra with the FTC appointing a monitor, as the appointed managers will be compensated by the prior owner and there is no clear procedure for the manager’s removal or discipline at the hands of the appointed monitor and the FTC.
Moreover, Commissioner Chopra believes the FTC failed to adequately analyze Twin River before approving it as the divestiture buyer. Recently, two hedge funds have accumulated major ownership stakes in Twin River. Commissioner Chopra is concerned that the FTC did not consider the plans of these hedge funds and that ultimately Twin River is not a long-term competitor. He also argues that Twin River will not restore competition on day one given.
The FTC majority decision is in line with the FTC’s past decisions to allow mergers of casino companies on the condition that the buyer divests overlapping casinos that raise competition concerns. In the past, the FTC approved mergers with settlement agreements that did not identify an upfront buyer. In this case, the FTC has actually done more than it has in the past as it identified the divestiture buyer, had an opportunity to vet the buyer, and required a comprehensive remedy to make sure that the divested assets are protected while the divestiture buyer obtains necessary licenses. That being said, Commissioner Chopra raises significant concerns about the FTC’s process and review of divestiture buyers. He is right that in the FTC should always strive to require divestiture remedies that restore competition on day one. Whenever there is a delay in the sale of the divested asset, there is an increased risk that the divestiture buyer may fail may in effectively maintaining competition. Also, given past failed divestiture remedies, he is right to question a divestiture buyer’s motives and incentive, and divestiture buyers must be thoroughly vetted before allowing an anticompetitive merger to be consummated.