Earnings Call Transcript
Caesars Entertainment, Inc. (CZR)
Earnings Call Transcript - CZR Q2 2024
Operator, Operator
Hello, thank you for standing by. Welcome to Caesars Entertainment, Inc. 2024 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to turn the call over to Brian Agnew, Senior Vice President of Corporate Finance, Treasury, and Investor Relations. Sir, you may begin.
Brian Agnew, Senior Vice President of Corporate Finance, Treasury, and Investor Relations
Thank you, and good afternoon to everyone on the call. Welcome to our conference call to discuss our second quarter 2024 earnings. This afternoon, we issued a press release announcing our financial results for the period ended June 30, 2024. A copy of the press release is available in the Investor Relations section of our website. As usual, joining me on the call today are Tom Reeg, our Chief Executive Officer; Anthony Carano, our President and Chief Operating Officer; Bret Yunker, our Chief Financial Officer; Eric Hession, President Caesars Sports and Online Gaming, and Charise Crumbley in Investor Relations. Before I turn the call over to Anthony, I would like to remind you that during today's conference call, we may make certain forward-looking statements under safe harbor federal securities laws, and these statements may or may not come true. Also, during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. Please visit our press releases located on our Investor Relations website for a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure. With that out of the way, I will turn the call over to Anthony.
Anthony Carano, President and Chief Operating Officer
Thank you, Brian, and good afternoon to everyone on the call. Our second quarter delivered consolidated net revenues of $2.8 billion and total adjusted EBITDAR of $1 billion, both flat versus prior year. Our Las Vegas segment delivered a same-store second quarter net revenue record of $1.1 billion and our adjusted EBITDAR of $514 million beat the prior year by 1.2%. These results were driven by continued growth in hotel cash revenue as a result of higher year-over-year occupancy and ADRs and record performance from our food and beverage. Recent room renovations at our newly rebranded Versailles Tower at Paris and Colosseum Tower at Caesars Palace are driving above-plan returns on investment driven by strong gains in cash ADRs. The group and convention segment also delivered an increase in occupied room nights year-over-year and recent forward pace for 2025 has strengthened. Las Vegas EBITDAR margins of 46.6% were down only 40 basis points year-over-year despite increases in labor. We remain encouraged for operating trends in Las Vegas segment based on our forward expectations for continued strong occupancy and hotel pricing trends coupled with the decrease in room inventory on the Las Vegas Strip. In our regional segment, adjusted EBITDAR for the quarter was $469 million, down 8% year-over-year. Results were driven by a combination of competitive pressures in certain markets, construction disruption, principally in New Orleans, and a difficult comparison in Reno due to a large group event last year, offset by performance from our Danville and Nebraska properties. Despite revenue declines, EBITDA margins in our regional segment were down only 100 basis points, reflecting strong cost discipline. During the quarter, we celebrated the opening of Paris, Nebraska's permanent facility on May 17th, the company's first property in the state, which is off to a strong start. We look forward to the completion of our newly rebranded Caesars property in New Orleans in October and the opening of the Danville permanent facility in December. Our elevated capital investment cycle is coming to an end, which will drive strong returns for the regional segment looking ahead. Our team members continue to deliver exceptional guest experiences as a result of their continued hard work and dedication. I want to thank all of our team members for their contributions to our strong results, which are a product of their commitment to excellence. With that I will now turn the call over to Eric for some detail on the second quarter results in our Caesars Digital segment.
Eric Hession, President Caesars Sports and Online Gaming
Thanks, Anthony. Caesars Digital delivered second-quarter net revenues of $276 million, up 28% year-over-year and set a quarterly adjusted EBITDA record of $40 million versus $11 million in the year-ago period. Including this quarter, we have now generated trailing 12 months EBITDA of $76 million. Our net revenue flow-through EBITDA in the quarter remained within our 50% range. Net revenues in our sports betting segment increased 19% year-over-year, driven by flat handle and hold of 7.2%, which improved 80 basis points versus last year. Our product on the sports side continues to improve and our customers are reacting positively to our increasing mix of parlay and in-game offerings. We continue to drive growth in our parlay wagers with the percentage of that type of wager growing 380 basis points year-over-year, consistent with the trends we've observed throughout the year. In July, we closed on the acquisition of ZeroFlucs, a leading sports betting technology company based in Australia. ZeroFlucs team has already started contributing to the product innovation and driving hold improvements and customer engagement. In our iGaming segment, net revenues grew 50% for the second consecutive quarter driven by a 33% increase in volume and a 30 basis point year-over-year improvement in hold. Caesars Palace Online continues to grow as a percentage of our total iCasino revenues. We're actively enhancing the product offerings by adding new and exciting game content, including exclusively designed Caesars-themed games. We successfully completed the acquisition of WynnBet's operations in Michigan in June, which sets the stage for the introduction of our new iGaming app, which will be branded the Horseshoe in early Q3. As we head to the back half of the year, we continue to be optimistic about the progress we're making in both sports and iCasino and I believe we are well set up for a strong finish to the year. We now offer sports betting in 32 North American jurisdictions, 26 of which offer mobile wagering. I'll now pass the call back to Bret for some comments on the balance sheet.
Bret Yunker, Chief Financial Officer
Thanks, Eric. Strong free cash flow generation of over $100 million in Q2 was applied to permanently reduce our 2030 Term Loan B. Our refinancing activity over the past two years has significantly extended our maturity profile with our nearest maturity now three years away. We continue to monitor the capital markets to opportunistically lower our cost of debt. As Anthony noted previously, our elevated capital investment cycle is nearing completion and we expect to see CapEx coming down by roughly $200 million in 2025, setting the stage for increasing free cash flow. Over to Tom.
Tom Reeg, Chief Executive Officer
Thanks. To dig a little more deeply into the numbers starting in regional. April was a terrible month for us when we last talked to you. In April, you had the Easter calendar shift, and it wasn't clear how the month would shake out. But if you look at the decline in regional year-over-year, April was more than 100% of that. May and June both were up year-over-year. If you look at Caesars-specific items in the quarter, New Orleans is at peak construction disruption in the center of the casino right now, that's going to continue for the next month or so, so that hits us in this quarter as well. Reno, those of you who have followed us a long time know that one of the biggest groups in Reno are the bowlers. This year's bowling group is about 20% of the size of last year. So we're missing well over 40,000 direct room nights from them and likely more as they book through other channels. The combination of those two items in the quarter cost us over $25 million of EBITDA and those will continue into the third quarter, given that the bowlers left at the end of July last year. New Orleans construction will complete Labor Day. In addition, Churchill's Terre Haute property impacted Indianapolis in the quarter. And we anniversaried the temporary opening in Virginia for about half of the quarter. So as I look forward, I'd expect the third quarter to look something like this. In the fourth quarter, we get the benefit of a full quarter of New Orleans rolling out its new product. Recall that we've got about $80 million there of incremental gaming revenue that, with the way taxes work in New Orleans, would be without casino tax to us, and then expect Virginia to open before the end of the year. So I would expect we'd be a grower in the fourth quarter; the third quarter probably looks similar to this. We feel good about 2025 in regional. In Vegas, very pleased with the quarter. Keep in mind we had about $20 million of headwinds between union contract raises plus employees in venues that weren't open last year, so restaurants that were under construction and opened subsequent to the second quarter last year. To fade that $20 million and grow, I'm particularly heartened that hold was a non-event in the quarter. We were in our range and the difference quarter-over-quarter was less than the increase in EBITDA. Obviously, we held margins well. Anthony mentioned the two hotel remodels that we did, Coliseum performing quite well. Versailles has been our most successful hotel renovation, and recent data shows rooms from the Versailles tower are up $65 in ADR year-over-year, that's almost a 60% lift. Just recently, the connector should open in this quarter that should have further tailwinds on that tower, that's been our most successful hotel renovation in possibly the history of Caesars. So excited about that. The rest of the year looks strong. Expect Vegas to post growth. I know that that's not what's been reflected in estimates, but we feel very good about the rest of the year into 2025. Eric talked about digital. Another quarter of nearly 30% net revenue growth, 50% flow-through, which is what we've told you that we expect to deliver. July's off to a fantastic start. Growth is in excess of that target. Feel good about the third quarter and then, by the end of this quarter, we'll be into football. Expect that the Horseshoe brand, the second brand in iCasino, can help us build on the gains that we've had since we rolled out Caesars Palace online. So momentum in digital is quite strong for us and all of the targets that we've laid out in the past still seem well within our grasp. So feel very good about that. And then as Bret and Anthony both highlighted, we will roll out, we will finish our CapEx cycle that we entered into when we closed the merger in 2020 with the opening of Virginia by the end of the year. That will bring that CapEx down a couple hundred million gross CapEx, over $500 million. Coupled with what's going on in digital and the brick-and-mortar portfolio, we're going to see a significant lift in free cash flow. As we stated, you should expect us to be looking for what we'll do with that free cash flow. We continue to plan to reduce debt, to reduce leverage at current levels in the stock. I wouldn't be surprised; you shouldn't be surprised if you see us become a buyer of stock as we get to that inflection point. And with that, I will turn it back for questions.
Operator, Operator
Thank you. Our first question comes from the line of Joe Greff, with JPMorgan. Your line is open.
Joe Greff, Analyst
Good afternoon, everybody. I want to start with a question on Las Vegas. Obviously, the results were nicely ahead of what we in the industry were forecasting, and margins are knocking on 47%. Going through some of the various Vegas KPIs that you put in the queue, if I make certain assumptions for slot wins, it looks like the contra gaming revenue, or at least the relationship between casino revenue and gross gaming revenue was very favorable. Can you talk about maybe what's driving that and maybe the sustainability of that? And, obviously, that would lead to a continuation of pretty good margins.
Tom Reeg, Chief Executive Officer
From our perspective, our approach to promotions in Las Vegas remains unchanged. I don't have my queue in front of me, so I'm not certain what specific numbers you're referencing. However, we have established pricing power in Las Vegas, something we've recognized for quite some time. Our team has consistently raised the standard. Looking back at the second quarter of 2022, we achieved our highest ever EBITDA during that time. Two years ago, that record was supported by State Farm and a substantial amount of international business, all before the union contract impacted us. Since then, we've faced approximately $76 million in headwinds. Two years ago, we had $76 million less in expenses. Currently, our EBITDA is down by just under $30 million from that record quarter, which highlights our team's resilience. Despite facing $76 million in challenges, we've managed to absorb $50 million of that impact. I'm proud of how our team operates out here.
Joe Greff, Analyst
Great. Then my second question is for you, Tom, or for Eric in digital. Clearly, you're doing a good job on the iCasino side of things. And I'm presuming that has a much higher margin than the OFB revenues. I know you have a target out there of $500 million in EBITDAR, and if you look at the next couple of years and in consensus numbers, no one's sort of forecasting that. But it looks like this year, you could be aiming to do or knock on a couple of hundred million of EBITDAR in this segment. Is that close to how you're thinking about it internally? Obviously, taking into account what you're forecasting within a couple of quarters.
Tom Reeg, Chief Executive Officer
Yeah, a couple of things. I agree with you that iCasino is going to be more profitable from a margin perspective than sports as you look at ultimately more states legalizing. But if you look at the states that are legal now and their tax rate, the delta between margin and iCasino and sports betting is not as large as you would suspect. Last quarter I laid out, we were at $1 billion of net revenue last year. We were about $50 million of EBITDA, a little less than that. Talked about growing 30% on the top line, 50% flow-through that should get you in the neighborhood of $200 million. And we're well on our way there this year. So feel good about that. You know, the key will be, can we do it again next year? And then we get the roll-off of the partnership contracts that also will flow to the bottom line, and that's how we get to the same $500 million we've been talking about for three years now. You'll believe it at some point.
Joe Greff, Analyst
Great. Appreciate the comments. Thanks, Tom.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of Carlo Santarelli with Deutsche Bank. Your line is open.
Carlo Santarelli, Analyst
Hey, Tom, everybody, Anthony, Bret. I just had two questions, both of which relate to the back half of the year in Las Vegas. The first one, I just want to make sure I understand this properly. Tom, you talked a little bit about the $20 million of incremental costs, some of which related to the culinary union contract. That contract, if I'm not mistaken, will see its next escalator in October, which means that in the 3Q, presumably the only increase you should see from that would relate to whatever you might have under-accrued in the 3Q last year, so relatively minimal. Is my understanding correct?
Tom Reeg, Chief Executive Officer
That's accurate, Carlo.
Carlo Santarelli, Analyst
Okay. Thank you. And then the second one, obviously, the World Series of Poker is happening right now. You guys have obviously had that in the properties and has historically been a pretty good cash generator for you, not just for the tournament itself, but gaming play in general. Could you comment a little bit about the holistic impact that brand is having across the assets at present?
Tom Reeg, Chief Executive Officer
Yeah, I'll talk about the holistic. Eric can talk about specifics of actual World Series. This was our best World Series ever from a financial perspective. It fills a lot of rooms on the east side of the strip at a time when it can be, as we've noticed recently, almost 120 degrees here, so a good time to have a significant group of gamblers in-house. We see benefits in our hotel. We see benefits in table games. We see benefits in slot play and in our food and beverage; that's all ancillary and hard to quantify, but Eric can discuss the actual economics of the event for us.
Eric Hession, President Caesars Sports and Online Gaming
Yeah, Carlo, it shows up in our P&L on that other line. It's basically the World Series of Poker plus the skin revenues that we receive from renting our skins in other states. As Tom mentioned, we had a record World Series of Poker here at the venue in Las Vegas. From an economic perspective, it's actually very consistent. The online poker does okay, but doesn't make a huge amount of money, and then the royalty streams from the land-based casinos where the economics are make between $20 million and $25 million for the year as a whole. That's an EBITDA number, and then the balance is going to be the skins that you see there in that other line.
Carlo Santarelli, Analyst
Great. Thank you, guys. Then if I could just one quick follow-up. Anthony, you mentioned 25 group pace for Las Vegas had strengthened in the period. Could you kind of give some parameters, i.e., what's booked, what you expect mix could be, pace, things of that nature?
Anthony Carano, President and Chief Operating Officer
Yeah, Carlo, I think we'll see about mid-single digits above this year and going up into the mid-teens of mix for the market, so a tick up there as well. The team's been doing a great job in future bookings and has really, as I said, come in very strong in the last couple of months for 2025.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of Brandt Montour with Barclays. Your line is open.
Brandt Montour, Analyst
Hi, everyone. Good afternoon or evening, and thank you for taking my question. I want to discuss the hotel room rates. If we analyze the room rates from the queue, it appears there's been a significant increase in room rates in Las Vegas compared to the previous quarter. Tom, I was wondering if you could share your thoughts on this. It seems some of this could be attributed to Reno's market changes. Additionally, you've mentioned the hotel supply shifts on the strip; it could be that there's increased demand allowing you to raise prices sequentially. How do you view this, and how confident are you about its sustainability for the rest of the year?
Tom Reeg, Chief Executive Officer
Yeah, Brandt, we've not seen a lot of elasticity when it comes to pricing in Vegas, so we have continued to take price across the board, not just rooms, restaurants, ATM fees, pool cabanas. There's just a massive amount of demand for Vegas, and that has continued. If you look at where we're driving, we're driving a lot of it through non-gaming, and gaming is holding up well. That leads to more EBITDA overall, which is great.
Brandt Montour, Analyst
Thanks for that. Eric, could you discuss why handle has remained flat year-over-year this quarter? We previously addressed this, and you're seeing significant growth from parlay mix and increased hold. How long can this trend support overall OSB revenue growth in relation to the long-term EBITDA targets you've set? Is this sustainable, or will you need to focus on increasing player counts and volumes again in the medium term?
Eric Hession, President Caesars Sports and Online Gaming
Yeah, it's a good question, and it's been a couple of quarters that we've had, basically flat volume and increased hold, and thus increased revenues on the sports betting side. We've taken some actions from a reinvestment perspective, and then also from a wagering perspective that have impacted the volumes. One way to think about it is, as I mentioned on the previous quarter, we had just recently been able to launch our new marketing system that allows us to provide segmented marketing, trigger-based marketing, and a much more customized approach. Prior to that, we were investing with a much more peanut butter spread approach, and it caused us to be over-investing in some of the lower end of the database. We've reduced that, and as you'd expect, the volumes have dropped off, but the profitability has gone up. The business that we are getting isn't business that you'd be too concerned about losing because it was unprofitable. I think that what you'll start to see is revenue growth start this quarter, and it'll accelerate as we start to lap some of the actions that we took. I do think you'll see solid volume growth starting, and hold will continue to grow. That should compound as we head into the back half of the year.
Brandt Montour, Analyst
Perfect. Thanks, everyone.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of Dan Politzer with Wells Fargo. Your line is open.
Dan Politzer, Analyst
Hey, good afternoon, everyone. Thanks for taking my questions. First on regionals, Tom, you mentioned that most of the decline in the quarter was coming from April, and that June was actually up. As we look at the gross gaming revenues for what's reportable, it looks to tell a different story. So, when you mention that, are you talking about net revenues, and how do we kind of reconcile this? Is there a dynamic with promotions going on that is also worth maybe talking about?
Tom Reeg, Chief Executive Officer
Dan, we've known each other a long time. I only talk about EBITDA, so whatever's going on in gross gaming revenue, I'm not paying attention to. We have not changed our promotional profile in any piece of our business. We were off, what, 30 something for the quarter, and 25 plus of that was New Orleans and Reno, as I described. The regional business as a whole continues to bump along. Obviously, as we've seen, you've got months that are not as strong and others that are stronger. April, for us is as I said was more than 100% of the decline. Both May and June grew in EBITDA, but there's nothing we're doing in promotions nor are there anything we see others doing that we need to respond to in that segment.
Dan Politzer, Analyst
Got that's helpful. And then in terms of the M&A environment, there's obviously been a lot in the headlines lately. Do you view your stock price here as a limiting factor to getting involved, or are there opportunities that you could see notwithstanding where your stock is trading just given some of the headlines that we've seen out there?
Tom Reeg, Chief Executive Officer
I'd say we're just reading the same headlines you are. We're not even tangentially involved in whatever's happening at Penn, which I know that's where your question is going. In terms of what we'll do, and I’ve said before that we are mindful that we've generated a lot of shareholder value through M&A through external opportunities. The M&A that we've driven value through in the greatest form have used stock as a significant portion of our payment for those assets. I'm not an issuer of stock at $36; wherever it was today, we’re going to be a significant, even more significant free cash flow producer as these project spends run down. That will open up a leg of shareholder returns, so you should expect us to start buying in some of our stock. If the stock moves to a different neighborhood, that can change. I think all things equal will drive more value if we continue to execute external opportunities, but I'm not going to give our stock away, so that's where we sit today.
Dan Politzer, Analyst
Got it. And then if I could just sneak in one quick clarification. You mentioned for the regionals in the third quarter it will look similar to the second quarter. I'm assuming that was you know a declining by a similar amount year-over-year correct?
Tom Reeg, Chief Executive Officer
Yeah, we have the same. We're dealing with all three that impacted us in the second quarter in the third quarter. So New Orleans peak disruption till Labor Day, Terre Haute, obviously, we're going through the second full quarter since opening. And then the Reno group impact extended into July last year. So all three will be headwinds this quarter. I think you start to flip toward the end of the quarter as New Orleans opens and then as you get to the fourth quarter and Virginia opens, I'd expect we're growing in that segment again. Recall that the win per position in the temporary in Virginia is the highest in the entire enterprise and will be about doubling gaming capacity when we move to the permanent. That should be a strong driver. And I've already touched on the way the New Orleans casino revenue will flow through in the initial stages.
Dan Politzer, Analyst
Got it. Super helpful. Thank you.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of Steven Wieczynski with Stifel. Your line is open.
Steven Wieczynski, Analyst
Yeah, guys, good afternoon. Tom, another quick clarification here. When you were talking about Vegas for the second half of this year, were you basically saying that you think you can grow EBITDA for the full year year-over-year in Vegas? Did I hear that right?
Tom Reeg, Chief Executive Officer
You did not. I'd expect Vegas to grow in the second half of the year, both third and fourth quarter. As I said on last quarter's call, we would need a swing in hold that offsets our hold impact from first quarter to be a grower for the year.
Steven Wieczynski, Analyst
Thank you for that. I noticed a comment in the regional segment about a slight decline in gaming volumes, which seems to be due to a mix shift. Your rated play appears to remain steady with some growth, while the unrated play has seen a reduction. I'm curious if this reduction in unrated play is consistent across the entire portfolio or if there are specific regions experiencing more pressure in that area.
Tom Reeg, Chief Executive Officer
I would say there's always variability in a portfolio of our size. You feel it more in unrated and rated, where unrated is worse off than the average regional property. It's due to competitive opening in the same geography. So if you think about how does Terre Haute affect us, we had people that were coming from a couple of hours away from Indianapolis to the West. Now you've lost some of them for good because Terre Haute is much more convenient, and then you're going to have a battle around somewhere in between you, like you have at other properties. If I'm looking at unrated versus rated, it's more unrated, and the decline in unrated in that property would be more than our typical regional because of that competition.
Steven Wieczynski, Analyst
Okay, got you. Thanks, Tom. Appreciate it.
Brian Agnew, Senior Vice President of Corporate Finance, Treasury, and Investor Relations
In the interest of time for the remaining participants asking questions, can we please limit it to one question, and then we'll try to take some follow-ups. So we've got a bunch of people in the queue that we want to get to.
Operator, Operator
Thank you. Please stand by for our next question. Next question comes from the line of Shaun Kelley with Bank of America. Your line is open.
Shaun Kelley, Analyst
Hi, good afternoon, everyone. Thanks for taking my question. Just in the spirit of time, Eric, I wanted to go back to sort of the CAC or promotional environment a little bit and just in terms of what you're seeing in digital. Obviously, 50% flow-through in the quarter is great. Have you seen any environmental change, especially as you're thinking about ramping or seeing ramping volumes on the OSB side? Because I think there's some increasing trepidation about flow-through rates as we start to look into the third and fourth quarter. And, obviously, I think there's a lot of expected competition in new products expected to be rolled out, particularly around the NFL season opener. Thanks.
Eric Hession, President Caesars Sports and Online Gaming
Yeah, sure. I would say that over the last kind of two to three months, we've seen the cost of acquisition drop fairly significantly on the sports betting side. It's kind of across the board, both on paid search and paid social. The affiliates are contractually based, but even there to a little bit degree. So, from the sports betting side, I would say that the intensity has dropped from acquiring customers. On the casino side, I would say that the costs have remained pretty constant for us throughout the year. On the casino side, we definitely target a certain CAC for each of the channels. Then we don't go above that, and certainly, in instances, we're not able to satisfy the amount of money we would have spent otherwise because the demand is not there and it does drop off in the summer to some degree. So I would expect that our spend would go up just in aggregate dollars as we head into the third and fourth quarter, particularly in late August and September as everybody signs up for football. But in terms of the cost per acquisition, I'm seeing nothing at this point that would indicate a real change from the trends in the last few months.
Shaun Kelley, Analyst
Thank you very much.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of Stephen Wieczynski with Stifel. Your line is open.
Unidentified Analyst, Analyst
I couldn't hear that, was my name, if it was for a second. Can you hear me?
Brian Agnew, Senior Vice President of Corporate Finance, Treasury, and Investor Relations
Yeah, you're good.
Unidentified Analyst, Analyst
Yeah. So one other on digital, given the strong flow-through and as you open up Horseshoe Casino, should we anticipate any kind of investment behind that that could reverse some of the operating leverage we've seen? And are there any thoughts that you can provide on how quickly you think that brand launch could build from here?
Tom Reeg, Chief Executive Officer
No on launch costs eating into flow-through. You saw us launch Caesars Palace online generating this kind of flow-through. I'd expect nothing different here. Eric, do you want to speak on expectations if that was built?
Eric Hession, President Caesars Sports and Online Gaming
We're launching the Horseshoe brand in a different manner than we did with Caesars Palace, focusing on one state at a time. If we receive the necessary regulatory approvals, we'll start in Michigan around September, followed by launches in other states throughout the year, concluding in Ontario in the first quarter. This approach will be somewhat different. While we believe the Horseshoe brand will resonate well with many customers, it's important to manage expectations as Caesars is an even stronger brand and will serve as our flagship app, having a one-year head start over Horseshoe. I expect Horseshoe to perform well, but it may not capture as much market share as Caesars.
Unidentified Analyst, Analyst
Great, thank you.
Operator, Operator
Thank you. Please stand by for our next question. The next question comes from the line of Barry Jonas with Truist Securities. Your line is open.
Barry Jonas, Analyst
Illinois recently raised its OSB tax rate. Curious if there are ways you can talk about maybe to offset that higher tax and at the same time, does that graduated tax system in the state offer you maybe an opportunity to gain share? Thanks.
Tom Reeg, Chief Executive Officer
Yeah. Because of the graduated tax, I think we're not in favor of tax increases at all but the graduated tax is certainly favorable compared to a flat tax; the impact to us is under $5 million a year. We're not planning to change our behavior based on that change. If some of the others that are impacted more changed their reinvestment levels or their odds or some other type of action that they take in the state, that's potentially beneficial to us. But at this point, I haven't really seen anything that would indicate that that's happening.
Barry Jonas, Analyst
Got it. Thanks.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of John DeCree with CBRE. Your line is open.
John DeCree, Analyst
Thanks, everyone. Maybe one more on the M&A front, Tom. I think your views on the buy side are pretty clear. Curious if you speak to your strategy or any thoughts on possibly selling some stuff or culling the portfolio on non-core sides that might not fit the overall enterprise at this point?
Tom Reeg, Chief Executive Officer
Yeah, John, how do you like Agnew laying down the hammer? But John, on sales, you shouldn't expect that we're going to sell any operating casino assets. As I said previously, there are non-core, non-operating casino assets in the portfolio that I think could trade at a significantly accretive multiple for us, and you should expect us to try to take advantage of those opportunities. So no change there.
John DeCree, Analyst
Thank you. I'll get out of the queue quickly to avoid the hammer.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of David Katz with Jefferies. Your line is open.
David Katz, Analyst
After, everyone. One more for Eric. As we get to that $500 million, can you paint a picture for us as to what the mix looks like between iGaming and sports betting, how much of each? Anything qualitative would help us. Thank you.
Eric Hession, President Caesars Sports and Online Gaming
Sure. I believe that the growth rates of both sports betting and iCasino will continue. As we noted, the Caesars Palace online app is growing as a portion of our iCasino business, accelerating at a pace exceeding 50%, and it's just over a year old. The Horseshoe app will also contribute to that growth. You can expect the iCasino app to grow significantly faster than the sports betting segment. While we anticipate solid growth in sports betting, it will likely remain around the 20% range for now. Over time, the revenue from both sectors will align. Additionally, we have a slightly higher blended tax rate on the casino side, resulting in a slightly lower profit margin from that incremental revenue. However, I believe that in the long run, iCasino will be more profitable than sports betting in terms of total dollars.
David Katz, Analyst
Helpful. Thank you. Hammer avoided.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of Chad Beynon with Macquarie. Your line is open.
Chad Beynon, Analyst
Thank you for taking my question. Tom, I appreciate your insights on growth in the latter half of '24 concerning Vegas. In relation to Q2, did you observe any significant differences among the property's tiers? More importantly, since we've seen some capacity decrease, should we anticipate a rising tide effect? Or does this situation actually benefit some of your mid-tier properties in light of what has exited the market? Thank you.
Tom Reeg, Chief Executive Officer
Yeah, Chad. So I've seen the rhetoric around maybe the non-luxury properties are underperforming luxury. That's not what we're finding in our portfolio; all of our properties are performing in a similar fashion. Obviously, Caesars Palace has the bulk of our highest-end business, so it's the most volatile from a table games perspective, but in terms of visitation, pricing power growth, they all look pretty similar for us. I think it's helpful to note that there are fewer rooms available in the market, and we will secure our share of those rooms. Due to its closeness to our existing properties, we believe it will serve as a feeder to our other assets. If you visit the Mirage, you likely end up at one of our properties. I don't anticipate this will significantly impact us either way. We expect to gain a bit more occupancy and achieve slightly better yields, but we also miss out on the 3,000-plus rooms in the area that could have helped each other.
Chad Beynon, Analyst
Thank you very much. Appreciate it.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of Jonathon Novaretti with TD Cowen.
Unidentified Analyst, Analyst
Good afternoon, everyone. Tom, in the third quarter of 2022, you indicated that VICI had communicated with Caesars regarding their intention to exercise the option on the sensor assets. Given what has happened since then, has the current regional performance affected this decision? Do you still anticipate approximately $2.5 billion in gross proceeds? If you do receive the $2.5 billion or a different amount in net proceeds, will all of that go toward repayment, or should we expect some capital return as well?
Tom Reeg, Chief Executive Officer
Yes. Thanks for the question. VICI you'd have to ask them, is their option in terms of calling the real estate under the Indianapolis assets by the end of the year. We have a put option that we will not exercise. We've been pretty clear on that since this option became a reality. The proceeds are formulaic, so 1.3 times coverage, 13 times EBITDA. The last I checked that gets to like $2.2 billion, something like that. If we were to get those proceeds, the bulk of those, you should expect would pay down debt. But, yeah, you should also expect that there would be some return of capital element as well.
Unidentified Analyst, Analyst
Great. Thank you.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of Jordan Bender with Citizens JMP. Your line is open.
Jordan Bender, Analyst
Good afternoon, everyone. In your Q, you give sports sponsorship obligations. That number has increased pretty substantially in the last several years, which I assume is just driven by the online business. My question is, in the event that we face some consumer weakness across really any part of your portfolio. Do you have the flexibility to reduce your exposure to some of that?
Tom Reeg, Chief Executive Officer
Yeah. Those sports sponsorship deals were all signed as we launched the Caesars Sports app in 2021, and they had varying terms. Some have rolled off already; ESPN being the big one that rolled off as they launched ESPN. But we still have significant pieces that roll off or mature, and the bulk of them in early '26, and we expect to see significant savings there that will flow directly to the bottom line.
Brian Agnew, Senior Vice President of Corporate Finance, Treasury, and Investor Relations
Jordan, just to be clear, those contractual obligations have been declining on a go-forward basis in the Q. We can go through it offline afterward.
Jordan Bender, Analyst
Okay, got it. Thank you.
Operator, Operator
Thank you. Please stand by for our next question. Our next question comes from the line of Daniel Guglielmo with Capital One Securities. Your line is open.
Daniel Guglielmo, Analyst
Hi, everyone. Thank you for taking my question. For each segment, it looks like you all found expense efficiencies this quarter versus last quarter. Is there anything specific across the company that you can point to there? And can we expect those margin levels to hold through the second half understanding there's some seasonality there?
Tom Reeg, Chief Executive Officer
I really can't point to an overarching big one. It's a lot of little stuff. If you looked at our Vegas quarterly review, there's a full page of things that both on the revenue or expense side added a few hundred thousand dollars or maybe $1 million or $2 million. This is kind of who we've been since we've become a public company in terms of constantly trying to run more efficiently, and that's what you're seeing as a result of that. I would expect margins save for seasonality to hold up. Obviously, we've held up in the face of a significant lift in labor costs in Vegas. We're not going to see anything in any of our segments that's nearly that impactful, and as we talked about in Carlo's earlier question, we're through year 1; the subsequent lifts in Vegas are much smaller than the year one lift was.
Daniel Guglielmo, Analyst
Thank you.
Operator, Operator
Thank you. Please stand by for our next question. We have a follow-up question from the line of David Katz with Jefferies. Your line is open.
David Katz, Analyst
Sorry about that. I just wanted to follow up on the comment, Tom, about regionals. I think what you're referencing for 3Q is a similar decline of down 8%, not a similar number of 469 of EBITDA, correct?
Tom Reeg, Chief Executive Officer
Yeah. And I don't even know that I'm pointing to 8%. I'm telling you we're facing the same headwinds that we faced in the second quarter. I'd expect third quarter regional to fall short of 2023. Don't take that as I'm telling you it's 8%. I'm just telling you we're facing the same steps.
David Katz, Analyst
Yeah, got it. Thank you. Appreciate it.
Operator, Operator
Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Tom Reeg for closing remarks.
Tom Reeg, Chief Executive Officer
All right. Thanks, everybody. Enjoy the rest of the summer.
Operator, Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.