FINANCE AND INVESTMENT CELL

ST. STEPHEN’S COLLEGE

Please remember the following:

1. You will have two and a half hours to solve this case study. This will test your logical, analytical, reasoning and
innovative skills.
2. All solution sheets must contain the participants’ name, team name and college.
3. Solutions are to be mailed to [email protected] as a new mail and NOT as a reply to the email containing
the case. Submissions made to any other account will not be considered.
4. The solution has to be mailed to us by 11:30 PM latest; delays will lead to penalties and possible disqualifica-
tion.
5. Emails containing the solution should have the subject as Participant Name1_Participant Name2
6. The solution should be in Times New Roman, size 12. The file should be in PDF format, with name as “Name-
Participant 1_Name-Participant 2”.
7. Information regarding the industry and firm(s) will be provided to the participants. Participants are allowed to
use any real-world information, to arrive at their answers.
8. State your assumptions and justify them clearly. All calculations (if any) must be shown clearly.
9. Any plagiarism shall be strictly penalized.
10. Use of calculators, mobile phones and the internet is permitted.
11. There is no predefined format of presentation. It is left to your discretion. Use of frameworks like
SWOT, PESTLE etc. is allowed.

All the best!

According to the U.S. Travel Association, over 75 million international travelers visited the U.S. in 2016, and that number
is expected to hit over 83 million by 2020. As the number of international travelers visiting the U.S. continues to grow
over the next three years, the hotel and lodging industry must focus on providing a unique experience for both foreign
as well as domestic visitors tailored to suit the culture and unique needs of their diverse visitors.

In today’s fast moving tech savvy world, companies need to define their strategies based on this demographic group’s
personality traits and habits. The millennial travel a lot and are early adopters of technology who like personalized
interactions and spontaneity. Increasingly, travelers are expecting innovative wellness options with well-equipped
fitness centers, pools and spas, lighting that energizes, air purification, yoga spaces, in-room exercise equipment,
vitamin-infused shower wateretc.As technology and Software as a Service (SaaS) solutions continue to drive growth for
every industry in the coming years, it’s vital that the travel sector identifies solutions that will add real value to their
businesses. The explosion of companies like Airbnb is also changingtravelers’ expectations. Understanding the customer
fully remains one of the key challenges.

On the hospitality front, U.S. hotel industry revenue exceeded approximately 208 billion USD in 2017, which is an
increase of 10 billion USD from 2016. On the same lines, the cultural shift among Millennial and Gen Zs toward experi-
ences over material goods will make travel, food, and leisure increasingly desirable consumption activities. The U.S.
casino industry revenue topped 40 billion USD for the first time ever in 2017 at 40.28 billion USD.It was 3.4 percent
higher than in 2016, according to the American Gaming Association (AGA). Moreover, the United States casino industry
is poised to grow even further, sincethe Supreme Court’s ruling in favor of the industry legalizing sports betting and the
industry adopting the Responsible Gaming Collaborative (aimed to identify the programs and policies that best address
responsible gaming and prevent problem gambling). The increase in per capita income, high adoption, growing interest,
and growth of dual-income households are some of the factors further augmenting the growth of the market.

Despite the growth in the industry, shares of the casino operators in Las Vegas and Macau have fallen by double-digits
over the past three months. With casino stocks in Las Vegas strip falling by as much as 24% over the past three months,
gambling industry experiences an economic slowdown. Many observers have blamed the increased resort fees, paid
parking, worse game odds, and other “nickel and dime” tactics that have become common on the Strip (in Las Vegas).
While these factors accounted for an increase in revenue in the short-term, these inconveniences have eroded the value
proposition of a Las Vegas vacation for many people. Rising competition has led to poor industry conditions in the Strip,
and the combination of reduced convention activityand slow traffic among vacationers in the regional casino realm have
added up a lot of uncertainty for the casino company and its investors. However, gambling industry in Macau is in
slightly better position, but its growth is falling.
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1. Caesar

Caesars Entertainment Corporation (CEC) is an American based, casino-entertainment and hospitality services provider
that owns and operates over 50 casinos and hotels, and seven golf courses under several brands. Its facilities typically
include gaming offerings, food and beverage outlets, hotel and convention space, and non-gaming entertainment
options. CEC is a public company, majority-owned by a group of private equity firms led by Apollo Global Management
and TPG Capital, with a current market cap of4.49 billion USD. In addition to its brick and mortar assets, CEC operates an
online gaming business that provides real money games in certain jurisdictions.

The company was formed in 1990 under the name of The Promus Companies. In 1995, it was renamed as Harrah's
Entertainment. In 1997, Harrah's launched its Total Gold loyalty program (renamed as Total Rewards in 2000), devel-
oped at a cost of 20 million USD. It was the first gaming company to offer a system wide comps program, allowing points
earned at one casino to be redeemed for goods and services at any of the company's other casinos. Harrah's made its
largest single expansion in 2005, when it acquired Caesars Entertainment Inc. for 10.4 billion USD. On 23rd November
2010, the name Harrah's Entertainment Inc. was officially changed to Caesars Entertainment Corporation. This change
was intended to capitalize on the international name recognition enjoyed on the Caesars name brand.

CEC is mainly comprised of the following three entities: the majority owned operating subsidiary CEOC, wholly owned
Caesars Entertainment Resort Properties, LLC and Caesars Growth Partners, LLC ("CGP LLC"), in which CEC holds a
variable economic interest. CEC operates over50 casino properties in 13 U.S. states and 4 countries outside of the
United States. It is the most geographically diverse casino entertainment group in U.S. Its facilities have an aggregate of
over 2.8 million square feet of gaming space and approximately 39,000 hotel rooms. Of the 47 casinos, 35 were in the
United States and primarily consist of land-based and riverboat or dockside casinos. The company’s 12 international
casinos are land-based casinos, most of which are located in the United Kingdom. It has global presence in five other
countries including UK, Egypt and South Africa, Canada and recent debut in Dubai

As of the fiscal year 2017-18, the company’s casino entertainment operations generate revenues from approximately
36,000 slot machines and 2,700 table games, all of which comprised approximately 52% of its total net revenues. The
food and beverage operations generate revenues from over 150 buffets, restaurants, bars, nightclubs, and lounges
located throughout the casinos, as well as banquets and room service, and represented approximately 17% of its total
net revenues. Rooms and hotel operations generate revenues from hotel stays at the casino properties in its approxi-
mately 36,000 guest rooms and suites worldwide and represented approximately 19% of the company’s total net
revenues.
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Caesars Entertainment has the strongest Loyalty Program in the Gaming Industry –“Total Rewards”, with more than 50
million Total Rewards members, it acts as a tourism driver for Caesars.This program establishes a loyal and long-lasting
customer base.The program also demonstrates a significant impact on property performance that Caesars Entertain-
ment expects to improve as the Company applies machine learning to customer behavioral data.

In Las Vegas, which supplies about 40% of Caesars Entertainment's revenue, total revenue was down by 2.6% which is
not great at a time when overall gaming revenue in Las Vegas rose 3.3% to 1.73 billion USD in the first quarter of 2018.
But that revenue gain resulted from a 32% increase in revenue from Baccarat, a game played in high-end casinos out-
side of the Caesars family.

In January 2015, CEC filed for bankruptcy protection. Excessive debt of over 18 billion USD, incurred post selling itself to
private equity in 2008.It was a gamble by Apollo Global Management and TPG Capital that went wrong. Caesars debt
holders led by Elliott Management, Appaloosa Management and Oaktree Capital accused the private equity firms of
“unimaginably brazen looting” in the years after the 2008 buyout.A restructuring of the company was agreed in 2016 on
terms favorable to the creditors. In 2017, the company completed its announced merger with subsidiaries Caesars
Acquisition Co., and Caesars Entertainment Operating Co. Inc. and emerged out of bankruptcy, with a restructuring that
will enable it to invest 2 billion USD in future growth. Over the past few years, leverage has considerably been eased,
but its net debt remains 5.46 billion USD after pulling out 1 billion USD of convertible debt.

Caesars Entertainment was the fourth-largest casino operator in the United States, based on revenue, in 2017. Cae-
sarsEntertainment is on a quest to expand their global presence, announcing expansions into Dubai, planned develop-
ment of Caesars’ first resort in Mexico and the pursuit of a license in Japan. Caesars Korea, their first Asian casino resort
should also be completed in early 2021. In a strong move, Caesars Entertainment turned four of its signature hotels-
Caesars Palace, Flamingo, The Cromwell and The LINQ into brands that are open for licensing around the world with the
strategy of growing further in the global market.
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Recently, the management board has decided to shut down gaming operations at Tunica Roadhouse. Over the past few
years, the number of nearby venues offering gaming facilities has increased. A recent change in legislation of making
full-casino gaming legal in the state has diverted gamblers to the Southland Gaming and Racing venue instead of Tunica.
The Southland Gaming and Racing venue is now becoming a fully functioning gambling destination, which attracts a lot
of crowd away from Tunica.

Given the scale of expansion and different geographies the company is planning to expand into, Caesars Entertainment
needs to put more money in technology to integrate the processes across the board. Right now the investment in
technologies is not at par with the vision of the company. The profitability ratio and Net Contribution percentage of
Caesars are below the industry average. Even though Caesars Entertainment is one of the leading organizations in its
gaming industry, it has faced challenges in moving to other product segments with its present culture and has limited
success outside core business. This lack of expertise can give competitors and entrants a stronger foothold in the mar-
ket. Caesar faces tough competition from several, LVSC being a major rival who works within the casinos and gambling
sector and generates 6.4 billion USD more revenue than Caesars.

Beforethe Supreme Court's landmark ruling and the subsequent legalization of sports betting, Caesars already operated
online and offline sports betting in Nevada. After the ruling, it introduced two retail sportsbooks in Atlantic City and a
New Jersey sports betting app. In November 2018, the company signed a 15-year agreement with the professional
football team, the Oakland Raiders, to be the first founding partner of the Las Vegas Stadium, elevating Caesars' profile
in professional sports. The partnership with the Raiders comes on the heels of the company’s announcement with the
Baltimore Ravens, Maryland’s only partnership between an NFL team and a casino, and the NBA’s Philadelphia 76ers
and the NHL’s New Jersey Flyers, giving the resort company a large presence in professional sports betting in the US.

Caesars Entertainment is aimed on creating intelligent and personalized hospitality. In December 2016, it introduced a
pilot program of Ivy, a 24-hour virtual concierge service, making them the first major gaming company to offer a wide-
spread guest text messaging program with built-in artificial intelligence. Ivy is the world’s first automated guest en-
gagement platform for hotels powered by IBM Watson. Caesars Entertainment is the only Las Vegas casino company
that’s going all-in with cloud computing. Caesars has moved its financial operations to Oracle ERP Cloud. That migration
enabled Caesars to reduce its accounting and external audit costs significantly.

Over the years the company has developed numerous products but those are often in response to the development by
other players. Secondly, the supply of new products is not regular thus leading to high and low swings in the sales
figuresover a period of time. Investment in R&D is below the fastest growing players in the industry. Even though
Caesars Entertainment is spending above the industry average on R&D, it has not been able to compete with the leading
players in the industry in terms of innovation.

Workforce at Caesars is highly trained, with training based on a suite of organizational learning programs, called the
Empire Series that align learning with organizational career development programs to support the growth and upward
mobility of the employees. The company has a higher attrition rate and has to spend a lot more compare to its competi-
 FINANCE AND INVESTMENT CELL
ST. STEPHEN’S COLLEGE
tors on training and development of its employees. Also, rising pay level especially movements such as 15 USD an hour
and increasing prices in the China can lead to serious pressure on profitability of Caesars Entertainment.

Caesar announced in November, 2018 that its CEO Mark Frissora will be stepping down after 3 years in the role. He will
remain in the role until February 8, 2019, and the company has not announced a replacement yet, putting the company
in a vulnerable position. The company also faces the vulnerability of lawsuits in various markets given - different laws
and continuous fluctuations regarding product standards in those markets.Even after emerging from bankruptcy,
Caesars still has 14.6 billion USD in debt on its balance sheet. Given the existing predicted cash flows, CEC will barely
meet the dept installments for 2020 onwards. If the interest rates rise as per market expectations thenthe debt install-
ments will suck out any free cash flow, and they’ll have to hobble along or declare bankruptcy again.

(In billion USD) 2017 2016 2015 2014 2013

Revenue 4.852 3.877 3.929 7.967 7.917

Profits 0.375 3.048 6.009 2.941 2.955

2. MGM

MGM Resorts International is an American global hospitality and entertainment company operating destination resorts
in Detroit, Las Vegas, Mississippi, Maryland, New Jersey and Macau with a current market cap of 12.52 billion USD.
 FINANCE AND INVESTMENT CELL
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Incorporated in 1987, MGM Resorts International acts largely as a holding company and, through subsidiaries, owns and
operates integrated casinos, hotels, and entertainment resorts. MGM Resorts owns 50% of City Center in Las Vegas,
which features ARIA Resort & Casino. It has a majority controlling interest in MGM Growth Properties, a real estate
investment trust.

The company began operations in 1987 as MGM Grand Inc. and became MGM Mirage in 2000, after acquiring Mirage
Resorts. In the mid-2000s, growth of its non-gaming (lodging, food, retail) revenue began to outpace gaming receipts.
The company shifted its focus from owning and operating resorts and casinos to developing and building real estate in
the leisure and gaming industry—launching the massive City Center mixed-use project, which was at the time of its
construction the world's largest construction site, and ranks as one of the most expensive real estate projects in history.
In June 2010, the company changed to its present name to reflect its latest strategy of expanding worldwide, including
licensing its brand and expertise to develop non-gaming hotels and residences.

Most of the company’s revenue is cash-based. MGM relies heavily on the ability of its resorts to generate operating cash
flow to fund capital expenditures, provide excess cash flow for future development, acquisitions or investments and
repay debt financings. Over half of the net revenue from MGM’s domestic resorts is derived from non-gaming opera-
tions. The operating results are highly dependent on the volume of customers at the resorts, which in turn affects the
price it can charge for the hotel rooms and other amenities. ‘M life Rewards’, the company’s customer loyalty program,
is a tiered program and allows customers to qualify for benefits across the participating resorts in both gaming and non-
gaming areas, encouraging customers to keep their total spend within the casino resorts.

Social casino revenue in 2016 was 2.8 billion USD (Reuters), reaching up to 3.18 billion USD in 2017 and 3.2billion USD in
2018. With 32 billion USD in gross gaming revenues around the world in the previous year, Macau is easily the world's
biggest gambling centre. MGM China operates two casino properties in Macau and the largest casino market in Asia.
Asia is the fastest growing gaming market and in 2017, MGM generated 19.2% of its revenue from Macau. As the US-
China trade war escalates, with all economic ties between the two countries at risk of being politicized, any worsening
of the trade war might lead China to call for a boycott of U.S. companies. With their two-decade-old licenses expiring in
the next four years, American casino industry in Macau is becoming unreliable.
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In 2017, MGM was the second-largest casino operator in the United States(Las Vegas Sands Corp being the largest),
based on revenue. MGM Grand’sproducts battle in an oligopoly market with small number of sellers. It positions its
product portfolio with respect to its pricing strategies and level of luxury with Aria, Bellagio in the luxury group whereas
MGM Grand, Monte Carlo, New York, Luxor, Excalibur in the middle range. Caesars Entertainment is MGM Resorts’
biggest rival and LVSC (Las Vegas Sands Corp.).

Online platform has opened new sales channel for MGM Resorts International. MGM is offering mobile game play,
referred to as easyPLAY Mobile Tournaments, at nine of its Las Vegas resorts. Mobile betting is one-way MGM is hoping
to draw in younger customers, who are more attached to their smartphones and online platforms. MGM has focused on
digital transformation for years now; in 2017 it formed Digital Ventures, a business unit within the company focused on
developing exceptional digital customer experiences. Since moving to agile, the rating for MGM’s mobile app has gone
from about 1.7 stars in the App Store 2017 to 4.7 stars in 2018. In 2017, MGM Resorts International in partnership with
Gamblit Gaming launched LEVEL UP, at MGM Grand, a skill based interactive game setup in efforts to reach out to a
newer and bigger millennial crowd.

To deal with the problem of underutilization of spend, in September 2016 MGM launched a new procurement software
system - Coupa. The Coupa system is expected to enhance efficiency by automating much of the procurement process
and making the supply chain more reliable. The company also started a project that would corral the once-disparate
customer data and digital content assets housed across a variety of databases and technologies under a single platform.
In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs
using big data analytics.

In May 2018, MGM Resorts announced that it was buying Empire City Casino (a Racino, the operator of horse track
raceway in New York) for 850 million USD. New York, is home to some of the most important franchises in major league
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ST. STEPHEN’S COLLEGE
sports; MGM sees the facility as a key cog in its efforts to solidify its gambling operations on the East Coast, and in
particular, expand their reach into the high-density New York region.

MGM Resorts International’s lawsuit against the victims of the Las Vegas concert mass shooting, has tarnished the
brand image. In October 2017, a gunman fired from a Mandalay Bay Hotel(owned by MGM Resorts International) room
at a crowd of concertgoers, 58 people were killed and more than 800 people were injured. The lawsuit filed by MGM
Resorts, aimed at changing the venue from state to federal court was misinterpreted as an attempt to sue the victims in
push to avoid liability. In response, social media users have blasted the chain with the hashtag #BoycottMGM.

Mandalay Bay’s revenue declined by 16.3 million USD, or 6.3 %, during the first quarter to 245 million USD. MGM’s
heavy reliance on debt financing, makes its ability to refinance its debt in times of any future severe slowdown in
macroeconomic and credit market conditions, quite unpredictable. As of September 30 2018, cash and cash equivalents
were valued 1.3 billion USD compared with a much higher long-term debt of 14.7 billion USD. With increased hotel
openings and promotional activities made by rivals like Wynn Resorts, Sands Resorts and Pinnacle Entertainment,
market has become highly competitive. Excess supply, especially in Macau market, might reduce the company’s market
share.

MGM Resorts International entered into a multiyear partnership with the NBA (National Basketball Association),
NHL(National Hockey League) and MLB (Major League Baseball) establishing the casino company as the official gaming
partner of the NBA, WNBA, MLB and NHL. MGM Resorts will utilize these leagues' official statistics feed, on a non-
exclusive basis, throughout its digital and live domestic sports betting options. The Alliance of American Football (AAF),
a new league slated to launch in February 2019, has announced MGM Resorts as its official sports betting sponsor and
exclusive gaming partner. MGM Resorts is also teaming up with one of the biggest international sports betting opera-
tors, GVC Holdings. The new venture will have access to a number of digital gaming markets under the playMGM and
partypoker headline brands, with access to US land-based and online sports betting. MGM Resorts and Boyd Gaming
have entered into a partnership to offer online and mobile gaming platforms which will potentially add an online pres-
ence in five additional states taking it to a total of 15 states in the US.

MGM Resorts International will make its debut in Dubai with two new hotels – an MGM and a Bellagio by 2021. Through
this project they are going to introduce themselves in world’s fastest-growing tourist destinations. In 2018, Japan's
national legislature approved a law legalizing casino gambling and MGM Resorts is a favorite bidder in trying to pursue
one of the three new IR license to be vetted in 2019. As such Japan is poised to launch one of the world's largest casino
market.

Over the course of 2018, MGM will complete 5 investment projects and its earnings before interest, taxes and deprecia-
tion and amortization is speculated to jump to about 3.3 billion USD by 2019 from 2 billion USD in 2015 driven by the
completion of these projects and continued growth in Las Vegas according to JP Morgan and Union Gaming.

MGM Resorts International is investing huge resources in training and development of its employees resulting in a
workforce that is not only highly skilled but also motivated to achieve more. The company continues to receive wide
recognition for its diversity and inclusion initiatives. The company was recognized as one of Achievers 50 Most Engaged
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ST. STEPHEN’S COLLEGE
Workplaces for 2013 in the United States and the Training magazine naming the company a 2015 Training Top 125
award-winner.

Thecompany recently completed its 1 billion USD share repurchase program announced in Sept. 2017. MGM Resorts
International announced in May 2018 it will buy back 2 billion USD of its own shares as earnings are set to spike with the
opening of new casinos. The repurchase program is equivalent to about 10 percent of the company’s market value.

Institutional share holders

Revenue 10.77 9.46 9.19 10.08

Profits 4.60 3.96 3.56 3.71

1) MGM International Inc. has approached Caesar Entertainment Corporation to initiate talk regarding a merger of
the two firms. You need to check the lucrativeness of the merger for your client, Caesar Entertainment Corporation
and draw out prospective synergies.

2) If you find the merger beneficial for your client and advice them to go ahead for the same then devise a Five-year
Plan for the merged entity. Otherwise, devise a Five-year Plan for your client focusing on ways to solve the current
and future problems/threats faced by them. Calculate projected revenues and profits for the next five years.