Caesars Entertainment - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 was a soft quarter on reported metrics, primarily due to weak Las Vegas visitation, poor table hold in both Las Vegas and Regionals, and low sports hold in September; consolidated net revenues were $2.869B (flat YoY) and Adjusted EBITDA was $884M (-11% YoY).
• Versus S&P Global consensus, CZR delivered a modest revenue miss ($2.87B vs $2.89B*) and a larger EPS miss (-$0.27 vs -$0.09*), while Adjusted EBITDA came in below the $943M* consensus as hold and mix weighed; hold-adjusted EBITDA would have been $927M, narrowing the sap from hold-related headwinds.
• Management expects sequential improvement in Q4 driven by stronger Las Vegas occupancy and group mix (targeting ~17% of room nights), stable Regional trends, and ongoing digital momentum; Las Vegas hold was a major drag in Q3 and management emphasized recovery into Q4 and early 2026.
• Balance sheet progress continues: $546M of 8.125% notes due 2027 were redeemed in July, and CZR repurchased ~3.9M shares for $100M during Q3 and October (13.2M/$391M since mid-2024), with a “balanced” capital allocation between debt reduction and buybacks; total debt $11.9B and cash $836M at 9/30/25.
• Near-term stock catalysts: evidence of Q4 Las Vegas recovery via group compression, improved table hold normalization, and Digital execution (shared wallet rollout and iCasino growth) offsetting sports hold volatility; continued buybacks and lower interest expense also supportive.

What Went Well and What Went Wrong

What Went Well

• Regional resilience and early payback on reinvestment: same-store Regional net revenues +6% YoY and Adjusted EBITDA +1.6% YoY; hold-normalized Regional EBITDA +4% as marketing efficiency improved and Danville/New Orleans performed well.
• Digital volume strength: net revenues +3% YoY; iCasino net revenue +29% YoY with MUPs up 15% to 458,434 and ARPMUP of $200, driven by product upgrades and in-house content; shared wallet now live in 22 states with full rollout targeted by early 2026.
• Clearer path to Q4 recovery in Las Vegas via group compression: occupancy was 92% in Q3 (vs 97% LY) with ADR down ~5%, but group mix is expected to increase to ~17% in Q4; management reiterated a strong Q4 booking pace and the potential for record 2025 Las Vegas EBITDA aided by stronger group calendar.

What Went Wrong

• Las Vegas hold and visitation: Las Vegas table hold fell to 17.4% (vs 24-month avg ~21%), with CEO noting hold down “almost 600 bps,” costing >$30M; Las Vegas Adjusted EBITDA fell to $379M from $472M (-19% YoY).
• Digital profitability headwinds: despite strong volumes, Caesars Digital Adjusted EBITDA declined to $28M from $52M due to poor September sports outcomes, higher acquisition marketing, and incremental state taxes; hold-normalized Digital EBITDA was ~$40M.
• Consolidated profitability: Adjusted EBITDA declined 11% YoY to $884M; management cited poor hold across segments and lapping WSOP-related revenues (sold in 2024), with hold-adjusted EBITDA at $927M illustrating underlying run-rate strength.

Transcript

Speaker 3

Good day, and thank you for standing by. Welcome to the Caesars Entertainment Inc. Third Quarter 2025 earnings conference 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. To ask a question during the session, you will need to press star one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one-one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Agnew, Senior Vice President of Corporate Finance, Treasury, and Investor Relations. Please go ahead.

Speaker 0

Thank you, Shannon, and good afternoon to everyone on the call. Welcome to our conference call to discuss our Third Quarter 2025 earnings. This afternoon, we issued a press release announcing our financial results for the period ended September 30, 2025. A copy of the press release is available in the Investor Relations section of our website at investor.caesars.com. As usual, joining me on the call today are Tom Reeg, our CEO, Anthony Carano, our President and Chief Operating Officer, Bret Yunker, our CFO, Eric Hession, President Caesars Sports and Online, and Cherise Crumbly, 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. Our Q3 investor presentation has been posted to our website, and our Form 10-Q has also been issued as well. We experienced hold volatility in our reported results. Management will discuss hold normalized results in our call today, and a full reconciliation can be found in our earnings presentation posted on our website on slide 21. I will now turn the call over to Anthony.

Speaker 4

Thank you, Brian, and good afternoon to everyone on the call. Our diversified portfolio delivered third quarter consolidated net revenues of $2.9 billion and an adjusted EBITDA of $884 million. On a hold-normalized basis, the company reported $927 million in consolidated EBITDA. During the third quarter, our digital segment delivered strong volume growth in both sports and iCasino. Adjusted EBITDA in our digital segment was negatively impacted by NFL hold in September and faced a difficult comparison to last year, which included World Series of Poker results. Our Las Vegas segment posted solid results in the face of softer market-wide visitation and adjusted for poor table games hold. We are seeing sequential improvement in operating trends in Las Vegas as we enter the fourth quarter.

Regional revenues were up year over year, driven by strong returns in Danville and New Orleans, and same-store net revenue growth resulting from continued strategic reinvestment in our Caesars Rewards customer database. Regional EBITDA grew 4% on a hold-normalized basis during the quarter. Starting in our Las Vegas segment, we reported same-store adjusted EBITDA of $379 million and hold-normalized EBITDA of $398 million. Segment results were driven by 92% occupancy versus 97% last year, and ADR decreased 5% as a result of city-wide visitation weakness during the quarter. As we progress through the quarter, trends improved sequentially, with September delivering the strongest results of the quarter. During the quarter, the group room night mix was 13%, and the segment is on track to deliver a record EBITDA year in 2025 due to our strong Q4 booking pace, where group mix should increase to 17%.

Recent CapEx investments at the Flamingo Las Vegas, including a brand new pool experience, Pinkies by Lisa Vanderpump, Gordon Ramsay Burger, and Havana 57 continue to exceed return expectations. We are excited about upcoming CapEx projects in Las Vegas, including a new Omnia Day Club by Tao Group at Caesars Palace, the rebrand of The Cromwell to the Vanderpump Hotel, and the recently announced Project 10 by Luke Combs that will transform the vacant Margaritaville space at the Flamingo. These exciting projects continue our commitment to reinvest in our assets while elevating our guest experiences. As we look to the fourth quarter in Las Vegas, we see trends improving sequentially, driven by positive leisure trends and a strong group and convention calendar. In our regional segment, we reported adjusted EBITDA of $506 million and hold-normalized EBITDA of $517 million, driven by 6% net revenue growth.

Early results from our strategic customer reinvestments are promising, driven by strong rated play trends in the quarter. We will continue to refine our marketing approach as we remain focused on delivering strong returns on these investments. Margins improved sequentially this quarter, driven by better flow-through on these investments. New projects in Danville and New Orleans continue to generate strong returns, and we look forward to completing phase two of the master plan currently underway at Caesars Republic Lake Tahoe in mid-2026. I want to thank all of our team members for their hard work through the first three quarters of 2025. Their dedication to exceptional guest service has been the driving force behind our accomplishments this year. With that, I will now turn the call over to Eric for some insights into the third quarter for our digital segment.

Speaker 0

Thanks, Anthony. During the third quarter, Caesars Digital delivered net revenue of $311 million, adjusted EBITDA of $28 million, and hold-normalized adjusted EBITDA of $40 million. Recall that last year, in Q3 2023, we benefited from approximately $8 million of net revenue and EBITDA contribution from the World Series of Poker. The World Series of Poker was sold in Q3 of last year, and so now we fully annualize the impact of the sale on our EBITDA comparisons. In addition to the effect of the poor hold and the loss of the World Series of Poker revenues' impact on flow-through, we had a number of other headwinds this quarter that included incremental state taxes, higher acquisition marketing spend, and some bad debt. As we previously noted, there will be volatility across quarters, but we're on track to exceed our 50% target flow-through for the year.

Our core KPIs remained strong during the quarter. Specifically in sports, total parlay mix improved approximately 210 basis points year over year, and we saw growth in average legs per parlay and a higher cash-out mix versus the prior year period. In addition, we realized volume growth of 6%, a notable sequential improvement which was unfortunately more than offset by the negative sports outcomes our industry experienced in September. In iCasino, we delivered 29% net revenue growth driven by continued strength in volume and average monthly active users. We continued to evaluate or elevate our product offering during the two quarters to include new in-house games, improved bonusing capabilities, and elevated live dealer product. We look forward to a redesigned Horseshoe Online Casino update in Q4. Overall, in Q3, our total monthly active unique payers increased 15% to 460,000.

From a tech perspective, we continued to convert new jurisdictions to our universal digital wallet and proprietary player account management system, which is now live in 22 states. The enhancement gives our customers a significant upgrade to their wagering experience. Pending regulatory approval, we plan for the Missouri state sports betting launch in December of this year to be the first state where we offer a shared wallet experience to our customers from day one. We continue to expect a complete rollout of our universal wallet product on our proprietary PAM by early 2026. As we head into Q4 and 2026, I'm pleased with the significant progress on the technology side of the business that's driving strong volumes in both sports and iCasino. The continued progress in all areas is showing up in our top-line results, and our focus on spending efficiency will drive solid flow-through to EBITDA.

We continue to see a business capable of driving 20% top-line growth with 50% flow-through to EBITDA, which keeps us on track to achieve our long-term goals. I'll now pass the call over to Bret for comments on the balance sheet. Thanks, Eric. In addition to redeeming $546 million of senior notes during the quarter, we repurchased $100 million of stock, including October activity. We've now repurchased close to $400 million of stock since mid-2024, shrinking our share base by 6%. Our balance sheet remains in great shape, with our nearest maturity in 2028 and a floating-rate debt mix that will continue to benefit from interest rate cuts. Our weighted average cost of debt currently sits at just over 6%. We expect to continue using our strong and growing free cash flow to both reduce debt and opportunistically purchase stock. Turning it over to Tom.

Speaker 1

Thanks, Bret. To jump into a little more detail, we told you on the last call that Vegas was going to be a soft summer. It was a soft summer. Our ADR was down a little over 6%. Occupancy percentage or occupancy was down about 5 percentage points. That's about 90,000 room nights for us that flows through all of the non-gaming pieces of the business. On the gaming side, volumes held in pretty well. Slot handle was down only 2%, even though we had 90,000 less room nights. I hate talking about hold, but this is a quarter where you can't get away without talking about hold. Hold was down almost 600 basis points in Vegas in the quarter. On a year-over-year basis, it impacted us a little over $30 million.

There were another $10 million, a little over $10 million of one-time items that benefited us last year that don't repeat, the largest of those being a cancellation of the sponsorship contract on the Planet Hollywood Live Theater in Vegas. The quarter got better throughout. July was the worst month of the quarter. August got better. September got better. What we told you when we talked to you in the beginning of the quarter was it would be soft. We would expect recovery in the fourth quarter. That is what we are seeing. Our cash room revenue forecast for the quarter is down just slightly. Cash room revenues in the third quarter were down a little over 11%. That's considerable improvement. A lot of that is the group calendar that Anthony referenced. We have some Caesars-specific groups that benefit us, not necessarily the entire market.

We had the Oracle Conference that was in 3Q last year and was in early October this year. We have BravoCon coming up as the quarter continues. F1 for us is looking considerably better than it did last year, than it performed last year. Not as good as year one, but up from last year. The headwind for the remainder of the year is New Year's Eve is middle of the week this year, which is not particularly helpful calendar-wise. Other than that, we see Vegas coming back strongly. I know that's a big question, has been a big question. Again, what we laid out in July of soft summer recovery in the fourth quarter, continued recovery in the first quarter is still what we see today. Groups should be, as Anthony said, a record in 2025 versus 2024. That's largely on the strength of the fourth quarter.

First quarter should be a new all-time record ahead of 2025. I'm sorry, 2026 should be a new record for the full year ahead of 2025, largely on strength in the first quarter of the year. It was a difficult summer. There definitely has been softness in leisure demand for Las Vegas in the summer months, particularly in properties that I would view as price takers. As you go down the customer spectrum or you move out from the center of the Strip, demand for those was soft. Premium has held up better, but it is the return of group business in the fourth quarter and first quarter that allows rate compression that brings us back to a much healthier-looking market as we look at this quarter and into 2026.

For regionals, we talked about how last quarter we had embarked on an increase in marketing reinvestment starting in properties that were competitively impacted and moving beyond that as we saw what was working. As the quarters go by, I think I've said this to you a number of times, you'll see us refine that, take out what's not working, expand what is to more markets. We have a lot of test and control out all of the time. You can see better flow-through. You would have seen even better flow-through if we had held both brick-and-mortar and Vegas. Hold percentage was the lowest that it's been in over three years. That is particularly unusual in regional. Regional is pretty stable. What we're seeing in regional is the flow-through of the marketing is improving. You should expect that to continue going forward. Demand in regional is pretty solid.

We have no complaints about what we're seeing in regional. In digital, obviously, we've got the sports outcomes that have been, there's been a lot of conversation about those both here and elsewhere. I won't belabor those. We're happy with where we are. Margin-wise, happy to see us growing. Handle iGaming continues to perform quite well. All of our goals remain in front of us in terms of what we've laid out for digital and fully expect that we'll get there. We feel good about that story as well. In terms of free cash flow, you should expect that we'll remain balanced in using our free cash flow between paying down debt and repurchasing our stock. At current levels, our stock is attractive to us. You should expect us to be active as we go through the remainder of the year. With that, I'll open it up to questions.

Speaker 3

Thank you. As a reminder, to ask a question at this time, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. Our first question comes from the line of Brandt Montour with Barclays. Your line is now open.

Hi. Good afternoon, everybody, and thanks for taking my question. Tom and team, I want to start with Las Vegas. I want to just sort of dig into some of the comments that you made, Tom, specifically around leisure demand. I heard positive leisure recovery, but I also heard that the group fill-in is most of the sequential improvement that you are looking for or seeing into the fourth quarter. Maybe you could highlight some other metrics in terms of how we should think about the sort of very near-term sequential leisure recovery, whether or not it's bookings four weeks out, occupancy, etc., or anything else that might be helpful there.

Speaker 1

Yeah. When we talked to you last quarter, we're looking at the same forward booking calendar that we can see now. Looking at it at that point, it looked particularly soft, which is why we told you we were expecting a soft summer. That came in, when you adjust for hold, about where we anticipated it would be as we sit. If you think about sequentially and the quarter that you're in, because it's the third quarter, it's a leisure-dominated quarter. There's not a lot of group business in Las Vegas when the weather is particularly hot relative to other quarters. That leisure customer continued to get better during the quarter. July was the worst. August built on that, and then September, October has continued. That leisure customer is still softer on a year-over-year basis.

The difference is what you get in group activity allows us to compress rate much better than we were able to in the third quarter. You don't have nearly the amount of miss in occupied rooms. We had 90,000 in the third quarter, about 500 bps of occupancy. Our occupancy looks better and our rate looks better than it did third quarter.

Great. Thanks for that. Maybe moving over to regionals, you know, you guys put up a hold-adjusted regional number that did show growth. You had told the market that you were promoting more last quarter and perhaps rolling out promos to more non-supply-impacted markets. It looks like either that hasn't started yet or you're getting pretty good returns on those tactics. I guess the question is, you know, is this the type of flow-through that we can expect from this program, whether it's supply-impacted or non-supply-impacted markets as you sort of move through the evolution of those new programs?

Yeah, Bret, that's a great question. We would expect as the quarters go by, we become more efficient in that marketing. You're dialing back more that's not working and expanding what does. I want to be clear, there was a sense that we were getting into some sort of promo war. I heard that from a lot of investors. The way we look at it in most of our, in all of our markets, Caesars Rewards is the most impactful customer program that there is among any operator. In many of our markets, we have a property as well that is better than others. That's higher quality. If you think about the way marketing works, you may lean on those advantages a little bit and say, "I'm not going to be as generous in my give-back as others," and you're still going to perform quite well.

I think that gap got to be a little larger than we needed it to be in properties that were not competitively impacted. I would think of what we're doing as kind of taking up that slack, not entering into a promotional war. We're not seeing significant response from competitors that suggest that this is going to keep going higher. What I'd expect you'd see going forward is what you saw this quarter where the flow-through from that revenue growth continues to look better as the quarters move on.

Thanks, everyone.

Speaker 3

Thank you. Our next question comes from the line of Dan Politzer with J.P. Morgan. Your line is now open.

Hey, good afternoon, everyone. Thanks for taking my questions. I just wanted to go back to Las Vegas and that leisure customer. I mean, it sounds like things are getting a little bit better. Group is obviously helping in terms of compression. How do you kind of look to stimulate that leisure customer? Do you think that there are structural issues in Las Vegas that need to be addressed in terms of pricing? It sounds like in terms of fourth quarter, things have gotten better. I don't know if there's any way to kind of frame that bouncing off of third quarter in terms of some kind of rough estimates.

Speaker 1

Yeah. On the pricing question, we price hundreds, thousands of items across Vegas every day, from obviously rooms and restaurants to ATM fees to everything that you purchase in Vegas. We're constantly adjusting them. What was interesting, there's a few things that are interesting to me in that conversation. I don't discount that there are areas in our business and in Las Vegas that might have gotten over their skis pricing-wise. To put in context, we're in a quarter where, while we're talking about pricing and degradation to demand, our occupancy percentage was over 90% in the quarter. It's stronger as we moved into fourth quarter. Most interestingly, while those stories were out there, most days that you read those stories, you could have gotten a room in Vegas for $29 plus a resort fee on the Strip. There's a value trade in Vegas.

What's great about Vegas is there's something for everybody. Sean McBurney, our Regional President out here who does such a fantastic job, uses the example of you can come see Paul McCartney and pay $500 plus a ticket the same weekend that you can see Donny Osmond for $60. There's something at every price point. Keep in mind, in a quarter where it was undeniably soft versus last year, and we're glad to see it coming back in the fourth quarter. It doesn't take a lot to turn that back the other way. You're talking about five percentage points of occupancy got us to a 10% decline in adjusted EBITDA. You don't need much to swing back the other way to where you're right back to where you were before.

One more point, we're talking about a quarter where we did about $400 million of adjusted EBITDA in the third quarter. The summer in Vegas, that quarter typically pre-merger was $300 to $320 million of EBITDA. This is still a very strong market. It offers something for every price point. Sure, when you're pricing thousands of things every day, as we are and our peers are, it's going to be easy to find things where you say, "Look at how much this bottle of water costs." The value proposition in Vegas stacks up versus just about anywhere that you could want to travel. What you can do while you're in town is the breadth of what's available. You cannot line that up with any city in the world. We feel fantastic about Vegas fundamentally.

We think it won't be very long until that's a story where we'll be talking about, "Remember when? Remember the summer when we talked about a $25 bottle of water?" That's not what was driving activity.

Right. Okay. That's really helpful detail. Just pivoting to regionals, this is more of a high-level one. Obviously, you know, in terms of that more promotional strategy, you know, and I get it's kind of more short-term oriented. How did you kind of think through that versus maybe, you know, the puts and takes of putting more capital into the ground at some of these properties to improve the amenities if there would have been a return on that, you know, as opposed to just being more promotional?

Yeah. I mean, since the merger, we have invested $3.1 billion in just our regional assets. $2.8 billion of that is in the 16 properties that generate 75% of our regional EBITDA. The properties that have been less touched by capital, and all of them have been touched, are those that are pretty small, may not have a hotel. I think if you look at the regional capital investment across us and our peers, we've outpaced everybody in the last five years. We're really in, "Let's harvest those investments and let's give people a reason to come and see them." You spend the capital. Keep in mind, these are properties that are in somebody's neighborhood. They pass it or they pass a billboard every day for 10, 15, 25 years.

If you put the money that we put into these properties over the past five years, the customer is not going to automatically know it unless you stimulate a visit, get them into the property. That's what we see as we reactivate customers that didn't know the money that was put in. New Orleans being a great example of, you start to see organic momentum build because you're showing customers a property that's different than they remember. That investment's been made. This is the message of, "Hey, come and see us and see what we've done." What we see out of that is organic follow-through. Like I said, this doesn't happen neatly in 90-day periods. This stuff happens over a longer period of time.

We are particularly encouraged by the trends that we're seeing that suggest that what we're doing is working and driving more aggregate cash flow, which is the goal of this whole enterprise.

Got it. That's great context. Thanks, Shannon. For Q&A, we've got a lot of people in the queue. Can we just have everybody ask one question and then circle back if possible?

Speaker 3

Sure. Our next question comes from the line of Steve Pezzella with Deutsche Bank. Your line is now open.

Hey, good afternoon, and thanks for taking my question. Just wanted to ask on the regional performance. From the state-level data, it looked like trends descended a little bit in September from July and August levels. Did you see that in your business? How do you think about the fourth quarter from a comps perspective for regionals, given we saw an acceleration in the data starting in October of last year?

Speaker 1

The September question, recall that last year, Labor Day Sunday was in September, and this year it was in August. That's one of the biggest weekends of the summer, and that's a significant calendar shift. I would look at August numbers and September numbers together. The only market I can think of that saw a significant shift in demand in September was Atlantic City. The rest of the country's performed kind of as you'd expect. Cost side, I don't have anything in particular to call out on the regional side. In terms of driving incremental margin, that'll be a function of as we refine our marketing as we move through the quarters. You should expect flow-through and margin to increase.

Speaker 3

Thank you. Our next question comes from the line of Lizzie Dove with Goldman Sachs. Your line is now open.

Hi there. Thanks for taking the question. I guess big picture, longer term or for next year specifically for Las Vegas, you know, it's a lot of moving pieces. You've got the capital investments you mentioned, some good guys from conferences, but also maybe one or two conferences leaving the system, macro TBD. High level, I know it's early, but just curious how you're thinking about how those kind of puts and takes play out to Las Vegas next year.

Speaker 1

Yeah. The big question, Lizzie, is the consumer. Is this leisure demand? You know, are we going to see it continue to improve and recover, or do we stall at some point that's shy of where we were before? That's a difficult question to answer. That's a macroeconomic question. I know that the mix will be better for us in particular. Recall that we have the State Farm Conference early in the second quarter, which is a particularly large conference for us that drives significant EBITDA. You have the market-wide stuff that's well understood. We're now, what, four months into this step-down in leisure demand for Las Vegas. While we're better than we were in July, we're still not back to where we were on a year-over-year basis. That will be the question in 2026, in my mind, is how quick does that recover?

Speaker 3

Thank you. Our next question comes from the line of David Katz with Jefferies. Your line is now open.

Speaker 4

Hi, afternoon. I just wanted to double back on digital, if I may, for the fourth quarter. I know that the sequential cadence can be tricky where there's some preseason spending in 3Q. I recall a comment, Tom, that indicated the fourth quarter should be super strong. We're still focused on kind of that run rate of $500 million by the fourth quarter. If you could just update us there, please.

Speaker 1

Yeah. The big swing factor there, David, is game outcomes. Obviously, we had a fourth quarter, a third quarter that wasn't great. We're 4 of 13 weekends into the fourth quarter. Those outcomes have not gotten substantially better. Our hold for the first four weekends was above last year's hold but below our budgeted hold. That will have an impact on where the fourth quarter comes in. As you have seen, sports outcomes are particularly volatile. I wouldn't take 4 of 13, whether it's positive or negative, as determinative at this point. That's where we stand as we sit here today.

Speaker 3

Thank you. Our next question comes from the line of John DeCree with CBRE. Your line is now open.

Hi, everyone. Maybe, Eric, I wanted to circle back to your prepared remarks. I think you were kind of dissecting the quarter a little bit and had mentioned, if I heard it correctly, some higher acquisition marketing spend in the quarter. If I heard that correctly, wondering if you could elaborate a little bit, was that kind of expected or unexpected? Was that more customers than you thought getting on board? Just curious if you could give us a little bit more color there.

Speaker 0

Sure. Yeah. It wasn't unexpected. It was spend that, as we went through the quarter, we steadily increased heading into football and heading into a strong acquisition period for the iCasino side. We acquired a lot more customers during the period as a result of that spend. We believe that over time, that spend will come to fruition with the lifetime values of the customers. However, in the period in which we spent it, it shows up as a drag. Because on a year-over-year basis, we did increase the spending, I wanted to call that out as one of the reasons why the flow-through was challenged in the quarter.

Speaker 3

Thank you. Our next question comes from the line of Steven Rubis with Stifel. Your line is now open.

Speaker 4

Yeah. Hey, guys. Good afternoon. Tom, I want to go back to the regional reinvestment and ask that question maybe a little bit differently. One of the questions we get a lot from investors is the fact that when you were at Eldorado and you were out buying things like Isle Capri, you were kind of known as the king of cutting promotions and basically getting your peers to do the same thing and understand that was kind of a smart business decision. Now you're somewhat kind of pivoting away from that. You mentioned a lot of that decision is tied to Caesars Rewards and the power of that platform. I know you said that hasn't started a promotional war yet, but just trying to get a little bit more color as to what gives you the confidence that that doesn't eventually happen.

Speaker 1

I mean, we can see, we see it down to the granular customer level. What's a customer responding to? What are they not responding to? The point I was trying to make is, in most markets, there's going to be a gap between what we're spending and what our peers are spending, that we're going to be spending less. That gap, in hindsight, may have gotten too wide. What you're seeing is recovery in that, not, you know, one-upmanship. When you change that, it's like when you make an investment. The customer notices that you're making an effort to win their business. All of the reasons that, you know, they came to the property before and into the rewards program are, you know, make them sticky when you get them back. This evolves every day. You're competing in these markets all the time.

I would say the level of discipline throughout the business is far better than it was before we started this. We're not seeing anything that suggests that this needs to keep climbing higher and higher. You should be able, you should start to, or you can start to see that in the flow-through as we go through the quarters, that this quarter was better than last quarter, and you'd expect, I would expect that to continue.

Speaker 3

Thank you. Our next question comes from the line of Barry Jonas with Truist. Your line is now open.

Hey, guys. Some of your competitors are looking at the prediction markets. What's your view there for Caesars Digital? Have you seen any impact as these markets are starting to make inroads into sports? Thank you.

Speaker 0

To answer your second part first, so far, we haven't seen any impact. I suspect most of the volume that they're generating is coming from states that don't have legalized sports betting. There's probably some on the margin that is coming from the legalized states that we might not have been able to access anyway, like 18 to 21-year-olds and that type of customer demographics. In terms of the overall plan, we're actively watching it. As we've said before, we can't be out on the lead on this one. We're going to monitor it, make sure that we're not left behind if there's regulatory clarity, and that we have a good plan in place for should that outcome happen.

In terms of our current actions, when there's still uncertainty, and I'm sure you've seen some of the letters from the regulatory agencies, our best approach at this point is to monitor it, put our plans in place, make sure that we're adequately resourced, and be ready to move if there's a legalization definition in either direction.

Speaker 1

We will not put any of our licenses at risk. We believe what's happening in prediction markets is sports gambling. If there is a path that develops where we can participate in a way that doesn't put licenses at risk, you should expect we would be, we are preparing and would be prepared to go down that path, but we're watching it the same as you are.

Speaker 3

Thank you. Our next question comes from the line of Shaun Kelley with Bank of America. Your line is now open.

Hi. Good afternoon, everybody, and thanks for taking my question. Tom or Eric, just wondering if we could get your thoughts or help on sort of both the seasonality of the digital segment as we kind of move into Q4 because it is a peak sports season. Obviously, you mentioned we appreciate there's some outcome headwinds, but just more broadly, how you'd expect that to trend. Secondarily, if you could, Eric, given the lean-in on marketing in this period, your thoughts around customer acquisition as we move into next year, especially as the universal digital wallet is kind of up and running and just you feel really good about the product. Thanks.

Speaker 1

Let me take the seasonality question. Obviously, fourth quarter is your highest volumes given that it's football season and football dominates sports betting. The way that we account for our partnerships is that those spend hits during the season of play. If you think about some of our large contracts that will roll off in 2026, the bulk of that expense hits in the fourth quarter. It makes volatility and sports hold outcomes more impactful because you're carrying a bigger fixed cost than we're carrying in any other quarter of the year. I'll let Eric take the rest.

Speaker 0

Yeah. In terms of the marketing spend, I would expect it to go back to normal levels for Q4 versus prior year. Nothing, no incremental acquisition spend along those lines versus kind of where we were trending prior to that. To your point about heading into next year, I would say the vast majority of our marketing spend has traditionally been earmarked towards the direct channels like Facebook, Google, Snap, those types of things, and very more limited on the brand side. I think to your point, with the app in the shape that it is and with the shared wallet now being active in nearly every state and will be in the first quarter, there is an opportunity to do a little bit more of the top-of-tunnel-type advertising because the retention rates are going up and the customer response to the app is improving.

I would look at that mostly as a shift, though, not necessarily as an incremental spend. We'll evaluate it as we go through. If we're getting really short paybacks on certain spend, we might increase it slightly. I wouldn't anticipate anything major next year.

Speaker 1

That's similar to what I just talked about in regionals, right? We did our big brand campaign in 2021 when sports betting kicked off and our app was not as competitive as it needed to be versus our peers. We've done a lot of work in getting the app up to par, culminating with shared wallet. As you pointed out, we need to give that customer a reason to take a look again. That's kind of the top of funnel that Eric's referring to.

Speaker 3

Thank you. Our next question comes from the line of Steven Grambling with Morgan Stanley. Your line is now open.

Hey, thank you. Two quick follow-ups on digital. Just given you've seen a lot of moving parts in the regulatory environment across brick-and-mortar and digital, what do you see as the key milestones you're watching for to get comfort on the prediction markets? Is it really just waiting until we get maybe all the way to the Supreme Court? Are there other things that could happen between now and then? Given the outsized wins on behalf of consumers, are you seeing any change in how much money is being kept in accounts that might be indicative of future wagers or strength further into the football season? Thank you.

Speaker 1

I'll do the first one, have Eric do the second one. I wish there would be a point of clarity and certainty in the near term around prediction markets. It seems like the path this is going to go on will ultimately be decided at the court level, ultimately the Supreme Court level. I'd expect that there's going to be rulings that go in both directions along the way. You know, ultimately, if something gets appealed up to the Supreme Court, there is a states' rights versus federal rights question here that's larger than just sports betting that might argue that the court takes it up relatively quickly. There's also the argument there's a lot of stuff bubbling up to the Supreme Court, and maybe this gets pushed back further than we'd like. I would expect we're going to be in this cloudy period for quite some time.

Speaker 0

On the second part of the question, after customers have a good weekend, we do see the balances higher. It doesn't necessarily persist all that much over time. They tend to either draw them down or recycle it throughout the week and into the next weekend. There is definitely a loose correlation between the customer outcomes and the volume, as you'd expect when the hold goes down. I would say that the outcomes of the customers in Q3, while it was to their favor, our core volume growth was still much stronger than in prior periods. The entire result wasn't driven by the customer outcomes.

Speaker 3

Thank you. Our next question comes from the line of Chad Beynon with Macquarie. Your line is now open.

Hi, good afternoon. Thanks for taking my question. During the quarter, I know the city ran a few ad campaigns. I'm not sure if that stimulated demand. A, I wanted to ask about that. Secondly, is this something that you think we could maybe continue to see throughout 2026 to just help the perception of value for some of those customers that have fallen away? Thank you.

Speaker 1

Yes to both, Chad. We participated in the sale that you're referring to. Our bookings picked up considerably during that sale. It was effective. We know that LVCVA intends this to be an ongoing campaign, so you should expect this not to be one-shot in terms of the messaging around value in Las Vegas.

Speaker 3

Thank you. Our next question comes from the line of Jordan Bender with Citizens. Your line is now open.

Hey, everyone. Good afternoon. There's been some movement in the M&A market. As you think about your leverage and your footprint in Las Vegas, I just want to check your temperature around potential asset sales in Las Vegas and also how you think about the Caesars Forum Put Call agreement. Outstanding. Thank you.

Speaker 1

The call option, the put call option is you should expect that if that's exercised, it would be called by VICI. I'd anticipate that they'd be doing that toward the end of that period of time, but I don't want to speak for them. We choose the rent. We would choose the lowest rent that we're able to choose. In terms of M&A, we're never closed. If there were something that made sense for us, I'd say we're open to talking about each and every asset. We are not actively involved in marketing a Vegas asset.

Speaker 3

Thank you. Our next question comes from the line of Daniel Guglielmo with Capital One Securities. Your line is now open.

Hi, everyone. Thank you for taking my question. We've seen some OpEx pressure this quarter and last. As you start budgeting for next year, are there certain expenses outside maybe the marketing that we've hit on that you all are going to spend more time thinking about for 2026?

Speaker 1

Labor is always our biggest, and we're constantly looking to optimize labor across the enterprise. We're well into the union contracts in both Las Vegas and Atlantic City, so you're kind of at manageable increases as we move forward. There's nothing that stands out as you ask that question to me.

If you're looking at labor in the 10-Q, specifically in the regional segment, that's not exactly the same store because you've got Danville and New Orleans in there, and there were some one-time benefits in the prior year quarter. It's not really a same store number if you're looking at that labor line in the queue.

Danville and New Orleans are both substantial integrated resorts that had Danville wasn't open, and New Orleans was much smaller last year.

Speaker 3

Thank you. We've run out of time. I would now like to turn the call back over to Tom Reeg for closing remarks.

Speaker 1

Thanks, everybody. We'll see you next time.