Caesars Entertainment Inc (CZR) — Q3 2023 Earnings Call Transcript

Thank you, Josh, and good afternoon to everyone on the call. Welcome to our conference call to discuss our third quarter 2023 earnings. This afternoon, we issued a press release announcing our financial results for the period ended September 30, 2023. A copy of the press release is available on 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; and Eric Hession, President, Caesars Sports and online gaming. 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 about the company's performance. Such forward-looking statements are not guarantees of future performance, and therefore one should not place undue reliance on them. Forward-looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our comments today, you should refer to the cautionary statements contained in our press release and also the risk factors contained in our company's filings with the Securities and Exchange Commission. Caesars Entertainment undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after today's call. Also, during today's call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed, and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website at investors.caesars.com, by selecting the press release regarding the company's 2023 third quarter financial results. With the disclaimer out of the way, I will now turn the call over to Anthony.

Thank you, Brian, and good afternoon to everyone on the call. We delivered the strongest consolidated adjusted EBITDA quarter in the history of the company, led by a new all-time quarterly adjusted EBITDA record in our regional markets, profitability in our digital segment and continued strength in our Las Vegas segment. All three segments grew adjusted EBITDA year-over-year. Starting with our Las Vegas segment. Demand trends remained healthy during the third quarter with occupancy increasing to 96.6% versus 93.6% in the prior year. Total Las Vegas segment revenues were up 4%, driven by higher occupancy and higher ADRs, which drove record cash hotel revenues, record gaming revenues and record food and beverage revenues. Excluding real payments, our Las Vegas segment generated $494 million of adjusted EBITDA with a margin of 44%. During the quarter, our group segment also delivered an all-time Q3 record for adjusted EBITDA. As we look to the remainder of the year, Las Vegas continues to benefit from strong leisure and casino guest demand, a robust events calendar and the continued strength of the group and convention segment. We're looking forward to the inaugural F1 race in November, the culmination of significant planning and infrastructure improvements executed by the city, in order to deliver a great event. Heading into 2024, we are also excited for Las Vegas to host the Super Bowl in February, in addition to many other new and exciting events planned throughout the year. Las Vegas continues to benefit from one of the strongest event calendars in the United States. In our regional segment, revenues were up 2% versus last year, and adjusted EBITDA grew to $575 million, the best regional quarter on record. Stable guest demand, combined with excellent performance from our completed capital projects and newly opened facilities helped to offset competitive pressures in a few of our markets. Our regional segment is benefiting from a diversified portfolio across the United States. Turning to our capital projects. We are anticipating a Q4 opening for our Harrah’s Hoosier Park property expansion, and we expect to have the new Versailles Tower rooms in Vegas, online by the end of the year. 2024 is a busy year, and we expect to complete the permanent facilities in Danville, Virginia and Columbus, Nebraska, as well as the new hotel tower and completely remodeled Caesars New Orleans project. We are looking forward to a strong finish to 2023. Consumer demand remains strong, and our capital projects are winding down. We will continue to remain focused on operating cost efficiencies, harvesting returns on project capital and driving long-term EBITDA growth. I want to thank all of our team members for their hard work. Our success is a direct result of the dedication of our team members and their commitment to delivering exceptional guest experiences every day. With that, I'll now turn the call over to Eric for some insights on the second quarter in our digital segment.

Thanks, Anthony. During the third quarter, we delivered another positive adjusted EBITDA result and a significant improvement versus the same quarter last year. Caesars Digital generated $2 million of adjusted EBITDA versus a $38 million EBITDA loss last year, demonstrating significant and continued year-over-year flow-through improvements. Caesars represented a second consecutive quarter of EBITDA profitability in our Digital segment and makes us positive now on a trailing 12-month basis as well. During the quarter, online sports betting handle increased 14% and iCasino handle improved 38%. Revenues were negatively impacted by lower year-over-year hold in both our online sports betting and iCasino segments, which we believe to be temporary. We continue to remain balanced with our promotional spend during the quarter with a focus on investing in our best customers, resulting in an overall promotional spend being among the lowest in the industry. During the quarter, we delivered our new stand-alone iCasino app, Caesars Palace Online, the product features enhanced game content and functionality in addition to facilitating segmented marketing. The results of which drove monthly GGR and NGR in its first full month of operation to a record. We anticipate realizing increasingly positive results in the months ahead. Turning to online sports betting. We launched several new product features for football, including SGPs for NCAA, a live streaming product for nationally broadcast NFL games, a bet with reward credits feature and improved payment options. As we head into 2024, we believe that our product in both sports betting and iCasino are significantly improved from prior periods and quite competitive. We have an exciting and robust technology plan, which will have a focus on retention enhancements. I will preview these with you over the coming calls. But initially, we plan to continue to roll out our proprietary TAM, which will enable a shared wallet and to improve the customer experience through enhanced application stability, ease of use and app speed. We now offer sports betting in 30 North American jurisdictions, 24 of which offer mobile wagering. We also operate iCasino in six jurisdictions. I'll now pass the call back to Bret for additional comments.

Thanks, Eric. Year-to-date, we've applied over $700 million of cash flow to debt reduction and the acquisition of the remaining equity interest in our Baltimore asset. Our leverage continues to reduce as we repay debt and grow EBITDA, with our total net leverage under our bank credit facility declining to 3.9 times as of September 30, resulting in a 25 bps reduction in our term loan A and revolver spreads to 150 bps over SOFR. Cash CapEx, excluding Atlantic City and our joint venture project spend, is expected to land at just over $800 million for 2023. We're looking forward to posting a strong fourth quarter heading into 2024. Over to Tom.

Thank you, Bret. The team has detailed that it was an incredibly strong quarter for us, marking an all-time record for the company. For those who have participated in previous calls, this will sound familiar. Vegas continues to show strength despite some headwinds during the quarter. We are preparing for the expected expenses associated with the new union contract, which I will elaborate on shortly. Rio exited the system on October 2, impacting our performance in the third quarter. We faced more disruption in the Versailles Tower than anticipated. While we expected to keep a portion of it operational, we uncovered several unexpected issues as we began renovations on this older building. Consequently, we took the entire tower out of service, resulting in fewer rooms and increased labor cost challenges. Even with the drag from Rio, we still achieved year-over-year growth. The slight margin change is connected to labor costs, but with Rio coming offline, we expect to recover that margin percentage, if not improve it, moving forward. I anticipate questions regarding the union contract. We are actively negotiating with the unions, and I am personally involved in these discussions. I feel positive about reaching a solution. As I have mentioned before, we've performed well as a company post-merger and post-pandemic, and our employees deserve to share in our success. When we finalize the contract, it will represent the most substantial increase our employees have seen in the four decades since our relationship with the culinary Union began, which is well-deserved and expected in our business model. Regarding regional performance, many of you may be anticipating significant changes in customer dynamics, but we have been observing stability. There's noticeable softness in properties facing competitive challenges, especially in Tunica and Chicago. Atlantic City also feels weak, though this is not particularly surprising. The returns from new projects such as Charles, Virginia, and Horseshoe Indianapolis have performed strongly, countering the weaknesses at impacted properties. We achieved an all-time quarterly record for EBITDA, and our margins remained stable, so we are optimistic about the regional outlook. Looking ahead, the substantial construction project in New Orleans is currently causing significant disruptions, expected to continue for the next quarter or two. A third of the casino floor is being remodeled, but we are on track to complete the hotel tower expansion well before the Super Bowl in 2025. We are also anticipating a significant boost from the upcoming Formula 1 event in Vegas, projected to lift us by approximately 5%, as I previously mentioned. In fact, the high-end credit play during that week is expected to exceed what we see on New Year's Eve, showcasing the strength of these events. As Eric highlighted, our digital segment continues to grow, with the hold exceeding 30%. This growth is driven by operational improvements rather than promotions. Although we faced some challenges with hold this quarter, we still achieved positive EBITDA. We're optimistic about the beginning of the fourth quarter in digital, particularly with the recent launch of Caesars Palace Online, which we expect to enhance our future performance. We are approaching the end of a major capital cycle, and as projects in New Orleans conclude, our CapEx budget should decrease. Both our brick-and-mortar and digital segments are seeing EBITDA growth, contributing to an increase in free cash flow. We are using this cash flow to pay down debt and lower our leverage until we reach a level of four times or below on a lease-adjusted basis. We feel very positive about our business performance and outlook. Despite the volatility in share prices affecting our industry, this does not reflect our actual business performance. We will continue to deliver strong results until this volatility stabilizes, and we anticipate that the market will recognize the true value of our equity. Now, I will open the floor for questions.

Thank you, everyone. Anthony, I know you mentioned some of the events in Las Vegas for 2024. Could you provide an update on your group's booking pace and your expectations for this year compared to what you might see next year?

Yes. Thanks, Carlo. Group pace, as we said, set a record in this quarter, we see an extremely positive calendar going into getting better by the day. I think mix is around 15% to 16% this year, should pace up to about high teens next year.

Perfect. You benefited from some favorable baccarat results in the market in the third quarter. I was wondering if you've noticed any changing dynamics in the baccarat market based on the Nevada published data.

No, we had a really good quarter in baccarat last quarter, Q2. Q3 normalized for us. We're seeing a really strong return of the international customer, a diversified return of the international customer, and we think that will continue to grow this quarter with F1. A lot of interest in international for both F1 and the Super Bowl. And then, anticipating a great New Year's and Chinese New Year's for next year for international.

Great. Thank you.

Carlo, on a consolidated basis for the quarter, hold didn't have a material impact one way or another for us.

Yes, I was specifically referring to the baccarat piece and more of the market data that you mentioned. Thank you.

Good afternoon, guys. I want to lead off with a question for Eric here. Obviously, a significant increase in iGaming, handle up 38% year-over-year, and that's great. Can you talk about the path for growth from here? What are some of the drivers to continue that accelerating momentum, particularly when you think about other brands or reskinned apps and how that could drive growth there, Eric.

Yes, sure. Thanks, Joe. Yes, we feel like from a volume perspective, we had a very solid quarter, both sports and iCasino, up 38%. And keep in mind, during the quarter, we didn't have our app with the exception of basically for one month as we were putting it in for the first two months of the quarter. So again, most of the upside from the new app is going to accrue in the fourth quarter and into next year. We feel that there's a lot of opportunity to improve the integration of the various game vendors that will give us more insight into the actual workings of the game and see what customers are playing and where the spins are. We also have an opportunity to improve our CRM. As we mentioned during prior calls, up to about a couple of months ago, we weren't able to do segmented marketing. And so now with our new app and with some of the new technology, we feel like that's going to really benefit us heading into next year. And then to your point, we are exploring the possibilities of adding another skin to the portfolio, as there are a number of states where we have additional licenses that we've reserved and would plan to potentially roll that out later in 2024. So all of those things contributing to the overall improvement, but what I would say is that the thesis of the new iCasino app is following exactly the script. We're seeing a much higher percentage of slot players, which if you recall on our prior app, it was heavily table focused, and then as a result, we're seeing improved hold in that particular app, which we think over time will ultimately create a whole lot more value for us.

Great. And then a question for you, going back to Las Vegas in the third quarter, casino revenue flat year-over-year. Food and Beverage hotel and other, all up to varying degrees nicely year-over-year. Table game drop was down 6%. Was there anything specific to there, Anthony, or Tom, that you would call out, in the Q you do reference that the Las Vegas segment had faced some challenges related to construction disruption and road work on the Strip. Obviously, it didn't impact food and beverage and hotel to what extent was that a driver?

There are several factors that contribute to that, but a significant influence on casino revenue has been the shift from individual travel to group business. Group customers tend to spend more outside of the casino than individual travelers. Therefore, you will notice some of this change. The drop in table games, especially at Caesars Palace where we are today, is influenced by the arrival of our key customers. While I wouldn't characterize it as seasonality, there is certainly volatility in that figure depending on when those customers visit.

Great. And then just related to Las Vegas, Tom, do you think you benefited at all from a competitor's cybersecurity issue, which may have hurt them or which definitely hurt them based on their disclosures? Did you have an outsized benefit that you would call out?

No, I wouldn't call out a benefit. I would tell you. One thing I know for certain after this quarter is nobody benefits from a cybersecurity incident.

Good afternoon. This question is for Tom or Anthony. As you look ahead to next year while concluding this year, how do you view growth in the segments, particularly in relation to Las Vegas and the regional markets? Tom, you mentioned that the Versailles Tower in Las Vegas might be delayed more than expected. In the regional segment, new properties are coming online, but there's also increased competition. Could you share some initial thoughts on the growth trajectory for next year? Thank you.

Yes. I would say the timing for the Versailles Tower has not changed. What has changed is that we needed to take more rooms out of service than we expected before we started opening up the walls. As Anthony mentioned, we will be reopening rooms before the end of the year. We believe this will drive growth in Las Vegas. We are currently in the budgeting phase, and I would suggest that if you are planning for modest growth in both Las Vegas and the regional markets, along with significant growth in digital, that aligns with our expectations.

Got it. And then just pivoting to digital a bit, I mean, this is a business where I think it seems like from an operating expense perspective, it looks like you've really reached scale there. As you think about the path forward here. Are there any rules of thumb or high-level ways to think about the flow through, just as it looks like you've turned the corner in terms of the cost structure?

Yes. I'm happy to give you a few thoughts. One of the things that I think we're particularly proud of over the last few quarters is that we've been able to hold our promotional spending constant and even down. This quarter, it was down 25 basis points versus prior year. And so it's staying in that range that we've kind of given you for guidance, of the 1% to 1.25% of volume. And so I think that's one thing to help build the models. If you look at our tax rate, along with the payments processing fees and a few other variable costs that we have, using 50% or thereabouts in terms of incremental flow-through is a good number to use. I think you're probably right about thinking where we're kind of essentially at that point where we've covered all of our fixed costs now and the marketing spend is still coming down. We were down about $50 million year-over-year this quarter versus the same quarter last year. And that will start to kind of stabilize as we've pulled a lot of it out, with the exception of some of the league and other longer-term commitments coming out over the next year. But from a variable perspective, I would think you could take every incremental dollar and flow 50% through at this point.

Got it. Thanks so much for the detail.

Yes. Hey, guys, good afternoon. So Tom, as we think about 2024 in Vegas, maybe from a cost perspective, you're obviously going to have some labor pressure heading into next year, depending on how the labor negotiations end up. But as we think about flow-through for 2024 in that market, anything we should be thinking about on the positive side that could potentially offset some of that wage inflation?

Yes, there is a continued shift towards group business, which has a higher margin for us. Historically, Caesars was running around 14%, and we are currently a couple of points above that. We expect to see an additional increase next year. This shift will generate more banquet revenue, leading to higher room rates with significant flow-through benefits. The Versailles Tower is coming online, and we anticipate a return on investment of at least 15% to 20% on a $100 million project. This positive movement should more than offset the cost pressures you mentioned. Even in the third quarter, which faced several challenges, we still achieved growth in a period that is typically weak for group business.

Okay. Got you. And then, Tom, in the past, I mean, actually as early as last quarter, you've laid out a path to $5 billion EBITDA by 2025. I'm just wondering, as you sit here today, is there anything out there that you're seeing that would impede you guys from getting somewhere around that target? And I'm guessing you're going to give me a one-word answer of no, but just wanted to check back in and kind of see how you're feeling about that target today.

Yes, Steve, I told you that I think there's $0.5 billion of opportunity in brick-and-mortar, $0.5 billion of opportunity in digital, and we still see that in front of us.

Hi, good afternoon, everyone. Thank you for taking my question. Tom, one of the notable themes from this quarter appears to be the overall increase in operating expenses. Based on what we observed from the regional margins, it looks like you have managed to find some offsets to counter this trend. Could you provide more details on the expense pressures you are experiencing in the business? Do you believe you will be able to continue offsetting these pressures and maintain or come close to maintaining margins across the regional segments?

Yes, Shaun. I think you've noticed this for a while and saw it again this quarter. We have been effective at this for a long time. This is essentially how we built our business, focusing on being proficient in our operations. It's been three years since we completed the merger, and we're continually looking for new opportunities to improve our cash flow. The cost pressures related to labor and inflation that you hear about from us and others are not new; we've been managing these since the pandemic. We have consistently stated that we expect our margins to remain stable, and you haven't seen any significant deterioration to this point. I anticipate this will continue going forward.

Regarding Las Vegas, I appreciate your comments, especially considering the sensitivity around the union aspect. Could you provide any updates on the timing as we approach Formula 1? Also, are the accruals you're taking this quarter consistent with your comments about the significant increase in costs that you expect the contract will ultimately lead to?

Yes. You should expect that we're accruing at a level that we think is consistent with where the contract will shake out. So it's consistent with our view that our employees deserve what they're going to get here, and we intend to provide. In terms of timing, we're in active dialogue. I don't want to be delivering a play-by-play. This is a five-year contract. So while it seems like, gee, why don't you just get it done next week? These are complex contracts that cover a long period of time, and we're going to do the work with the union to make sure that we do it right for all parties. And I can't tell you if that means it's going to happen next week, a couple of weeks from now or a month from now. But we are in dialogue constantly with the union and have further meetings this week.

Great. Thank you very much.

Good evening, everyone, and thank you for my question. Congratulations on the strong results. Tom, your comment on the regional consumer was clear that it's stable. People seem a bit nervous about this segment. Could you provide more details on what you're observing, perhaps discussing the month-to-month trends throughout the quarter, spending per visit patterns, and the usage of loyalty rewards across your system? Anything that could clarify this would be helpful.

I don't have specific insights on month-to-month performance, as there hasn’t been any month that significantly stood out. In markets unaffected by new competition, apart from Atlantic City, demand is roughly on par with last year, showing slight variations of about 2%. Overall, we are witnessing modest revenue growth across our portfolio. However, certain markets like Tunica and Chicago, which face competitive challenges, are experiencing pressure on revenue and EBITDA. Conversely, we have properties that have recently expanded, such as Charles and Virginia, contributing to a rise in our revenue and EBITDA. This resulted in an increase in EBITDA while margins remained stable for the quarter. This trend has been consistent over the past year. We anticipated a turnaround that hasn’t yet materialized. While there was a notable surge in unrated play during the pandemic, our robust database has allowed us to endure the subsequent decline in that segment. We feel confident in our regional business's position. The rationale behind pursuing Caesars in M&A was our belief in the strength of diversification. We observed that as the pandemic waned, regional markets supported Vegas, and now both segments are showing modest growth alongside a boost from digital initiatives. We have a diverse portfolio in the regional space. While competitors have reported challenges, we experienced our best quarter ever in Reno, showcasing the advantages of our diversification strategy.

That's super helpful. Thanks for that. And then over in digital, several weeks now into the NFL season, wondering if you were seeing anything from the competitive landscape that's surprising at all, from promotional advertising perspective. And then if you could separate by related, if you could just update us on your overall confidence levels of hitting that digital EBITDA target in '25? That would be great.

Yes. The target has not changed. We continue to see a visible path to that end. And each quarter, we grow more confident. We're not seeing anything promotionally that's requiring us to respond. I'll let others talk about their own promo strategies. We huddle each other once in a while and say, look at this, look at that. But we've kind of got our head down executing on our business model and driving that $500 million of EBITDA, which again would be about a 50% return on the cumulative EBITDA losses our shareholders allowed us to invest in the business today. So we feel very, very confident about where we are in this business.

Great. Thanks all.

Hey, guys. I was wondering if you could talk about next steps, maybe any updated expectations for the New York land-based casino process. I believe one bidder is exiting that process. And while we're at it, maybe any general thoughts on the potential for iGaming in New York as well.

Yes, I don't have grandkids yet, but I'm hoping the process is completed before my first grandchild turns 25. It's moving slowly. They've just completed the second round of questions, and I'll respond to those soon. After that, there is the community board process, where the RFP will be issued and approval from the community board is required. Only those approved by their community boards will have the chance to submit the final application for the license. As of now, I think the earliest they could issue a license, considering everything that needs to happen between now and then, is at the end of 2024. Personally, I expect it to be 2025 before a license is granted.

Got it. And just a follow-up on digital. I appreciate the comments on low hold in the quarter, reversing. I guess you've talked in the past about expectations for holds to bridge the gap with competitors. So I'm curious if you have any updated thoughts on that and the timing to narrow that gap.

Certainly, I can provide my insights on this topic. We're observing a stabilization in our hold percentage, staying within the 7.5% to 8% range. In this particular quarter, we've seen a consistent improvement in our sequential hold over the past four quarters. Last year's third quarter was an outlier for us, where we recorded nearly 200 basis points higher in sports betting hold compared to any other quarter in the last two years. This current performance reflects a correction from that anomaly, primarily influenced by the football results from last September, which have since reversed. Nonetheless, we're making steady progress in this area. Last year, our blended hold was around 5.5%, and if we identify a 200 basis point increase on our current volumes, that translates to several hundred million dollars in additional gross gaming revenue, which, based on the flow-through rates discussed, should significantly impact our EBITDA. As I've pointed out, we're moving in the right direction. To achieve our $500 million target, execution is key, and this is not particularly reliant on changes in consumer behavior or adjustments from competitors. Our focus is simply on executing our plan effectively.

Okay, thank you so much.

Hey, thanks. I know you've previously discussed achieving four turns of leverage while keeping M&A as an option. Considering the current market volatility, does this increase the chances of any acquisitions happening? Or do you believe that at this stage, repurchasing your own shares is the most prudent choice?

Thank you for the question. The ways we can use our free cash flow include reducing debt, investing in internal growth, pursuing external acquisitions, or buying back our stock. Last quarter, our stock was around $60, and today it closed at about $40. Given the current free cash flow yield, it will be challenging to find an external opportunity that I believe will yield returns comparable to buying back our stock at a yield of over 15%. As we approach the end of the New Orleans project and reach our targeted leverage, if I can achieve the type of free cash flow returns on our stock at $40, I would be more inclined to repurchase our stock rather than using it for an acquisition where I would essentially be selling it. Our strategy will depend on our situation, but at this stock price, buying back shares appears to be the best option.

That's helpful. And perhaps a change in topic, but on iGaming, I think you referenced a bit of a pivot to more slot play. Is that effectively a different customer as we think about iGaming on tables versus slots? And is always the question of, is that impacting at all the brick-and-mortar customer and/or properties, are you still seeing incremental customers coming from digital?

Yes, the answer is yes. The customers we attracted in our iGaming business through our sports betting feature were primarily sports bettors, which tends to be a younger, male demographic, along with table game players. If you consider the businesses we aim to model in the iGaming space, they resemble our physical locations, showing a preference for slots and attracting an older, female audience. Since the launch of Caesars Palace Online, we've observed exactly that within the app, which is very encouraging. Regarding our early results, we have not seen any signs of cannibalization of our brick-and-mortar business. Instead, it has positively contributed to our physical locations, as customers we engage digitally are increasingly visiting our brick-and-mortar sites. I am very satisfied with the growth of this business. Although it's still early since launching Caesars Palace Online, I am extremely encouraged by the results.

Good afternoon, everyone. Thank you for taking my question. I want to follow up on iGaming. I understand that most of your competitors don't typically share active user statistics. However, from your previous responses, it seems that with the demographic shifts, are you observing a significant rise in active users or the frequency of play among customers? Alternatively, are you mainly seeing an influx of higher-paying customers since launching the stand-alone app, or is it a combination of both? Any insights into these trends would be appreciated.

Yes. You're seeing all of the above. You're seeing more active play. You're seeing an increase in customers, and you're seeing better customers coming into our network. So it's been, as I said, an encouraging start.

Thanks, Tom. And maybe to pivot back to the M&A potential question. I guess bigger picture, and I imagine the answer is potential target specific, but given the margin improvements that the industry realized post-pandemic, when you look at possible targets? Do you still see an opportunity for meaningful synergies or efficiencies that you and your team could find, it might make an M&A target, particularly accretive when valuing that against the free cash yield of your stock today? I mean, are there still some opportunities that you think you can harvest some additional EBITDA growth from?

Yes. I would say the risk of running out of opportunities where we think we can squeeze more EBITDA out of assets than a target is very, very low on my list of reasons why M&A might not happen.

Hi, everyone. Thank you for fitting me in. I wanted to revisit the situation in Vegas, particularly regarding the margins. Tom, you mentioned some factors earlier, such as the accruals related to Rio and some disruptions being greater than anticipated. Can you provide some quantifiable insights on that? I'm trying to determine what the typical Vegas margin will look like amidst all the current fluctuations.

Yes. I can say that Rio generates just over $40 million in revenue with no EBITDA, and possibly even negative EBITDA due to lease payments. With Rio's removal, there will be a significant decrease in revenue but an increase in EBITDA. I'm not at liberty to discuss specifics about the new contracts, as we are still in discussions. Regarding Versailles, we expect to see rooms that were previously out of service become available by the end of the year. Compared to the third quarter of last year, this was a margin challenge, but the return of these rooms at a higher average rate should positively impact margins in the future.

One of the observations today is that the product is performing well, particularly with features like parlays and in-game functionalities. How would you describe your progress in catching up with the leaders in this area, and do you believe it's essential to accomplish your goals? Or am I misunderstanding that? Yes, that's a great question. You're right that the product is very important. Its impact is mainly seen in retention since trial experiences can happen immediately. The key is how much users will continue to engage and how much they will play. From our viewpoint, we've made significant progress over the past two years and our product is on par with leading competitors, though not quite there yet. We still have some functional aspects to develop and focus on. Introducing same-game parlays for NCAA and live same-game parlays, as well as alternative line SGPs, have been major advancements. We also need to bring this level of functionality to NBA and hockey. Overall, if a customer uses our app, the advantages we offer through Caesars Rewards and other unique features will encourage them to remain loyal. This is a shift from about a year or 1.5 years ago when that might not have been the case.

Hi, this is Sam on for Chad. First one is for Eric. Wanted to ask about the watch and bet streaming feature that you launched for NFL this season? And have you seen any changes in customer engagement or betting behavior from implementing this feature so far, and any thoughts around adding this feature for other sports?

Yes, we're very excited to be one of the few operators to trial this for the NFL and our partners. We have noticed an increase in the number of customers watching it on our app, and we have been able to measure the viewership. The next significant step will be to integrate wagering opportunities while customers are watching, which is still under development, so we consider this a trial for now. Regarding changes in customer behavior, we are waiting for more data to make determinations. However, we believe that the key benefits so far are on the technology side, such as the ability to integrate and work with data feed providers, as well as measuring customer usage. These will be the main advantages moving forward. As for expanding this to other sports, we are definitely interested, but it will depend on the policies of the leagues and how they intend to use this service.

We're optimistic about the Strip and the group calendar ahead of us. We don't have much room for occupancy anymore, as we've just reported almost 97% occupancy for the quarter. So, it will come in late, and you'll see that as we shift our focus more towards group bookings. We're feeling very good about 2024 from that perspective.

Great, thanks.