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Valued as if Britney never happened
Planet Hollywood did very little for a long time. Then the residency began, and the casino's numbers shot up. Evercore, the bank advising the board of directors on selling the casino from the operating company to the new, debt-free Caesars Growth Partners, did not update its valuation to reflect what Britney was bringing in.
Caesars Growth Partners paid $350 million for Planet Hollywood and one other casino together, and about $525 million for the rights to an Israeli online poker business. A month after the deal closed, Apollo shared new projections with its board of directors.
Those projections put the two casinos at $830 million in three years, up from $360 million. The gaming business went from $525 million to $820 million.
Eighteen months later, the company that had been on the verge of bankruptcy had doubled its stock price, and the valuation of that little casino had never changed.
Why did a Vegas residency lift casino profits?
A resident headliner gives a casino a reason for fans to book rooms, eat at its restaurants, and play at its tables. The show sells tickets night after night in one venue, so the casino earns from every visitor who comes for it. Britney Spears's Piece of Me opened at Planet Hollywood in December 2013. Celine Dion's Caesars Palace show had opened in 2003 and set the template for long residencies.
How do bankers value a casino for sale?
Two common methods are comparing the casino with similar properties that recently sold, and projecting its future cash flows and discounting them back to today's value. Both depend heavily on the earnings forecast fed into them. A valuation built on old forecasts will lag a business whose earnings jump. Casino deals are commonly quoted as a multiple of EBITDA.
Why does an advisor's valuation matter to a board?
A board selling an asset to a related company has a duty to show the price was fair. It usually hires an investment bank for a written opinion to rely on. The opinion captures value as of the date of its analysis, so later events do not change it. Delaware courts have repeatedly examined such opinions when shareholders challenge related-party deals.
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