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Acquisitions and Purchase Price Accounting
 9 Months Ended
Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
Acquisitions and Purchase Price Accounting Acquisitions and Purchase Price Accounting
Acquisition of William Hill
On April 22, 2021, we completed the acquisition of William Hill PLC for cash consideration of approximately £2.9 billion, or approximately $3.9 billion, based on the GBP to USD exchange rate on the closing date.
We acquired William Hill PLC and its U.S. subsidiary, William Hill U.S. Holdco (“William Hill US” and together with William Hill PLC, “William Hill”) to better position the Company to address the extensive usage of digital platforms, continued legalization in additional states and jurisdictions, and growing bettor demand, which are driving the market for online sports betting platforms in the U.S. In addition, we continue to leverage the World Series of Poker (“WSOP”) brand, and license the WSOP trademarks for a variety of products and services across these digital platforms. At the time that the William Hill Acquisition was consummated, the Company’s intent was to divest William Hill International.
On September 8, 2021, the Company entered into an agreement to sell William Hill International to 888 Holdings Plc for approximately £2.2 billion. On April 7, 2022, the Company amended the agreement to sell William Hill International to 888 Holdings Plc for a revised enterprise value of approximately £2.0 billion. During the nine months ended September 30, 2022, the Company recorded impairments to assets held for sale of $503 million within discontinued operations based on the revised and final sales prices. On July 1, 2022, the Company completed the sale of William Hill International to 888 Holdings Plc.
The Company previously held an equity interest in William Hill PLC and William Hill US (see Note 4). Accordingly, the acquisition was accounted for as a business combination achieved in stages, or a “step acquisition.”
As mentioned above, the total purchase consideration for William Hill was approximately $3.9 billion. The estimated purchase consideration in the acquisition was determined with reference to its acquisition date fair value.
(In millions)Consideration
Cash for outstanding William Hill common stock (a)
$3,909 
Fair value of William Hill equity awards30 
Settlement of preexisting relationships (net of receivable/payable)7 
Settlement of preexisting relationships (net of previously held equity investment and off-market settlement)(34)
Total purchase consideration$3,912 
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(a)William Hill common stock of approximately 1.0 billion shares as of the acquisition date was paid at £2.72 per share, or approximately $3.77 per share using the GBP to USD exchange rate on the acquisition date.
Final Purchase Price Allocation
The fair values are based on management’s analysis, including work performed by third-party valuation specialists, and were finalized over the one-year measurement period. The following table summarizes the allocation of the purchase consideration to the identifiable assets acquired and liabilities assumed of William Hill, with the excess recorded as goodwill as of September 30, 2022:
(In millions)Fair Value
Other current assets$164 
Assets held for sale4,337 
Property and equipment, net55 
Goodwill1,154 
Intangible assets (a)
565 
Other noncurrent assets317 
Total assets$6,592 
Other current liabilities$242 
Liabilities related to assets held for sale (b)
2,142 
Deferred income taxes251 
Other noncurrent liabilities35 
Total liabilities2,670 
Noncontrolling interests10 
Net assets acquired$3,912 
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(a)Intangible assets consist of gaming rights valued at $80 million, trademarks valued at $27 million, developed technology valued at $110 million, reacquired rights valued at $280 million and user relationships valued at $68 million.
(b)Includes the fair value of debt of $1.1 billion related to William Hill International at the acquisition date.
The fair values of the assets acquired and liabilities assumed were determined using the market, income, and cost approaches, or a combination. Valuation methodologies under both a market and income approach used for the identifiable net assets acquired in the William Hill Acquisition make use of Level 3 inputs, such as expected cash flows and projected financial results. The market approach indicates value for a subject asset based on available market pricing for comparable assets.
Trade receivables and payables and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented the estimated fair value of those items at the William Hill acquisition date.
Assets and liabilities held for sale substantially represent William Hill International which was valued using a combination of approaches including a market approach based on valuation multiples and EBITDA, the relief from royalty method and the replacement cost method. In addition to the approaches described, our estimates have been updated to reflect the sale price of William Hill International in the sale to 888 Holdings Plc, described above.
The acquired net assets of William Hill included certain investments in common stock. Investments with a publicly available share price were valued using the share price on the acquisition date. Investments without publicly available share data were valued at their carrying value, which approximated fair value.
Other personal property assets such as furniture, equipment, computer hardware, and fixtures were valued using a cost approach which determined that the carrying values represented fair value of those items at the William Hill acquisition date.
Trademarks and developed technology were valued using the relief from royalty method, which presumes that without ownership of such trademarks or technology, the Company would have to make a series of payments to the assets’ owner in return for the right to use their brand or technology. By virtue of their ownership of the respective intangible assets, the Company avoids any such payments and records the related intangible value. The estimated useful lives of the trademarks and developed technology are approximately 15 years and six years, respectively, from the acquisition date.
Online user relationships are valued using a cost approach based on the estimated marketing and promotional cost to acquire the new active user base if the user relationships were not already in place and needed to be replaced. We estimate the useful life of the user relationships to be approximately three years from the acquisition date.
Operating agreements with non-Caesars entities allowed William Hill to operate retail and online sportsbooks as well as online gaming within certain states. These agreements are valued using the excess earnings method, estimating the projected profits of the business attributable to the rights afforded through the agreements, adjusted for returns of other assets that contribute to the generation of this profit, such as working capital, fixed assets and other intangible assets. We estimate the useful life of these operating agreements to be approximately 20 years from the acquisition date and have included them within amortizing gaming rights.
The reacquired rights intangible asset represents the estimated fair value of the Company’s share of William Hill’s forecasted profits arising from the prior contractual arrangement with the Company to operate retail and online sportsbooks and online gaming. This fair value estimate was determined using the excess earnings method, an income-based approach that reflects the present value of the future profit William Hill expected to earn over the remaining term of the contract, adjusted for returns of other assets that contribute to the generation of this profit, such as working capital, fixed assets and other intangible assets. The forecasted profit used within this valuation is adjusted for the settlement of the preexisting relationship noted previously in the calculation of the purchase consideration in order to avoid double counting of this settlement. Reacquired rights are amortizable over the remaining contractual period of the contract in which the rights were granted and estimated to be approximately 24 years from the acquisition date.
Goodwill is the result of expected synergies from the operations of the combined company and future customer relationships including the brand names and strategic partner relationships of Caesars and the technology and assembled workforce of William Hill. The goodwill acquired will not generate amortization deductions for income tax purposes.
The fair value of long-term debt assumed has been calculated based on market quotes.
The Company recognized acquisition-related transaction costs of $2 million and $5 million for the three months ended September 30, 2022 and 2021, respectively, and $10 million and $60 million for the nine months ended September 30, 2022 and 2021, respectively, excluding additional transaction costs associated with the sale of William Hill International. These costs were primarily associated with legal, professional services and severance costs and were recorded in Transaction and other operating costs, net in our Statements of Operations.
For the period of January 1, 2022 through September 30, 2022, the operations of William Hill resulted in net revenues of $183 million, excluding discontinued operations (see Note 3), and a net loss of $1.3 billion.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information is presented to illustrate the estimated effects of the William Hill Acquisition as if it had occurred on January 1, 2020. The pro forma amounts include the historical operating results of the Company and William Hill prior to the acquisition, with adjustments directly attributable to the acquisition. The pro forma results include adjustments and consequential tax effects to reflect incremental amortization expense to be incurred based on preliminary fair values of the identifiable intangible assets acquired, eliminate gains and losses related to certain investments and adjustments to the timing of acquisition related costs and expenses incurred during the three and nine months ended September 30, 2021. The unaudited pro forma financial information is not necessarily indicative of the financial position or results that would have occurred had the William Hill Acquisition been consummated as of the dates indicated, nor is it indicative of any future results. In addition, the unaudited pro forma financial information does not reflect the expected realization of any synergies or cost savings associated with the acquisition.
(In millions)Three Months Ended September 30, 2021Nine Months Ended September 30, 2021
Net revenues$2,685 $7,106 
Net loss(155)(427)
Net loss attributable to Caesars(157)(429)
Consolidation of Horseshoe Baltimore
On August 26, 2021 (the “Consolidation Date”), the Company increased its ownership interest in Horseshoe Baltimore, a property which it also manages, to approximately 75.8% for cash consideration of $55 million. Subsequent to the change in ownership, the Company was determined to have a controlling financial interest and began to consolidate the operations of Horseshoe Baltimore.
Prior to the purchase, the Company held an interest in Horseshoe Baltimore of approximately 44.3% which was accounted for as an equity method investment.
(In millions)Consideration
Cash for additional ownership interest
$55 
Preexisting relationships (net of receivable/payable)18 
Preexisting relationships (previously held equity investment)81 
Total purchase consideration$154 
Final Purchase Price Allocation
The fair values are based on management’s analysis, including work performed by a third-party valuation specialist, and were finalized over the one-year measurement period. The following table summarizes the allocation of the purchase consideration to the identifiable assets and liabilities of Horseshoe Baltimore, with the excess recorded as goodwill as of September 30, 2022:
(In millions)Fair Value
Current assets$60 
Property and equipment, net317 
Goodwill63 
Intangible assets (a)
53 
Other noncurrent assets183 
Total assets$676 
Current liabilities$26 
Long-term debt272 
Other long-term liabilities182 
Total liabilities480 
Noncontrolling interests42 
Net assets acquired$154 
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(a)Intangible assets consist of gaming rights valued at $43 million and customer relationships valued at $10 million.
The fair values of the assets acquired and liabilities assumed were determined using the market, income, and cost approaches, or a combination. Valuation methodologies under both a market and income approach used for the identifiable net assets of Horseshoe Baltimore on the Consolidation Date make use of Level 3 inputs, such as expected cash flows and projected financial results. The market approach indicates value for a subject asset based on available market pricing for comparable assets.
Trade receivables and payables and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented the estimated fair value of those items on the Consolidation Date.
Other personal property assets such as furniture, equipment, computer hardware, and fixtures were valued at the existing carrying values as they closely represented the estimated fair value of those items on the Consolidation Date.
The fair value of the buildings and improvements were estimated via the income approach. The remaining estimated useful life of the buildings and improvements on the Consolidation Date is 40 years.
The right of use asset and operating lease liability related to a ground lease for the site on which Horseshoe Baltimore is located was recorded at fair value and will be amortized over the estimated remaining useful life due to changes in the underlying fair value and estimated remaining useful life of the building and improvements. Renewal options are considered to be reasonably certain. The income approach was used to determine fair value, based on the estimated present value of the future lease payments over the lease term, including renewal options, using an incremental borrowing rate of approximately 7.6%.
Customer relationships are valued using an income approach, comparing the prospective cash flows with and without the customer relationships in place to estimate the fair value of the customer relationships, with the fair value assumed to be equal to the discounted cash flows of the business that would be lost if the customer relationships were not in place and needed to be replaced. We estimate the useful life of these customer relationships to be approximately seven years from the Consolidation Date.
The fair value of the gaming rights was determined using the excess earnings method, which is an income approach methodology that estimates the projected cash flows of the business attributable to the gaming license intangible asset, which is net of charges for the use of other identifiable assets of the business including working capital, fixed assets and other intangible assets. The acquired gaming rights are considered to have an indefinite life.
The goodwill acquired will generate amortization deductions for income tax purposes.
The fair value of long-term debt has been calculated based on market quotes.
For the period of January 1, 2022 through September 30, 2022, the operations of Horseshoe Baltimore generated net revenues of $175 million, and net income of $8 million.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information is presented to illustrate the estimated effects of the Horseshoe Baltimore consolidation as if it had occurred on January 1, 2020. The pro forma amounts included the historical operating results of the Company and Horseshoe Baltimore prior to the consolidation. The pro forma results include adjustments and consequential tax effects to reflect incremental amortization expense to be incurred based on preliminary fair values of the identifiable intangible assets acquired and adjustments to eliminate certain revenues and expenses which are considered intercompany activities. The unaudited pro forma financial information is not necessarily indicative of the financial results that would have occurred had the consolidation of Horseshoe Baltimore occurred as of the dates indicated, nor is it indicative of any future results. In addition, the unaudited pro forma financial information does not reflect the expected realization of any synergies or cost savings associated with the consolidation.
(In millions)Three Months Ended September 30, 2021Nine Months Ended September 30, 2021
Net revenues$2,718 $7,102 
Net loss(265)(611)
Net loss attributable to Caesars(268)(617)