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Edited Transcript of ERI earnings conference call or presentation 26-Feb-20 9:30pm GMT

Q4 2019 Eldorado Resorts Inc Earnings Call

RENO Mar 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Eldorado Resorts Inc earnings conference call or presentation Wednesday, February 26, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anthony L. Carano

Eldorado Resorts, Inc. - President & COO

* Bret Yunker

Eldorado Resorts, Inc. - CFO

* Thomas Robert Reeg

Eldorado Resorts, Inc. - CEO & Director

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Conference Call Participants

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* Barry Jonathan Jonas

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Carlo Santarelli

Deutsche Bank AG, Research Division - Research Analyst

* Daniel Brian Politzer

JP Morgan Chase & Co, Research Division - Analyst

* David Brian Bain

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* David Brian Katz

Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure

* David Richard Hargreaves

Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst

* Harry Croyle Curtis

Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging

* Jared H. Shojaian

Wolfe Research, LLC - Director & Senior Analyst

* John G. DeCree

Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

* Steven Moyer Wieczynski

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst

* Joseph N. Jaffoni

JCIR - Founder & President

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Presentation

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Operator [1]

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Good day and welcome to the Eldorado Resorts' Fourth Quarter Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Joe Jaffoni. Please go ahead, sir.

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Joseph N. Jaffoni, JCIR - Founder & President [2]

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Thank you, Todd. Good afternoon, everyone, and welcome to Eldorado Resorts' 2019 Fourth Quarter Conference Call. Joining us today from the company are Chief Executive Officer, Tom Reeg; President and Chief Operating Officer, Anthony Carano; Chief Financial Officer, Bret Yunker; and Brian Agnew, Vice President of Finance and Treasurer.

On today's call, we'll review the company's fourth quarter financial results and the ongoing progress against the company's key strategic priorities, including the status of Eldorado's proposed acquisition of Caesars Entertainment. We will then open the call to participants for questions.

This afternoon, Eldorado Resorts issued a press release announcing its fourth quarter financial results for the period ended December 31, 2019. The release is available in the Investor Relations section of the company's website at www.eldoradoresorts.com.

Before we get started, I'd like to remind everyone that this call is being recorded, and a webcast replay will be available for 90 days, the details of which are in today's press release.

During today's 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 forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the Securities and Exchange Commission. Eldorado Resorts undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call.

Also, during today's call, the company may discuss non-GAAP financial 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 in the comparable GAAP financial measure can be found on the company's website at www.eldoradoresorts.com by selecting the press release regarding the company's 2019 fourth quarter financial results.

Thank you for your patience with that. And at this time, it's my pleasure to turn the call over to the company's CEO, Tom Reeg. Tom, please go ahead.

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [3]

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Thanks, Joe. Good afternoon, everyone. We're happy to be here to report fourth quarter results. In the quarter, we posted a slight increase in same-store EBITDA against a very tough plus 22.5% comp in the prior year period. There's some noise in the quarter in terms of you have the Century assets that closed in December that come out of the same-store numbers. That ultimately was a drag for us because those properties were doing quite well in the quarter. That's just kind of luck of the draw. The other thing I'd call out is Atlantic City hold -- Atlantic City held considerably well last year. It was down 400 basis points this year in table hold, which cost us over $3 million in EBITDA. So from an operating perspective, the fourth quarter of '19, we are very pleased with.

2019 was obviously a very big year for us on a number of fronts. We completed a number of asset sales, including the Pennsylvania assets to Churchill Downs early in the year, the assets to Century later in the year. We announced an -- the agreement with Twin River to sell Kansas City and Vicksburg. That should close in the first half of this year. We announced the agreement to sell Hollywood -- I'm sorry, Eldorado Casino Shreveport to Maverick. That should also close in the first half of this year.

The big news, of course, is the Caesars Entertainment deal. We continue to work through the licensing process, the FTC process. We can see the finish line from here. So we are reiterating, we think we will close the deal in the first half of 2020. I think if I were to place a wager, it would be early second quarter of this year.

As far as -- you saw Caesars' results last night. They had another strong quarter, particularly in light of what we've seen their peers present in Las Vegas. And I would just say, Tony and his entire executive team at Caesars has been absolutely first-class in every way in terms of working through this transaction with us. There's obviously a lot of work to do. It's very difficult when you're in the target seat. And often, I'm across the table from a Caesars employee thinking, "I hope if I'm in the same -- if the situation is reversed, that I'm as professional and focused on the best interest of the company as the people that I'm dealing with." So we cannot give enough credit to the Caesars team for operating over the last 8 months since we announced the deal.

So I used to be in the seat that many of you are in, in terms of being an investor, having to deal with markets that are incredibly volatile. I know that we have a lot of new investors that are interested in us now because of the Caesars deal. A lot of you are familiar with us. You should all know that we are -- we make a commitment to be 100% candid with you at all times when we're addressing investors. We're not putting Easter eggs in earnings releases that you have to decipher. You don't have to parse what I'm saying. I don't call Tony up last night and say, "See if you can slip in, we may not be able to sell a Strip asset in the Q&A session of your earnings call." We are 100% focused on getting Caesars done. There is absolutely 0 risk on the financing side, either with the financing that we will ultimately raise in the markets, which is already fully committed by a large syndicate of banks. VICI has already raised all of the money that it needs to fund the transaction. So I would just encourage you, as you -- I understand the pressure that all of you are under in a market like this and the concern that maybe there's something different beyond -- we're afraid of this virus. Maybe there's something with the deal or with the financing. There is nothing. I spent 0 time worrying about my ability to sell a Strip asset.

We've been very clear that we are not going to sell a Strip asset until we own Caesars. We'd intend to enter an agreement within the first 12 months postclosing. So if anyone, we're calling Tony to talk about Strip assets for sale, they're not listening to us. So we don't have any doubt that there's going to be a very strong execution on Vegas Strip asset sale. You guys have seen the recent real estate prints that ends up being about 2/3 of your transaction price. The proceeds from that transaction on a sale basis are -- will be considerably higher than they were going to be when we announced the deal based on the comps that have been going on in the market.

Similarly, the financial markets, comparable credits have been issuing and trading inside 5% on an unsecured basis. So we feel very good about the execution that we'll get in the credit markets. Even in a complete dislocation of the credit markets, we have a fully funded transaction.

So what I would say is as you ask questions today, I know there are a lot of -- there'll be a lot of sell-side guys in the queue, if you have a question that came from the fever swamps today of whatever crazy rumor was bubbling up, ask us directly. We're very happy to answer it. This deal is closing. It's closing soon. We are extremely confident in every number that we have put in front of you. We're constantly finding new levers within Caesars to pull as we go forward. This transaction is going to be a home run for all of our stakeholders, and we're excited to get started.

So I really wanted to address that in the meat of my remarks. Anthony and Bret will get into financials and specifics of properties, and I -- and we're happy to answer any questions that come up.

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Anthony L. Carano, Eldorado Resorts, Inc. - President & COO [4]

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Thank you, Tom, and good afternoon to everyone on the call. I'd like to take a few minutes to provide you with some fourth quarter operational highlights. We are pleased with our fourth quarter results, especially when considering the 22% comp we were up against in the fourth quarter of 2018. Consolidated same-store adjusted EBITDA was $146.2 million, up 0.4% year-over-year, excluding the assets we divested during the quarter to Century Casinos.

Looking at our 5 operating segments. I'll begin with the East segment, where adjusted EBITDA declined 3.3% year-over-year to $34.3 million, and the adjusted EBITDA margin declined 50 basis points to 26.5%. We faced a challenging 47% increase in adjusted EBITDA for the segment in Q4 of '18. Within the East segment, Scioto's adjusted EBITDA rose for the 20th consecutive quarter, and property-level EBITDA growth accelerated in Q4 2019 versus the prior 3 quarters of the year. Atlantic City faced a challenging compare in Q4 of '19, as the property held above normal last year on the table side.

Adjusted EBITDA for the South Region was down 13.5% to $22.4 million on an 11.8% decline in net revenue. Adjusted EBITDA margins in the South declined 40 basis points to 21.2%. Multiple factors negatively impacted the quarter in the South, including lingering road construction in Lake Charles and the opening of a competitor's new hotel project in Florida.

Turning to the West Region. EBITDA declined 4.2% year-over-year to $33.1 million. The West Region's adjusted EBITDA margin improved 70 basis points to 26%, driven by solid results in Reno during the quarter. Black Hawk results were negatively impacted by winter weather late in Q4 of '19, but we're pleased with the quarter-to-date trend so far in 2020 for the West.

Revenues in the Midwest declined 0.5%, and segment adjusted EBITDA rose 3.8% to $27.1 million. The Midwest adjusted EBITDA margin increased 155 basis points to 36%. Waterloo in Kansas City delivered impressive results in the quarter.

Finally, our Central Region delivered an exceptionally strong fourth quarter with EBITDA growth of 11.5% on a 1.3% decline in net revenues. The segment's EBITDA margin rose 370 basis points to 32.1% during the quarter. The Central Region in 2019 delivered 15% EBITDA growth, with all 3 assets delivering strong results.

As I reflect upon our fourth quarter results, our diversified portfolio of 23 regional gaming assets performed well, especially considering the difficult compare. As we draw closer to the expected closing for the Caesars transaction, I'm excited about the opportunity to combine these 2 great companies and to deliver on our revenue and operating expense synergy goals in the months ahead.

With that, I'll now turn the call over to Bret for some additional insights on the fourth quarter financial performance and details on our balance sheet and capital structure. Bret?

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Bret Yunker, Eldorado Resorts, Inc. - CFO [5]

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Thanks, Anthony. We ended 2019 on yet another strong note in terms of our balance sheet and credit profile.

During the fourth quarter, we successfully closed the Century transaction and repaid another $388 million on our term loan, bringing aggregate 2019 debt reduction to over $700 million. Heading into 2020, our existing term loan B has been paid down to approximately $500 million. Our senior notes remain at $1.85 billion, and we have no outstandings on our revolver.

In terms of our plans to raise capital in connection with closing of the Caesars transaction, this is not the first time that we've seen credit markets behave differently than equity markets. We have everything on track to take our committed financing out to market in the coming weeks. And as Tom already mentioned, in light of recent debt issuance in the sector, we are eager to see where that lands in terms of execution relative to our original expectations.

With that, I'll turn the call back over to Tom.

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [6]

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And I'd just speak about a couple of items that I didn't touch on. Obviously, we're -- we've seen what's going on in the sports betting market. All of you know that have been following us, we have been quite bullish on sports betting as a driver of visitation and ultimately value to Eldorado and its shareholders going forward. We've seen the same results that our peers have seen in terms of every property that has a sportsbook that did not before has seen increased visitation and volumes. We certainly see the valuations that have been starting to filter into the market through transactions. You know that we have a portfolio of assets that lines up favorably with just about anybody out there, and you should expect us to be prosecuting that opportunity in a way that is done in a thoughtful manner but drives significant value to ERI shareholders.

Also, for -- to hit on 2020, we're off to a roaring start this year. I would expect we'll end February north of 10% same-store EBITDA growth. We probably give a little of that back in March because you have a calendar shift, but this has been a very strong start to the year. And what's heartening is it has been revenue-driven. Some of that is weather, but a lot of it is just customer strength. So we see -- we feel very good about the current operations of the business. We're seeing no current impacts from the virus scare, and we feel very good about where we are and where we're headed.

And with that, I'll send it back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Carlo Santarelli with Deutsche Bank.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [2]

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Tom, you were fairly forthright in your views on obviously the deal close and the financing, so I'm not going to go down that route. But when you -- you talked a little bit about the sports betting, some of the valuations that you're seeing out there. Obviously, you guys have the William Hill partnership. You have the iGaming exposure via Caesars ultimately in New Jersey and your own sports betting and their sports betting. Could you talk a little bit about kind of how you could potentially foresee unlocking that value once the companies are combined? And kind of what you see as kind of the endgame of that business over time?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [3]

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Yes. Well, what I would say is when we were Eldorado, Carlo, we were not -- didn't see ourselves as a likely national player in sports betting. We didn't think the Eldorado brand had the cachet to go national. So the thought was, we need to partner with somebody who's going to get a big piece of the U.S. business and share in that upside, and that was the William Hill deal. And as it sits today, William Hill's property -- I'm sorry, Caesars' properties would go into that deal, and the waterfall would be the same as our sports betting properties. We are looking at it now with what Caesars brings to the table. We can be a national player, likely even a leader in the space, given the partnerships, the power of the Caesars brand name, the power of the database, the execution that William Hill brings. So it becomes about what do you -- how do you put together transactions that reduce your customer acquisition costs and increase your market share. And then you think about how do I structure something where it's, do I want to put cash in and own more of it? Or do I just want to throw everything into a transaction. And that's the kind of analysis that you need to do.

I will tell you what I'm certain is, is when you look at DraftKings' slide deck, as an example, and look at that -- their projections going forward, it doesn't look very different than what the combination that we're putting together would deliver. And to have that buried in a giant casino operating company is probably suboptimal for our shareholders. So we're not going to run out and do something in 2 weeks because we like a stock market valuation, but we're going to do it in a thoughtful manner. But we're going to come out of it with a business that can take a leadership position in the SIP space. I would also tell you that our combined operations are already profitable, which is a big difference between some of our peers. And we think if we are able to highlight that value, it'll make sense from a business perspective, and it will create value for stakeholders on all sides.

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Carlo Santarelli, Deutsche Bank AG, Research Division - Research Analyst [4]

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Great. That was very helpful. And then just one kind of administrative follow-up. The 10% same-store EBITDA growth that you referenced, was that in February or coming out of the month of February, i.e., January and February quarter-to-date?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [5]

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Through February.

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Operator [6]

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We'll take our next question from Steve Wieczynski of Stifel.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [7]

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So Tom, if I can add on to that, the last question, the 10% growth that you have seen year-to-date. And I think you said that was more revenue-based versus anything else. Can you talk a little bit more about maybe what's driving that revenue growth? Meaning is it more frequent visitations? Is it new players? Is it sports betting, guys coming with more liquidity? Or just a combination of all those things?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [8]

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It's a combination of all those things. And I want to be clear, I'm not saying it's all revenue-driven, but there is meaningful revenue growth through the first -- we're almost 60 days into the year. And obviously, the way we run the business, there's super high flow-through when you get additional revenue. So we're -- we continue to operate more efficiently. But when you get increased organic demand, the flow-through is -- it's pretty strong.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [9]

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Okay. Got you. And I know you're not going to give formal guidance, and you guys haven't given formal guidance. But anything you could say ballpark-ish where you think margins could go this year given how strong those margins have been? And look, I understand the Caesars deal is going to close this year. But if you looked at your portfolio right now, is there anything you could say around what kind of margin upside you could potentially see this year?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [10]

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Well, we had always thought we could get the legacy Eldorado portfolio in excess of 30%, and we are on a path to get there. Caesars brings a lot lower tax jurisdictions. And if you run the numbers of where we think we'll be with our synergies, you're looking at mid-30s EBITDA margins on the combined company. Now obviously, in 2020, you're going to have some sort of blended margin of a period of time, that's just ERI in a period of time, that's the combined company.

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Steven Moyer Wieczynski, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research and Gaming & Leisure Research Analyst [11]

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Okay. Got you. And if -- Tom, if I could do one more real quick here. I think you said in your prepared remarks, you basically are reaffirming all those targets that you had out there around the Caesars deal. Did I hear that correctly? Meaning that's -- whether that's the $500 million synergy target, the $10 free cash flow assumption? I assume all those are still very much in play at this point.

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [12]

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You heard that correctly.

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Operator [13]

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We'll take our next question from Barry Jonas of SunTrust.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [14]

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Maybe just to start, Tom, what do you expect around any asset divestitures, whether it's AZ, Nevada or any other market from here?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [15]

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We've talked about how we're going to have to address Tahoe. You should presume that, that's in progress. Other than that, there's nothing that we'd expect to be required for -- to close the transaction. You should expect that we've talked about a Strip asset sale postclosing. We've talked about how we want to maintain 50-50 leased to owned. So if we sell a Strip property, you should probably expect we'll sell a leasehold interest somewhere else to maintain that balance. But those will be decisions that are based on our desires, not someone requiring -- or telling us to.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [16]

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Great. And then recognizing the commentary on selling a Strip asset or potentially selling. Are there other items you'd maybe consider noncore that could be on the table, whether that's entertainment-related or on the convention side?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [17]

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I got to wait for the next Bloomberg article, Barry, to see what I'm doing there.

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Barry Jonathan Jonas, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [18]

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Fair enough. I guess, one other question. The pro forma entity will have a very wide number of brands, Tom, corporate entities changing its name to Caesars. Should we expect any branding changes at any specific properties or maybe multiple properties?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [19]

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Yes. You should expect us to gravitate toward the Caesars brand. That's obviously a big draw in terms of what was appealing about Caesars as a company. I would expect we become heavy with -- Caesars would be just the highest-end properties, but I'd expect to see a lot of our assets change into Horseshoe or Harrah's over time.

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Operator [20]

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We'll take our next question from Dan Politzer of JPMorgan.

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Daniel Brian Politzer, JP Morgan Chase & Co, Research Division - Analyst [21]

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So on the synergies, it definitely sounds like you're still on pace for the $500 million. Can you maybe talk about some of the buckets you've been surprised by thus far, and maybe some areas that have emerged that you maybe want to leave untouched?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [22]

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I would tell you on the cost side, really all -- we know more detail about what's in the buckets than we did certainly 8 months ago, and we've got a plan to execute from day 1. And Tony has started before day 1, which has been fantastic. What's really -- what I'm much more excited about since I've gotten involved is the revenue side. Caesars is incredibly strong at driving revenue, basically developing players from where they show up into larger players. You see it in all their win per position numbers throughout the organization. It's clearly -- Caesars Rewards is a piece of that, but it's clearly quite powerful. So we think we're buying the best, if not -- or among the best, if not the best, in the business at driving revenue. And we think we're the best or among the best on the cost side. And we think it's a very good marriage between the 2 of us, and we've -- you see the flow-through when revenue comes into -- organic revenue growth comes into the system, I think that's going to be quite powerful in both directions, bringing Caesars Rewards into our system and bringing our players into Caesars Rewards and into the Vegas mix. We think it's going to be beneficial to both sides. And I would say I personally am far more excited about that than I was when we announced the transaction.

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Daniel Brian Politzer, JP Morgan Chase & Co, Research Division - Analyst [23]

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I appreciate that. And then just one more. Can you remind us on Lake Charles on the land-based project? What's the status of the construction there and maybe your target return from that investment?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [24]

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You can probably find a picture of Anthony in his hardhat from last week at the groundbreaking. So construction is underway. I'd expect the budget to be in the $120 million range, and I'd expect a 20%-plus cash ROI.

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Daniel Brian Politzer, JP Morgan Chase & Co, Research Division - Analyst [25]

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And -- all right. Timing of how long do you think that takes before it's finished?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [26]

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Should be opening middle of next year.

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Operator [27]

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We'll take our next question from David Katz of Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [28]

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Appreciate all the information and the clarity so far. I wanted to just raise an issue that I've gone back to a number of times, which is Pompano. And what I'd like to do is tack on to it other opportunities for land value or latent assets that you may be coming across in your travels as you go through this. And whether we could be seeing more opportunities that are similar in the future?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [29]

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Yes. So we are through the entitlement process in Pompano, which is -- that adds a big step. So we have the approval to do more than we'd want to do, so we can kind of move pieces around, do what we'd like to do. You're going to see us spend this year, we'll break out around on the parking garage, the jai alai fronton, the smoking patio, kind of in the middle of the year. That'll come online in early next year. You'll start to see pieces of the third-party development through -- particularly the Live! district, begin developing by the end of the year, early next year. And that's going to be multiple phases. But you should see big pieces of it coming on line second half of next year, 'early 22. There are other properties within our portfolio, Scioto comes to mind, that have a similar footprint and opportunity, and then Caesars with the tracks in Indiana and the land that they have on the east side of the Strip, have similar opportunities to contribute property to drive vector -- to drive value in a similar fashion. So we feel very good about the levers we have to pull there as we move forward.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [30]

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Can I just follow that up and go back to Pompano for a second and get a sense for how much we should be thinking about you spending? And how we might think about penciling some of the pieces that you think could come on? In essence, what do we do to the model?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [31]

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So I would say, I would be expecting a Live! district similar to what you've seen elsewhere that Cordish has built. Our parking garage, our expansion, our smoking patio, that's probably $50 million on balance sheet to us. The rest of it will be financed at the JV level with likely no further capital contribution necessary. You should probably be thinking about a Topgolf. You should be thinking about multiple hotels, one that probably comes online toward the end of '22. You should be thinking about residential and office development that starts to come online in '22 and continues for several years after that.

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Operator [32]

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We'll take our next question from Harry Curtis with Instinet.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [33]

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I had 2 questions. Tom, have you had a chance to prioritize your CapEx postclosing? And what I was really focusing on it, if you've identified some high ROI targets that you're excited about beyond Pompano?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [34]

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Yes. So we're -- Caesars, obviously, has projects in the pipeline. New Orleans will get started shortly. That should be a driver of growth. Caesars is kind of winding down their room remodel program. We see significant opportunity at the tracks in Indiana. If you look at the performance to date from the tables, it's off the charts. It's obviously early, but they were capacity-constrained there. I think there's very high ROI CapEx there that kind of adds an addition on to the building that brings more tables to both tracks. And we think that would be a significant driver of growth and value.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [35]

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And then the second question is related to your frequent player programs, your customer reward programs. Again, you've had some time to digest the best practices of Caesars versus Eldorado. Can you discuss their integration and where you're probably going with the integration of that? How seamless is it going to be? Because it seems like in the decades that we've been doing this, the integration of rewards programs can often be sticky on the -- particularly on the customer side.

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [36]

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Yes. And I'd agree with that comment. What I'd tell you is their experience with Centaur and what they've demonstrated post that acquisition is heartening to us, in that, thankfully, they did it when they did because it provides a road map to what we're going to do postclosing. They have an internally developed product that is effectively something that patches the 2 systems together, so that in many places, on day 1, you're going to be able to use your points almost like when an airline merger happens, where if you're an Eldorado player in a Caesars property, they can see your points, you can use them there. It's not as seamless immediately as if you're already in the Caesars Rewards system, but it provides many of the benefits that the customers value immediately out of the box. And we have spent an extraordinary amount of time planning for this and making sure that the rollout goes as smoothly as we can because we see the same -- the risks that you've pointed out in the past performance in the space. We feel real good about following the Centaur road map and getting value from it very quickly.

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Harry Croyle Curtis, Nomura Securities Co. Ltd., Research Division - MD and Senior Analyst of Gaming, Leisure & Lodging [37]

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So I guess my follow-up, maybe you could provide 1 or 2 nuggets of best practices that you're doing that you can apply to their properties and vice versa.

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [38]

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Yes. I would say clearly, the biggest opportunity for us, what we bring, is moving the decision-making at the -- down to the local level and eliminating the command-and-control functions that face customers. There was a lot of inefficiency in their system that doesn't exist in ours because we just don't have -- we don't run things similarly. And that's where we're going to drive a lot of big value. There are places where they are just head and shoulders beyond us. Their yield management in Vegas and elsewhere is incredibly impressive. I think you guys have seen it in the results that they've been delivering over the past 12 months or so, particularly in Vegas. We think that can be a big piece for us. Their app, their -- the mobile, the customer contacts, they're just very, very good at it. And we're not as good. And that's -- you got to know what you're good at and know what you're not good at and choose the best athletes, and Caesars has a lot of great athletes. They have too many bodies, but there are a lot of people in Caesars that are extraordinarily talented that are going to remain here and help us drive value for the combined company going forward.

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Operator [39]

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We'll take our next question from Jared Shojaian of Wolfe Research.

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Jared H. Shojaian, Wolfe Research, LLC - Director & Senior Analyst [40]

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So a question on the capital structure maybe, Bret, for you. Can you just give us an update on what you expect for pro forma cash and debt at close? And then can you remind me how the terms of the debt agreements work? Meaning, are the interest rates at the time of the announcement last June, is that locked in on the fixed rate side? Or do you get the prevailing market rate today? Because obviously, rates have come down pretty significantly at that time. And I guess just given that drop in interest rates, any sense on how much incremental cash savings that would be? I think you were expecting $700 million of interest expense, which was factored into your $1.5 billion free cash flow target.

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Bret Yunker, Eldorado Resorts, Inc. - CFO [41]

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All right, Jared. There's a bunch of them there, but I'm going to try to hit them all. I think at a macro level, the capital structure is largely what you would have seen when we announced. Obviously, there's been some incremental asset sales since the announcement, including Rio. So that's taken our debt funding need inside of $7 billion in terms of the closing funded debt that we'll take out to the capital markets. You're spot on. We benefit from the upside of a better market in terms of the credit markets. So any interest expense savings that we achieved versus what we underwrote is going to benefit us. We expect today to be inside of that number that you quoted. In a downside, it's not significantly material to us. But we have fully committed financing that would take us out to a downside interest expense if the market is choppy.

Cash will be a little over $1 billion, and I think we talked through that when we announced that's [occasion] operating cash across the combined enterprise.

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Jared H. Shojaian, Wolfe Research, LLC - Director & Senior Analyst [42]

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That's helpful, Bret. And then maybe, Tom, a question for you, just going back to sports betting. Obviously, 2020 is a very busy year. You have a lot on your plate. So should we be thinking about the potential monetization that you're talking about of sports and iGaming being a more of a 2021 kind of event? Or anything you can help us frame the timing around that. And then if you could just kind of help us understand the agreement with William Hill. Does that need to be amended in any way to account for some of the difference in how Caesars operates its sportsbooks versus William Hill operating the books on the Eldorado side?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [43]

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There's no amendments that are necessary. The thought is more what can it become now that we're bringing all the Caesars assets into it. I would not expect it to take until 2021. But I also wouldn't expect it to happen 3 weeks from now.

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Operator [44]

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We'll take our next question from Shaun Kelley of Bank of America.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [45]

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Tom, maybe just to stick with the sports betting themes to address there. Obviously, there's probably a lot of different structures you can evaluate here, and I appreciate it's probably not finalized yet. But maybe strategically, you could just let us know kind of how important do you think control is as a part of this. I mean, today, your stake in William Hill or the joint venture of the U.S. is relatively small. But specifically, kind of how do you think about control? And then the iGaming or iCasino piece, in particular, as you think about kind of maybe the long-term future or long-term trend line of gaming?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [46]

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Yes. We're not driven by the ego of who controls it. We're looking for what's the best economic outcome, and we want to ensure the business is run in the best manner it can possibly be run. So that's really the parameters we're operating on. And then we do anticipate that sports bet online -- global sports betting will lead to more mobile gaming over time, and that a single-wallet solution is going to be what wins the day. And that's -- it all goes into the calculators -- I've had a lot of people run to me since the recent deals, thinking, "Why don't you do something immediately?" We're dealing with a business here that could -- should be driving value decades down the road. So we want to be thoughtful and put it together in the right fashion. But when I look at what we've got and look at other people's presentations, it looks pretty similar, except we make money.

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Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [47]

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That's helpful. And then to switch kind of to the core -- more core operations. Just if we go back to, I guess, the overall core here. From the closing of the Tropicana transaction, just maybe if you could give us an update on your overall view of the stage of where you are in achieving some of your goals or targets from that deal. Is -- should we think that, I guess, progressing from here, we're going to see more of the revenue -- more of the core business be about revenue and we really recognize what we expected to on the cost side? Or how should we think about that kind of trade-off between revenues and margins for, let's call it, a bridge period, Q1 going into the -- into the closing of Caesars? And that's it for me.

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [48]

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I mean you've seen our margin trajectory, Shaun. We're never done. We're going to keep going. Obviously, the Caesars revenue tools brings us something that we have never had in any prior acquisition or in our existing company. So it's quite exciting. But we're going to continue drilling down on the cost side. I'd tell you, Black Hawk, which was the Isle deal, so we've owned it since '17, it had its best January ever this January. So assets that we've owned for Scioto continues to set records. Every quarter, that property is up over $80 million of EBITDA, almost double what it was when we took it over. And it's running margins in excess of 40% in a 42% tax rate jurisdiction. So we are going to continue driving in the legacy portfolio. We are not done. This is not, we've done Caesars and we've reached the finish line. If the reason you do Caesars is because it extends what's possible in terms of creating value, and it creates more avenues to create that value, but it doesn't mean you stop what you've been doing before. And we've got a great team put together that has a tremendous track record of execution. And we're adding a lot of great people from Caesars, and we're excited to get started.

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Operator [49]

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We'll take our next question from John DeCree of Union Gaming.

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John G. DeCree, Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research [50]

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I think you covered a lot of grounds, so maybe 2 high-level questions. The first one, Tom, you've talked earlier on the call, I think, in response to a prior question, and consistent with your past, looking to kind of stick around 50-50 when we think about owned/leased assets. But given the significant interest we've seen from real estate investors across a broad spectrum, do you think you flex on that at all? Is there -- does it ever make sense to monetize additional real estate if we continue to see cap rate compression? I guess how do you think about your real estate over the course of the next couple of years?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [51]

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Unlikely we do anything that's not transaction-based. We haven't before. Pure sale-leaseback is unlikely in our portfolio anytime soon.

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John G. DeCree, Union Gaming Securities, LLC, Research Division - Director and Head of North America Equity & High Yield Research [52]

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Got it. That's helpful. And then perhaps to kind of recap, and maybe I'm kind of jumping the gun on some of your closing remarks. But for new investors to the story, there's clearly a lot of moving pieces here, a lot of exciting things you guys have ahead really over the next 6 months. Could you kind of help prioritize how we should be thinking about milestones for you guys going forward? It's -- so obviously, getting the transaction over the finish line, but kind of ranking selling that Strip asset and deleveraging and focusing on sports, I mean, probably all of the above. But if you could kind of lay out kind of a brief road map or priorities to kind of help people kind of pay attention to the milestones ahead?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [53]

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Yes. So obviously, next milestone is getting to closing. By next quarter call, presumably we're announcing what our immediately realized synergies were. We're starting to track what we're generating. We're reporting that to you. You're going to start to see what happens on the revenue side postclosing. You're going to see within the first 12 months likely a signed agreement on a Strip asset. You're going to see likely within '21 something on the sports side. So we feel -- I'm sorry, within '20, on the sports side. So there's a lot of markers coming up to measure our progress.

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Operator [54]

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We'll take our next question from David Bain of Roth Capital.

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David Brian Bain, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [55]

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And I understand and appreciate you reaffirming your targets for free cash flow, synergies, et cetera. And just to be clear, Bret, I believe you spoke to this in the Q&A. But just so that I'm clear, the transaction is obviously secure. But do you believe the current sentiment impacts potential bond pricing as we head out to finalize? Or are we seeing no movement there right now?

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Bret Yunker, Eldorado Resorts, Inc. - CFO [56]

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We'd be well inside any kind of number that we were using last June. There's material cash flow savings that accrue to us from where we are being indicated across The Street in terms of where we would execute debt levels. So we'd encourage everyone to talk to your credit market counterparts to see what they think.

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David Brian Bain, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [57]

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Okay. Great. And then sorry again to live in kind of hypothetical, the last few days have been a little volatile. In terms of conversations with the Caesars team, anything you're hearing in terms of impact on conventions in Las Vegas, cancellations, visitation due to the coronavirus. And maybe anything in terms of the divestiture plan that would change due to the current environment that would delay or accelerate any strategies there.

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [58]

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None. You heard them say yesterday, no impacts. You shouldn't expect to see any change in the divestiture plans.

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David Brian Bain, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [59]

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Perfect. And then lastly, Tom, you mentioned you don't stop at Caesars. I mean, ultimately, can you take the Caesars brand and move this out of the casino into the more traditional hospitality venue, sort of the kind of cost subsidy thesis that you've talked about previously transcending on gaming? Or is there just still so much to do in the segment it's too early to think about?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [60]

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There's so much to do with the segment. I'm not particularly excited about -- I think that others have -- Caesars has struggled, too, in terms of generating material value out of that. It's unlikely to be a major focus in the foreseeable future.

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Operator [61]

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We'll take our next question from David Hargreaves with Stifel.

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David Richard Hargreaves, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [62]

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So I just wanted to confirm. When you speak about the $500 million in expected synergies, I think Tony yesterday said they had achieved $100 million last year. Should we be thinking the $500 million is in addition to that?

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [63]

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Yes. Tony has said $100 million since the beginning of '19, which encompasses a risk that they did before Tony arrived. The numbers you should be thinking about that overlap with our synergies are something in the $50 million to $75 million range.

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David Richard Hargreaves, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [64]

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I see. And could you give us a reminder about the run rate lease expense, what we should be expecting based on the 50%?

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Bret Yunker, Eldorado Resorts, Inc. - CFO [65]

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About $1.15 billion for 2020, round number.

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David Richard Hargreaves, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [66]

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Great. And then when do you expect to file your 10-K?

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Bret Yunker, Eldorado Resorts, Inc. - CFO [67]

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Tomorrow.

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Operator [68]

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We have no further questions in queue. I'll turn it back to management for closing remarks.

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Thomas Robert Reeg, Eldorado Resorts, Inc. - CEO & Director [69]

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Thanks, everybody. We'll see you in -- after the first quarter.

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Operator [70]

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This concludes today's call. Thank you for your participation. You may now disconnect.