This case study depicts the plight of Caesars Entertainment, a Casino and hospitality services provider. The firm has been managing 49 casinos, hotels, restaurants, and others. Sometime in 2015, the company filed for Chapter 11 Bankruptcy and is faced with the problem of how it should proceed. Should the company go for Debt-Equity swap, private placement of equity, debt refinancing, or liquidation?
Kristin Mugford; David Chan
Harvard Business Review (216052-PDF-ENG)
February 22, 2016
Case questions answered:
- Considering the current financial condition of the company, what will be the appropriate decision for the management of Caesars Entertainment?
- Should the company go for the debt-equity swap? Or private placement of equity? Or debt refinancing? Or liquidation?
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Bankruptcy at Caesars Entertainment Case Answers
This case solution includes an Excel file with calculations.
Overview – Bankruptcy at Caesars Entertainment
Caesars Entertainment was established as a casino and hospitality services provider. To date, it is managing 49 casinos, hotels, restaurants, and others.
Its business activity was primarily organized into four operating units: CEOC, CERP, CGP, and CES. In 2015, Caesars Entertainment filed for Chapter 11 Bankruptcy.
- The recent economic credit crisis brought financial challenges.
- People are focusing on receiving lower-cost services.
- Lower growth in different business segments indicates the lower disposable income of the people.
- The availability of debt has been reduced over the years because of the credit crisis.
Industry analysis (Porter Five Forces)
- The threat of new entrants in this industry is relatively low.
- Rivalry among existing competitors is high.
- The bargaining power of suppliers is high as there is a limited number of suppliers.
- The bargaining power of buyers is high.
- The threat of substitutes is high.
- Political stability and support ensure help to resorts and casinos.
- Intellectual property protection.
- Favored trading partners.
- The availability of a skilled labor force reduces costs.
- The recent credit crisis brought financial challenges.
- Increment of service price negatively affects a number of customers.
- Influenced deeply by the socio-cultural forces of different markets.
- The changing socio-cultural trends and people’s preferences are positively affecting the people’s preference to get Game and casino services.
- The more innovative the company, the higher its market share.
- Recent technological developments by Caesars Entertainment Corporation’s competitors negatively affect its business.
- Anti-trust law in the Resorts & Casinos industry and overall in the country.
- The legal framework and institutions are not robust enough to protect intellectual property rights in different countries.
- Attitudes toward “green” or ecological products by the company create a positive outlook.
- Air and water pollution regulations in the Resort and Casino industry become strict.
Company analysis (SWOT analysis) for Caesars Entertainment
- Comprehensive product and service portfolio.
- High level of customer satisfaction and a strong distribution network.
- Strong presence in different locations.
- Underperformance relative to major competitors.
- The high attrition rate in the workforce.
- The profitability ratio and Net Contribution % of Caesars Entertainment are below the industry average.
- Driven by technology and innovation.
- New trends in consumer behavior.
- New customers from the online channel.
- The market development will lead to a dilution of the competitor’s advantage.
- A higher amount of debt.
- Higher labor and administrative expenses.
- Changing consumer buying behavior from online channels could be a threat to the existing physical infrastructure.
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