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Fair Value Measurements

6 Months Ended

Jun. 30, 2021

Items Measured at Fair Value on a Recurring Basis: The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the Balance Sheets at June 30, 2021 and December 31, 2020:


	June 30, 2021
(In millions)	Level 1		Level 2		Level 3		Total
Assets:
Restricted cash and investments	$	1	$	1	$	—	$	2
Marketable securities	396		9		—		405
Derivative instruments - FX forward	—		3		—		3
Total assets at fair value	$	397	$	13	$	—	$	410
Liabilities:


Derivative instruments - interest rate swaps	$	—	$	61	$	—	$	61


Total liabilities at fair value	$	—	$	61	$	—	$	61


	December 31, 2020
(In millions)	Level 1		Level 2		Level 3		Total
Assets:
Restricted cash and investments	$	1	$	3	$	44	$	48
Marketable securities	23		10		—		33
Derivative instruments - FX forward	—		40		—		40
Total assets at fair value	$	24	$	53	$	44	$	121
Liabilities:
Derivative instruments - 5% Convertible Notes	$	—	$	326	$	—	$	326
Derivative instruments - interest rate swaps	—		90		—		90
Total liabilities at fair value	$	—	$	416	$	—	$	416

The change in restricted cash and investments valued using Level 3 inputs for the six months ended June 30, 2021 is as follows:


(In millions)	Level 3 Investments
Fair value of investment at December 31, 2020	$	44
Change in fair value	7
Acquisition of William Hill	(51)
Fair value at June 30, 2021	$	—

Restricted Cash and Investments

The estimated fair values of the Company’s restricted cash and investments are based upon quoted prices available in active markets (Level 1), or quoted prices for similar assets in active and inactive markets (Level 2), or quoted prices available in active markets adjusted for time restrictions related to the sale of the investment (Level 3) and represent the amounts the Company would expect to receive if the Company sold the restricted cash and investments. Restricted cash classified as Level 1 includes cash held in short-term certificate of deposit accounts or money market type funds. Restricted investments included shares acquired in conjunction with the Company’s sports betting agreements that contained restrictions related to the ability to liquidate shares within a specified timeframe. As a result of the William Hill Acquisition, no restricted investments are held as of June 30, 2021.

Marketable Securities

Marketable securities consist primarily of trading securities held by the Company’s captive insurance subsidiary, unrestricted shares acquired in conjunction with the Company’s sports betting agreements and investments acquired in the William Hill Acquisition for which the Company elected the fair value option (see Note 4). These investments also include collateral for several escrow and trust agreements with third-party beneficiaries. The estimated fair values of the Company’s marketable securities are determined on an individual asset basis based upon quoted prices of identical assets available in active markets

(Level 1), quoted prices of identical assets in inactive markets, or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts the Company would expect to receive if the Company sold these marketable securities.

In November 2018, the Company entered into a 20-year agreement with The Stars Group Inc., which was subsequently acquired by Flutter Entertainment PLC (“Flutter”) to provide options to obtain access to a second skin for online sports wagering and third skin for real money online gaming and poker with respect to the Company’s properties in the U.S. Under the terms of the agreement, the Company received common shares, as a revenue share from certain operations of Flutter under the Company’s licenses. The fair value of the shares received has been deferred and is recognized as revenue on a straight-line basis over the 20-year agreement term. All shares initially received were subject to a one year restriction on transfer from the date they are received. All shares held were unrestricted as of June 30, 2021.

As of June 30, 2021 and December 31, 2020, the fair value of shares held was $9 million and $10 million, respectively, and is included in Prepayments and other current assets on the Balance Sheets. The Company recorded an unrealized loss of $1 million during the six months ended June 30, 2021, and an unrealized gain of $7 million and $3 million during the three and six months ended June 30, 2020, respectively, which were included in Other income (loss) on the Statements of Operations. On July 7, 2021, the Company sold all remaining Flutter shares for $9 million.

Derivative Instruments

The Company does not purchase or hold any derivative financial instruments for trading purposes.

5% Convertible Notes - Derivative Liability

On October 6, 2017, Former Caesars issued $1.1 billion aggregate principal amount of 5% Convertible Notes. On June 29, 2021, all outstanding 5% Convertible Notes were converted. See Note 9 for further discussion. Upon mandatory conversion, no derivative liability associated with the conversion feature exists.

Forward contracts

The Company has entered into several foreign exchange forward contracts with third parties to hedge the risk of fluctuations in the foreign exchange rates between USD and GBP and to fix the exchange rate for a portion of the funds used in the William Hill Acquisition and repayment of related debt. On April 23, 2021, the Company entered into a foreign exchange forward contract to purchase £237 million at a contracted exchange rate, which was settled on June 11, 2021, resulting in a realized gain of $6 million, which was recorded in the Other income (loss) on the Statements of Operations. Similarly, the Company entered into foreign exchange forward contracts to sell £487 million at a contracted exchange rate. The forward term of the contracts ends on December 31, 2021. The Company recorded an unrealized gain of $3 million and $4 million during the three and six months ended June 30, 2021, respectively, related to forward contracts, which was recorded in the Other income (loss) on the Statements of Operations

On July 21, 2021, the Company entered into a foreign exchange forward contract to sell £150 million at a contracted exchange rate. The forward term of the contracts ends on March 31, 2022.

Interest Rate Swap Derivatives

We assumed Former Caesars interest rate swaps to manage the mix of assumed debt between fixed and variable rate instruments. As of June 30, 2021, we have seven interest rate swap agreements to fix the interest rate on $2.3 billion of variable rate debt related to the Caesars Resort Collection (“CRC”) Credit Agreement. The interest rate swaps are designated as cash flow hedging instruments. The difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense at settlement. Changes in the variable interest rates to be received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows.

The major terms of the interest rate swap agreements as of June 30, 2021 are as follows:


Effective Date	Notional Amount (In millions)	Fixed Rate Paid	Variable Rate Received as of June 30, 2021	Maturity Date
1/1/2019	250	2.196%	0.0925%	12/31/2021
12/31//2018	250	2.274%	0.0925%	12/31/2022
1/1/2019	400	2.788%	0.0925%	12/31/2021
12/31//2018	200	2.828%	0.0925%	12/31/2022
1/1/2019	200	2.828%	0.0925%	12/31/2022
12/31//2018	600	2.739%	0.0925%	12/31/2022
1/2/2019	400	2.707%	0.0925%	12/31/2021

Valuation Methodology

The estimated fair values of our interest rate swap derivative instruments are derived from market prices obtained from dealer quotes for similar, but not identical, assets or liabilities. Such quotes represent the estimated amounts we would receive or pay to terminate the contracts. The interest rate swap derivative instruments are included in either Other assets, net or Other long-term liabilities on our Balance Sheets. Our derivatives are recorded at their fair values, adjusted for the credit rating of the counterparty if the derivative is an asset, or adjusted for the credit rating of the Company if the derivative is a liability. None of our derivative instruments are offset and all were classified as Level 2.

Financial Statement Effect

The effect of derivative instruments designated as hedging instruments on the Balance Sheets for amounts transferred into Accumulated other comprehensive income (loss) (“AOCI”) before tax was a gain of $14 million and $29 million during the three and six months ended June 30, 2021, respectively. AOCI reclassified to Interest expense on the Statements of Operations was $15 million and $29 million for the three and six months ended June 30, 2021, respectively. As of June 30, 2021, the interest rate swaps derivative liability of $61 million was recorded in Other long-term liabilities. Net settlement of these interest rate swaps results in the reclassification of deferred gains and losses within AOCI to be reclassified to the income statement as a component of interest expense as settlements occur. The estimated amount of existing gains or losses that are reported in AOCI at the reporting date that are expected to be reclassified into earnings within the next 12 months is approximately $45 million.

Accumulated Other Comprehensive Income (Loss)

The changes in AOCI by component, net of tax, for the period through June 30, 2021 are shown below.


(In millions)	Unrealized Net Gains on Derivative Instruments		Foreign Currency Translation Adjustments		Other		Total
Balances as of December 31, 2020	$	26	$	8	$	—	$	34
Other comprehensive loss before reclassifications	(2)		—		(1)		(3)
Amounts reclassified from accumulated other comprehensive income	14		—		—		14
Total other comprehensive income (loss), net of tax	12		—		(1)		11
Balances as of March 31, 2021	$	38	$	8	$	(1)	$	45
Other comprehensive income (loss) before reclassifications	(5)		(11)		3		(13)
Amounts reclassified from accumulated other comprehensive income	15		—		—		15
Total other comprehensive income (loss), net of tax	10		(11)		3		2
Balances as of June 30, 2021	$	48	$	(3)	$	2	$	47

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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