The drama surrounding Caesars Entertainment (NASDAQ:CZR) continues to unfold as disgruntled creditors continue to pursue legal options against Caesars. On June1, Caesars stock dropped 16% after a judge in New York give a small victory to creditors that shows Caesars could end up being liable for billions in debt that it thought it was protected against and the stock has dropped more since then.  CZR stock has been pushed to around $6, the lowest it's been in about 2.5 years. Yet the worst could still be yet to come. 

Leading up to the lawsuits
The short story of Caesars' current situation is that Caesars made too many bad bets with property expansion attempts and took on too much debt over the last few years, and without enough revenue to support that debt load, the company was likely to default on debt owed to creditors sometime in 2015. In January, CZR put subsidiary Caesars Entertainment Operating Corp. into bankruptcy protection to facilitate a restructuring aimed at alleviating financial problems.

Creditors are afraid that money owed them wouldn't be paid under this bankruptcy plan and are now out for blood, suing Caesars in multiple cases to try to reclaim money owed to them. What creditors are arguing is that the way Caesars has been "restructuring" is inappropriate and illegal. In early 2014, Caesars management started to pass properties and debt around from the parent company (CZR) to its largest subsidiary, Caesars Entertainment Operating Corp. (CEOC), as well as other similar sales and shuffles with Caesars Growth Partners and Caesars Acquisition Co. (NASDAQ: CACQ).

The creditors' recent win 
A federal judge in New York ruled that the plaintiffs' representative could ask the court to rule on parts of the case without an actual trial. It's a small victory, but one that shows support for the idea that Caesars could very well be immediately liable for much of the debt it thought it was protected from. 

The worst part is that this is only one part of the overall legal filings against Caesars. There are multiple legal actions being taken by creditor groups that, together, amount to billions in claims. If Caesars Entertainment is liable for even a portion of this debt without the ability to hold it in CEOC, which is in Chapter 11 bankruptcy protection, this could be disastrous for the parent company, which could then face bankruptcy itself. 

Is Caesars a bet?
Looking at how much can still go wrong with Caesars, this seems like a bad time to bet on this struggling casino company. Even if Caesars were to somehow make it through all of these legal issues unscathed (or at least able to continue its plan of leaving CEOC in Chapter 11 protection), Caesars still looks like a poor long-term bet. 

There are still other challenges the company faces and very little reason to be inspired about new growth potential. To start with, New Jersey lawmakers just introduced a bill to allow three more casinos to open in Atlantic City (where Caesars has three resorts). Then, in Las Vegas, Malaysian casino operator Genting is constructing a $4 billion resort called Resorts World Las Vegas planned to open in 2016. This new megaresort could vastly reduce Caesars' own revenue stream there. Finally, Caesars has no realistic options for international growth after selling its only resort in Macau, being denied a bid to build in South Korea, and having far too little cash and too much debt to make much of an attempt at building anything substantial internationally. 

It looks like Caesars Entertainment still has plenty of room to fall. 

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