Loveman noncommittal on Caesars high-end future - Monday 12th of September 2005
Harrahs Entertainment Chief Executive Officer Gary Loveman says his company is taking a wait-and-see attitude on the high roller business at the recently acquired Caesars Palace.
Lovemans remarks, given during a question-and-answer session at the recent Global Gaming Expo, came a fortnight after he cut the ribbon on Caesars $287 million Augustus Tower expansion.
"We are absolutely willing to let that go for a period of time to see if we can learn how to do it properly," Loveman said of high-end play, where gamblers wager as much as $150,000 per hand on blackjack and baccarat. "If we can make money in it, hallelujah! If we cant, then we have to look at it."
Caesars Palace could become more of a slot house under the new management of Harrahs Entertainment.
Loveman explained his caution by referring to the struggles Harrahs experienced following its 1998 purchase of the off-Strip Rio, one of Las Vegas leading high-roller-oriented properties at the time.
Revenues plummeted early in Harrahs ownership, as company leadership strove to integrate The Rio into its bargain-driven business model, which relies heavily on the predictable revenue generation of slot play.
High roller traffic at the Rio, Loveman said, "was distracting our management so terribly that the other 10,000 people who were at the Rio every night and all the good things that were happening to them were all lost sight of, all because we were concerned about one or two people who happened to be in a little room at the back, killing us."
That history at The Rio, coupled with Harrahs subsequent exit from the high roller niche, has prompted concern in the player and dealer communities that Harrahs would move away from Caesars Palaces historical identity as a hangout for premium players.
"They got beat up when they did (high-end play) at The Rio," Raving Consulting President Dennis Conrad said, noting that The Rio has regained considerable profitability in recent years.
"There is a lot of pride and history that goes into the history of Caesars as a high roller property," Conrad continued, contending that Loveman doesnt care about that mystique but is focused on stock yield instead and "hes absolutely right to challenge the model."
Conrad, a former marketing manager for Harrahs Las Vegas, argues that much of the high-end business is unprofitable and requires hefty expenditures to keep free-spending bettors happy.
Caesars has experienced identity-crisis periods in the past, most notably when then-owner ITT Sheraton was absorbed by the Starwood hotel chain. The latter had scant casino experience and Starwood CEO Barry Sternlicht made no secret of his disdain for the gambling business and the risk of high-end betting.
After a brief interlude as a Starwood property, Caesars was resold to Hilton and spun off into Park Place Entertainment, which later became Caesars Entertainment. Harrahs bought Caesars Entertainment earlier this year.
Saverio Scheri, of Atlantic City-based White Sand Consulting, adds that high rollers are primarily loyal to casino hosts rather than casinos.
"This is evidenced by the enormous salaries these hosts command," Scheri elaborated. He also noted the risk to the bottom line posed by volatile, high-end play.
"If you have someone that has the capability of losing a million dollars they can just as easily win a million dollars. That can make or break a quarter," he said.
There are a quartet of destinations for high roller play on the Strip: Bellagio, Wynn Las Vegas, MGM Grand and Caesars, according to Scheri.
"Caesars is probably fourth," he said. "These (other) properties are newer. Theyre nicer. They have things that Caesars doesnt right now."
Harrahs spokesman David Strow would not elaborate on Lovemans recent remarks other than to say: "The reason that we purchased Caesars was to acquire this luxury brand on the Strip. We are not going to do anything that dilutes the power and attractiveness of that brand."
The word "brand" may be critical, according to Carlton Geer, director of CB Richard Ellis Worldwides Global Gaming Group.
"Its not just about Caesars and Las Vegas," he said. "Its about the Caesars brand and how they can leverage it worldwide. Theyre probably going to save the Caesars brand for the very best," Geer continued, pointing to Harrahs efforts to expand overseas and the pending removal of the Caesars imprimatur from the Glory of Rome riverboat in Elizabeth, Ind.
"Its the same branding advantage that Steve Wynn has," Geer said. "Harrahs is a learning organization," one that will learn to handle high roller play. "They have to. Given Caesars brand equity worldwide, its important the company maintain a commitment to the high end," according to the gaming analyst, because the combination of the Caesars name and premium-level play will give the company an enormous competitive advantage going into markets like Singapore.
Geer and Scheri believe that Harrahs will take a systematic approach to high roller play, using the number-crunching business models for which the company is famous.
"They might get a little smarter about how they manage those high rollers," Scheri said, adding that Lovemans circumspection was probably attributable to his not wanting to broadcast his plan to the competition.
Scheri declined to second-guess Lovemans strategy: "Nobodys in Garys head (but) hes no slouch."
Geer was more willing.
"My guess is, based upon Harrahs actions locally, theyre looking to employ the four-corners approach, which is the ability to satisfy every market segment and the expenditures that those groups have," he said.
Geer theorizes that escalating land costs on the Strip will passed onto the consumer as higher average daily rates and food-and-beverage prices -- redounding to the benefit of bargain-oriented Strip properties, downtown Vegas hotels and even Laughlin.
Harrahs Strow maintained that his company intends to compete with MGM Mirage in every market niche on the Strip and holds a competitive advantage nationwide.
Former Harrahs executive Conrad thinks his old employer will broaden the availability of its high-end offerings.
"Theres a ton of very profitable customers," he said, "a lot more than these illusory high rollers," and its better for Harrahs to fill Caesars rooms with them, as opposed to fickle premium players.
"Im looking at it differently than people who are suggesting Harrahs is screwing things up," Conrad noted. "Its not like (Caesars is) going to become a grind joint with nickel slots. Its just who theyre going to make these things available to."
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