Regulators' merger questioning unusual - Sunday 12th of June 2005
There were a lot of people shifting in their seats during last week's regulatory hearings to vote on Harrah's Entertainment Inc.'s purchase of Caesars Entertainment Inc.
Critics were no doubt surprised to hear regulators bring up two issues that had little to do with the purpose of the discussion, which was to consider whether the $9 billion deal was monopolistic and could potentially harm consumers.
Two issues in particular concerned regulators. Some asked whether Harrah's would improve its record on diversity hiring and purchasing, which appeared to fall short of Caesars'. They also asked whether Harrah's would continue to donate as much to charity as both companies had previously done as separate entities. Harrah's officials appeased regulators on both fronts.
Both concerns were noticeably absent from last month's hearings to consider MGM Mirage's $8 billion acquisition of Mandalay Resort Group. In fact, regulators spent time to praise MGM Mirage on its donations to local charities and for adopting the industry's first formal diversity program.
The kudos came even as MGM Mirage emerged from the hearing controlling at least half of the Strip's market share and 11 of its major casinos, all but one on the west side of Las Vegas Boulevard.
What was news to some was the fact that Nevada regulators -- who weren't likely to go against the Federal Trade Commission's positive assessment of the latest megamergers -- used the well-attended hearing to hold Harrah's accountable for its level of corporate responsibility.
The hearing left a bad taste for one irritated observer, who called it "a sad display of intimidation" by regulators.
"They are pressing an issue that should play absolutely no part of the merger discussion," said the man, who did not give his name. "By what right should that be the standard by which the worthiness of the merger should be judged?"
Lest we forget, diversity became a hot-button issue in the gaming industry after the NAACP raised a ruckus at a Gaming Control Board meeting in 2000 to consider MGM Grand's buyout of Mirage Resorts Inc. Control Board Member Bobby Siller, who posed the questions about diversity at Friday's board hearing, has taken up the issue by meeting with the heads of all the major gaming companies over the past several years to determine their progress.
During the hearing, Siller explained that diversity programs are about "creating opportunities" for everyone rather than imposing quotas. In an interview, Siller said he's not forcing the issue but instead is merely "raising the awareness level."
Nevada Gaming Commission member Sue Wagner's questions for officials were more specific.
Wagner asked Harrah's about whether it would consider appointing women to any future seats on the company's board of directors. She raised a similar issue with MGM Mirage, saying women are little represented in the upper echelon of management.
"Gaming is as much a male-dominated world as I have seen," said Wagner, a former senator from Reno who was also Nevada's first female lieutenant governor.
Commission Member Arthur Marshall, who pressed Harrah's on its charitable donations, also asked another pointed question about whether a Harrah's employee fired from one property would be blackballed elsewhere.
Chief Executive Gary Loveman said the company uses a board of review to determine whether certain employees should be let go and unless an employee has done anything illegal, wouldn't be blacklisted.
While the hearing was ostensibly about market share concentration, the subtext was clear.
Harrah's, the world's largest gaming company and a much bigger player in Nevada, has an obligation to give back to the community, Siller said. The company benefits from operating in the country's friendliest environment for casinos, he said.
"In other jurisdictions gaming is something to get revenue from," Siller said during the hearing. "We don't do that here."
Both diversity and philanthropy are newer on the radar screen but fair game for regulators, who are required to examine gaming industry mergers according to criteria such as slots and hotel rooms. The state's antitrust regulation also gives regulators broad discretion to look at "any other index or criteria deemed by the board and commission to be relevant to the effect of multiple licensing upon the public health, safety, morals, good order and general welfare" of the public.
Given the theory that workplace diversity is good for business and that donations help the communities that support the casinos, gaming companies should expect these kinds of pressure tactics in the future.
When asked whether regulators' line of questioning was fair, Loveman said his company welcomed the challenge to improve its track record on diversity. Harrah's came to the meeting prepared with facts and figures addressing both diversity and donations, he said.
"I think a lot of companies can be criticized for their performance on diversity," Loveman said in an interview following the Caesars purchase Monday afternoon. "Almost none of us in American business are doing well enough with respect to high level, executive diversity."
"When you think about their charge, they are reflecting the interest of the citizens of Nevada," he added.
With the company's rise to No. 2 casino operator in Nevada, Harrah's also expects to more boldly flex its political muscle.
"I think we will have more political visibility," Harrah's Senior Vice President of Communications and Government Relations said at the hearing.
While that won't necessarily translate into increased political contributions, Jones said the company expects to step up its role in the Nevada Resort Association, the primary trade group for local casinos.
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