Loveman talks shop

Chris Palmieri of BusinessWeek recently spoke to Harrah’s Entertainment CEO Gary Loveman about the impending Harrah’s/Caesars merger.  Here are some excerpts:

Q: What’s the rationale for this deal?

A: We want to be the leading distributor of gaming. The way our company does that is to leverage distribution. Caesars gives us vastly improved distribution in Las Vegas, Detroit, and Southern Mississippi. We’ll be more effective in scale and scope. The second part of this is that we’re anxious to grow in areas where the business and regulatory environment are stable. Nevada, New Jersey, and Mississippi have that stability. The price was fair, and the timing was right.

Q: MGM Mirage (MGG ) hopes to buy Mandalay Bay Resort Group (MGB ). That would give the two of you a lock on hotel rooms on the Las Vegas Strip. You’ll also have a much larger presence than you do now in Atlantic City. Do you think that will have an impact on the level of competition in those markets?

A: I don’t think the level of price competition will change at all. It will create better opportunities for our customers in Mississippi to see Celine Dion, for example. Promotional spending is increasing. Room rates are up, but that has much more to do with demand. Everyone thought the rise of Indian gaming would be the end of Las Vegas. That hasn’t been the case. Harrah’s capital budget last year was $500 million. So was Caesars’. We’ll continue to invest at those kinds of levels. We’ve had all kind of competition — discounts, room rates, food pricing. Pennsylvania is adding 60,000 slots. The competition from Pennsylvania will be brisk.

Q: Why doesn’t Wall Street like your merger?

A: There are large investors that like the deal. There are investors who don’t like Atlantic City, because of the competition. There are investors who are concerned about our having to sell assets [because of antitrust concerns]. Those are the two principal reasons. The [antitrust] thing is greatly overblown by people who don’t like the deal. These deals are examined market by market. I don’t think you’ll see much opposition.

Q: Isn’t part of the problem that Harrah’s is perceived as a middle-market, slot-machine-oriented company and you’re buying Caesars, a company known for higher-end gaming?

A: Caesars does $4.5 billion a year in revenues (vs. $4.4 billion at Harrah’s). They have one property, Caesars Palace, that’s different than Harrah’s. The other 20 or so properties are exactly like ours. One property caters to a very high-end customer. And there are roughly 100 such customers in the world. It’s a small number of people. We don’t believe margins in that business are good. It’s an inconsequential part of the business.

Q: You’ve had trouble in the past with acquisitions, particularly the Rio in Las Vegas.

A: We bought Rio on Jan. 21, 1999. Immediately thereafter you had a host of new properties open [in Las Vegas] — Paris, Mandalay Bay, the Venetian, and the Aladdin. Did Rio struggle? Yes. We made mistakes, but a lot of it was timing. We were quickly under tremendous pressure. That lasted for 18 months. Now the Rio is doing great. Margins are among the best in the city. We know what we’re doing. Harrah’s Las Vegas [is among the hotels with] the highest return on capital in the city. That’s because the rooms are filled with gamblers, not conventioneers. They’re not there to see shows or tour the Grand Canyon.

Q: A lot of that is due to the way you have developed your frequent-gambler database over the years, targeting your most active visitors with promotions and special offers. What will that look like after the Caesars acquisition?

A: Harrah’s has 27 million customers in its database; Caesars something north of 20 million. We don’t know how many of those names overlap. But we’ll have a stunning database and be far better at mining it than anyone.

Harrah’s Pit Boss on the Caesars Deal

One note:  In my naivete, when I saw the headline I first thought that the magazine found an actual pit boss and interviewed him or her about the impact of the deal on the casino floor.  Silly me.  I can’t think of too many other businesses where the person at the helm of a multi-billion dollar corporation is referred to as a middle-manager.  It would be like headlining an interview with Bill Gates, “Programmer talks about anti-trust.”  Except that Bill Gates, at one point, actually did write software, but Loveman did not come into the business from the operations side.

I think the most significant answer was the final ones; assuming some overlap, let’s guess that the combined database has 40 million unique names.  This would create a real juggernaut with presence in virtually every US market.

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