large publicly traded gaming companies: caesars eighteenth lecture october 30, 2012 william r....
TRANSCRIPT
![Page 1: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/1.jpg)
LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS
EIGHTEENTH LECTUREOctober 30, 2012
William R. Eadington, Ph.D.Professor of Economics, College of Business
Director, Institute for the Study of Gambling and Commercial GamingUniversity of Nevada, Reno
www.unr.edu/gaming
![Page 2: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/2.jpg)
GUEST LECTURER, NOVEMBER 13RICHARD SCHUETZ
![Page 3: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/3.jpg)
HISTORY OF HARRAH’S (CAESARS)• Bill Harrah relocated his father’s bingo business from Venice, CA, to Reno
(1937)– Struggled as bingo operator; took advantage of similarity of name to Harold’s Club
• Purchased Lake Tahoe casino in 1959– In anticipation of 1960 Winter Olympics– Scientific management; strong on policies, procedures; employee and customer
relations• Opened Harrah’s Reno Hotel in 1969; Harrah’s Tahoe Hotel in 1973
– Very high quality; attention to detail and cleanliness• Took Harrah’s public in 1973; first publicly traded casino company• Died in an operation in Rochester, MN, in 1978• Harrah’s purchased by Holiday Inns in 1980
– Conflict of cultures• Company expanded into Atlantic City (1980), Laughlin (1987), Las Vegas
(1992) – Very wary of Las Vegas – Reputation of moving very slowly into new markets
![Page 4: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/4.jpg)
BILL HARRAH
![Page 5: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/5.jpg)
RECENT HISTORY OF HARRAH’S• Ill-fated partnership with Donald Trump with Harrah’s Trump
Plaza in Atlantic City (1982)• Moved Corporate offices from Reno to Memphis (1992); later
moved them to Las Vegas• Won the New Orleans land based casino bid in 1994
– Two bankruptcies, but then were able to turn it into a profitable operation
• Acquired various smaller casino companies to grow their markets in new jurisdictions– Players’ (1988), Showboat (1998), Rio (1999), Harvey’s (2001);
Horseshoe (2003), Binion’s (2004)– Managed various Indian casinos in CA, WA, NC, AZ, KS – Acquired Caesars in 2005; changed corporate name to Caesars in 2010
![Page 6: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/6.jpg)
PRIOR TO 2008, VERY FOCUSED MARKETING STRATEGY
• Invested heavily in data base management rather than bricks and mortar
• Developed inter-property loyalty program with multiple tiers
• Developed strong employee incentives for strong performance
• Targeted a “meat and potatoes” clientele• Avoided the high end market; stayed out of
Macau in the 2001 bidding
![Page 7: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/7.jpg)
Marketing: Unique Strategic Focus (2001)
Supply / Products
Demand / Customers
![Page 8: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/8.jpg)
Multiple Brands One Strategy
DISTRIBUTION The Only Nationwide Network of Properties
Building Relationships AndRaising Switching Cost
LOYALTY
Identity, Loyalty & PremiaBRAND
On Target CustomersFOCUS
Not Merely Good . . . But Truly GreatSERVICE
![Page 9: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/9.jpg)
Who is the Target Customer?
26% of players provide 82% of gaming revenues
Avid players spend approx. $2,000 annually
Multi-market players spend approx. $1,000 annually
Avid, experienced and multi-market players spend approx. $3,000 annually
Avid, Experienced and Multi-Market Players are 12% of Industry Customers and Provide 55% of Industry Revenues
Focus on the Customer
![Page 10: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/10.jpg)
Multiple Brands One Strategy
DISTRIBUTION The Only Nationwide Network of Properties
Building Relationships AndRaising Switching Cost
LOYALTY
Identity, Loyalty & PremiaBRAND
On Target CustomersFOCUS
Not Merely Good . . . But Truly GreatSERVICE
![Page 11: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/11.jpg)
Multi-brand strategy
• Maintains separate identities for each brand in order to maximize total return across separate customer segments.
![Page 12: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/12.jpg)
VIP, Young Affluent
Avid Experienced Player
Mature Slot Customer
Entertainment At Its Best
Most Exciting & Rewarding Experience For Savvy Players
“Good Times Place”
Harrah’s Brands (2001)
“The Party’s at Harveys!”
Upper Middle Income Slot Customer
![Page 13: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/13.jpg)
13
Harrah’s Total Unaided Awareness
0%
5%
10%
15%
20%
25%
30%
35%
2000 1996 1994
Harrah's
Caesars
MGM
Mirage
Trump
Circus/Excalibur
![Page 14: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/14.jpg)
Brand: The power of Harrah’s in East Chicago
$10
$12
$14
$16
$18
$20
$22
$24
Jan-9
8
Mar
-98
May
-98
Jul-9
8
Sep-9
8
Nov-9
8
Jan-9
9
Mar
-99
May
-99
Jul-9
9
Sep-9
9
Nov-9
9
Jan-0
0
Mar
-00
Harrahs
Acquisition 6/1/98 Re-Branded a Harrah’s
(gaming revenues in $ millions)
![Page 15: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/15.jpg)
Four Brands One Strategy
DISTRIBUTION The Only Nationwide Network of Properties
Building Relationships AndRaising Switching Cost
LOYALTY
Identity, Loyalty & PremiaBRAND
On Target CustomersFOCUS
Not Merely Good . . . But Truly GreatSERVICE
![Page 16: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/16.jpg)
Service: Satisfaction Drives Loyalty
Satisfactionmeasure
Terrorist
Loyalty(retention)
Unacceptable
Merely Good
Truly Great
Apostle
1Extremelydissatisfied
2Somewhatdissatisfied
3Slightlydissatisfied
4Satisfied
5VerySatisfied
20%
40%
60%
80%
100%
![Page 17: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/17.jpg)
Impact of Customer Satisfaction
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Great Good Poor
Would Definitely Return Share of Gaming Budget
Brand-wide, Return Intent and Share of Gaming Budget drop off sharply as satisfaction ratings decline.
![Page 18: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/18.jpg)
Four Brands One Strategy
DISTRIBUTION The Only Nationwide Network of Properties
Building Relationships AndRaising Switching Cost
LOYALTY
Identity, Loyalty & PremiaBRAND
On Target CustomersFOCUS
Not Merely Good . . . But Truly GreatSERVICE
![Page 19: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/19.jpg)
Total RewardsThe industry’s first and only loyalty programThe industry’s first and only loyalty program
• Comprehensive benefits and rewards
• Reward credits – communication vehicle
• Fully integrated – accepted at every Harrah’s, Rio & Showboat casino
• Aspirational -- the more youplay, the more you get.
• Comprehensive benefits and rewards
• Reward credits – communication vehicle
• Fully integrated – accepted at every Harrah’s, Rio & Showboat casino
• Aspirational -- the more youplay, the more you get.
![Page 20: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/20.jpg)
Tiered Card Growth
Tiered card is an example of a program that incents play consolidation
Tiered Card1999-2000 Revenue Comparisons
NoGrowth
<1xGrowth
1-2xGrowth
2-3xGrowth
>3xGrowth
25%
19%
12%8%
36%
![Page 21: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/21.jpg)
Results In 2000
In 2000, play consolidation was the biggest contributor to our growth
1999 - 2000 Tracked Revenue ComparisonsPlatinum and Diamond Customers
1999Revenue
$1,085M$165M
PlayConsolidation
$92M
Reactivate
$73M
NewCustomers
$109M
Attritor
Retention = 90%
$1,306M
2000Revenue
Growth = 20%
![Page 22: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/22.jpg)
Loyalty = Cross-market Visits
0%
5%
10%
15%
20%
25%
30%
1998 1999 2000 2001
![Page 23: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/23.jpg)
Same Store Sales GrowthSame Store Sales Growth
Proven Results Fueling Company Growth *
Proven Results Fueling Company Growth *
0
150
300
450
600
750
900
Gam
ing
Rev
enu
e
13.2%
* Harrah’s Brand
13.8% 13.5%17.9%
14.6%12.3%
11.6%8.1%
($ in millions)
‘00‘98 ‘99 ‘01
6.3%
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
5.6%
![Page 24: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/24.jpg)
Internet Functionality Increases Site Visitation
There are two key interrelated components of our e-commerce strategy
• Relationship Management: Add functionality to enhance profitability of customer relationships– Self-service through less expensive
channel– Deeper knowledge of the customer
-- leverage customer information• New Customer Acquisition: Increase
awareness of Harrah’s among prospects
Aggressive migration of marketing to electronic channels
1.1 1.0
1.8 2.1
3.2
4.8 4.6 5.05.2
6.7 6.6
0
1
2
3
4
5
6
7
Oct Dec Feb Apr Jun Aug
Page Views(millions)
![Page 25: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/25.jpg)
Internet Site Increasing Room Reservations
481 408369274226304231114
1,522
432
790
1,111
941
1,2341,420
1,822
0
500
1,000
1,500
2,000
2,500
Jan Feb Mar Apr May Jun Jul Aug
Tracked Non-Tracked
![Page 26: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/26.jpg)
Four Brands One Strategy
DISTRIBUTION The Only Nationwide Network of Properties
Building Relationships AndRaising Switching Cost
LOYALTY
Identity, Loyalty & PremiaBRAND
On Target CustomersFOCUS
Not Merely Good . . . But Truly GreatSERVICE
![Page 27: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/27.jpg)
National Distribution
• The 1990s: a decade of distribution growth– Developed properties in new segments of
riverboat and Indian gaming – Created hub and spoke network of properties– Created regional and national cross-market play,
crossing three brands
![Page 28: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/28.jpg)
Distribution - 1990 and 2001
1990
States that had passed casino legislation and/or approved Class III tribal gaming compacts
![Page 29: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/29.jpg)
Distribution – 1990 and 2001
HET 2001
Harrah’sShowboat’s
Rio
H Harveys
H
H
HH
![Page 30: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/30.jpg)
Strength from Distribution
Casinos / Locations* includes only domestic casinos and locations
Casinos / Locations* includes only domestic casinos and locations
# casinos# markets
Park Place
Harrah’s 25 21
MGM/Mirage
Mandalay 816
14 5
1121
![Page 31: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/31.jpg)
Strength Through Diversity
Harrah’s 2000 Net Revenue by division
Chicagoland16%Nevada
33%
South Central
14%Atlantic City
23%
Managed & Others
2%
Missouri12%
![Page 32: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/32.jpg)
Summary
• Unique strategy focused on a target customer
• Multi-brand approach serving unique customer niches
• Programs build loyalty from target customers
• Strategy yields cross market and same store sales growth which leads to EBITDA growth
• Results proving validity of strategy
![Page 33: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/33.jpg)
HISTORY OF LEADERSHIP AT HARRAH’S (CAESARS)
• Bill Harrah (1937 to 1978)• Holiday Inns acquisition (1980): Mike Rose
(1980 to 1988)• Phil Satre: (1988 to 2001)• Gary Loveman: (2001 to present)
![Page 34: LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business](https://reader036.vdocuments.site/reader036/viewer/2022070323/56649da85503460f94a94868/html5/thumbnails/34.jpg)
PHIL SATRE
GARY LOVEMAN