Harrah’s Entertainment sees few signs that Las Vegas is recovering from the slump that began with the financial crash of 2008, the company’s chief executive said last week at the Reuters Travel and Leisure Summit in New York.
Citywide gambling revenue in Las Vegas has begun to stabilize, but room rates are still heavily discounted as casino operators compete to attract visitors.
"We are the cheapest date in the world ... That generates lots and lots of visitors," said Gary Loveman, CEO of Harrah’s, the world’s largest gambling company. "Las Vegas remains weak and will remain weak for the foreseeable future."
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He also said Las Vegas group business bookings for 2011 are "encouraging," but 2010 remains soft.
Loveman attributed the prolonged downturn to customers’ lack of cash amid the economic downturn and increased competition from new Las Vegas Strip resorts like MGM MIRAGE’s $8.5 billion 6,000-room CityCenter.
Nonetheless, Harrah’s last week acquired the Strip’s troubled Planet Hollywood resort by spending about $70 million to buy its discounted debt and agreeing to take over a $554 million mortgage.
On Jan. 16, Harrah’s assumed management of the 2,500-room hotel at the Planet Hollywood Resort & Casino on the Las Vegas Strip. On Feb. 18, the Nevada Gaming Commission granted final approval for Harrah’s to assume ownership and management of the resort’s casino and related facilities; the transaction closed Feb. 19.
Harrah’s pursued the Planet Hollywood deal because of the property’s proximity to Harrah’s other Strip resorts, its recent upgrades and its strong brand name.
"The Planet Hollywood transaction added a new brand to our product offering in Las Vegas on attractive terms," Loveman said. "We believe implementation of our operations-management and guest-service systems and Total Rewards customer-loyalty program will enable us to improve the resort’s performance. The financing activities that boosted our liquidity during 2009 have allowed us to complete this transaction and consider others that we believe offer significant long-term growth potential."
Planet Hollywood gives the company seven contiguous resorts on the east side of the Las Vegas Strip – it also owns Caesars Palace on the west side of the Strip.
Harrah’s, which was acquired by private equity firms Apollo Management and TPG Capital in 2008, relies on Las Vegas and Atlantic City, New Jersey, for about 40 percent of its earnings.
The company, which has more than 50 casinos in six countries, also operates in regional U.S. gambling markets like Tunica, Mississippi, New Orleans and southern Indiana.
Loveman said Harrah’s remains interested in a presence in China’s Macau – the world’s largest gambling center – but is not actively discussing such a deal.
"We do have an interest in Macau. We think Caesars is the best brand for that market," Loveman said.
The Chinese government has issued six gambling licenses in Macau, and U.S. companies MGM, Las Vegas Sands Corp. (LVS) and Wynn Resorts Ltd. (WYNN) have casinos there.
Meanwhile, Harrah’s will focus on its massive customer database to continue driving business at its casinos.
Loveman said the company is in the process of rolling out the next iteration of its loyalty program – called Total Rewards – to include much more individualized, real-time targeting of customers.
"We think it enhances margins ... but mainly it makes for a much more satisfied customer," he said.
The CEO expects the new system to be up and running in about a year in Las Vegas, pending regulatory approvals.
Loveman said it will allow Harrah’s to offer frequent gamblers things like a free hotel night if occupancy is low or a special cocktail before they even think of it.
Later in the week, Harrah’s reported a fourth-quarter profit, compared with a year-earlier loss, but revenue fell 8 percent as demand in Las Vegas and Atlantic City remained weak.
Harrah’s officials suggested that because of the economic downturn, consumers have cut back on discretionary spending like gambling trips at the same time that businesses have reduced spending on meetings in Las Vegas.
"The impact of the economy on consumers’ willingness to spend continued to affect our results throughout 2009," Loveman said in a statement. "The cost-reduction programs implemented at the end of 2008 helped mitigate the economy’s impact on our operating margins last year."
Harrah’s was acquired by private equity firms Apollo Management LP and TPG Capital in 2008 for $31 billion.
Income from operations rose 15 percent to $163 million, Harrah’s said, while net revenue fell 7.9 percent to $2.1 billion.
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