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Harrah's leads gaming rally

By Francis Till in Las Vegas

Friday 7th February 2003

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The gaming industry worldwide is facing new threats from regulators and public opinion as its act is being radically changed by technology.

In the US a key mover for the industry's need to adapt is Harrah's CEO, Gary Loveman, who has turned the Las Vegas company from a failing industry player (resulting in its selldown from the highly profitable Sky City in New Zealand) into one of the most profitable gaming companies in the world.

"The gaming business remains badly misunderstood, particularly by policy makers. My colleagues in the industry and I need to demystify the business and reposition it as a mainstream consumer business so that it won't get the somewhat hysterical treatment that it currently gets," he said in a recent interview.

Mr Loveman came to Harrah's from an academic background ­ a direct jump from tenure-track professor at the Harvard Business School ­ and put changes in place that have seen revenues jump five-fold.

Harrah's is America's third-largest casino operator and the most geographically diverse, with 25 properties in Nevada, New Jersey, Louisiana and the highly profitable riverboat markets of the Midwest.

Unlike key competitor MGM Mirage which caters to "high rollers" and CEO-types who have great personal exposure to the stock market and the economy, Harrah's markets to leisure gamblers: the retired and others with fixed incomes that provide them with both the time and money to gamble.

Then, Harrah's is really about gambling first ­ all the rest comes in support.

"We rent hotel rooms so gamblers can rest at night," he said. "The lure is a good deal to come and gamble."

In contrast, Las Vegas-based Mandalay Resort Group has just opened a convention centre. "Mandalay is increasingly a hotel company," he says.

Harrah's is also resting more of its business case on very advanced CRM (customer relationship management) and data warehousing technologies, largely through an extraordinarily fruitful partnership with NCR's Teradata.

The system developed through the partnership allows any visit to any casino to become the database equivalent of a visit to each of the firm's properties ­ and feeds a customer loyalty programme that has jumped spending substantially, Mr Loveman told NBR at the Teradata conference in Las Vegas.

The result?

"We think we can run this business at a 12-15% growth rate prospectively" over the medium term.

Expanding on his views in the US entrepreneurs' magazine Fast Forward, he said: "I think of Harrah's as a large-scale consumer business that happens to be in the gaming business. But that certainly is not its ancestry.

"Five years ago, it would have been very much a gambling company. Now, we still make all of our money from gambling. But the way that we think about our challenges is consistent with the broader approach to consumer retail."

That case has been made repeatedly by large-scale gaming operations and casinos in this part of the world but has often fallen victim to activist forces far more mindful of the "threat" of gambling than the value a prosperous service enterprise brings to its host community.

Mr Loveman, who was previously chief operating officer, said he expected 2003 earnings to grow at a "robust single-digit" percentage rate, roughly in line with Wall Street forecasts, and analysts said the company should post earnings of about $US3 a share, up from about $US2 a year ago.

Harrah's, the first casino company to be listed on the New York Stock Exchange, had $US3.7 billion in revenues in 2001 when other companies were being hit hard by a drop in tourism. It turned in an impressive bottom line that year in spite of a cash-eating nightmare caused mostly by complicated local politics in a failed attempt to build a casino in New Orleans.

It employs 42,000 and, although it, like other big casino enterprises, had to make some layoffs to cope with the sudden cessation of tourist travel in the US, the fact that many of its operations draw from a driving-distance clientele made that downturn shock much easier to manage.

Harrah's executives are quick to point out, as well, that working at Harrah's is often the best job their employees have ever had ­ or are likely to ever have. The company has extensive reward and recognition programmes for staff and encourages promotion from within for senior roles, making for a very dedicated staff.

Harrah's did well this December, against a backdrop of earnings warnings issued by other casino-based entertainment companies because of a shockingly slow year-end holiday, largely because of its target population and its technology edge. Harrah's made news last month when it said it would not pre-announce results for the December quarter, even though its competitors all came out early with profit warnings. Harrah's said it had no warnings to issue.

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