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Chris Jones
 

Swimming With the Big Fishes

26 July 2004

LAS VEGAS -- With a looming pair of megamergers threatening to shake up the balance of today's corporate gaming jungle, a Darwinian game of survival of the fittest could soon ensue within Southern Nevada's hotel-casino industry. But before anyone writes off their chances of outlasting their soon-to-be-much-larger competitors, some of this town's so-called "little guys" are quick to point out that bigger isn't always better.

"As these big companies become larger, it's more difficult for them to maintain that personal touch," said Kevin Kelley, the Hard Rock Hotel president who believes his boutique resort is one of the many small or independent local properties that could cash in on the spillover from today's merger mania. "The little things really matter."

Kelley's words hold double-meaning, said an executive with one of the four local gaming companies now involved in proposed mergers. He said small operators will enjoy a flexibility that's unavailable to larger companies, a freedom that will enable smart businesses to identify and feast on certain customer segments.

"There's more opportunity for niche marketing than there was before; there's more opportunity to differentiate yourself," the executive said. "I think these guys long ago identified what their market niche was and they go hard at it. That's not going to change even if these big deals go through."

BATTLING THE CORPORATE EMPIRE

The pending $7.9 billion combination of MGM Mirage with Mandalay Resort Group, and a separate $9.4 billion deal that would give Harrah's Entertainment control of Caesars Entertainment's sizable empire, would usher in a new era of corporate control on the Strip and in other key gaming markets.

Based on their current holdings, the newly formed pair of gaming giants would control 84 properties worldwide that last year generated a combined $15.3 billion in revenue.

Barring layoffs, they'd oversee approximately 164,000 employees worldwide and multiple attractions ranging from shopping malls and concert halls to world-class restaurants, entertainment and whatever it is that lures countless customers to Harrah's largely generic array of properties around the nation.

That corporate buying power will surely empower the city's larger companies, attracting new investment capital and the weight to dictate terms to everyone from hotel guests and event promoters to outside vendors and milquetoast government officials.

Still, that size would also bring its share of obstacles, said George Maloof, whose family opened the 455-room Palms in November 2001.

"There's a market for people who don't want to be at a big place, and I don't think that's going to change," Maloof said of the gaming industry's likely reconfiguration.

Like Kelley, whose Hard Rock is the Palms' chief competitor among Las Vegas' younger gaming and nightlife crowd, Maloof also pointed out the benefits that come when a customer feels a connection with ownership.

"The consumer can put a face to the place and if there's something they need, they know they can call me and I can react to it faster than a corporation could," Maloof said.

When asked how often that takes place, Maloof chuckled and said, "Daily." Still, he's pleased such interaction occurs at the Palms.

"When they know who the owner is, I think you get more comments from the guests. That's an advantage because you're in constant contact with the consumer," Maloof said.

That hands-on approach has been a major marketing point for new Golden Nugget owners Tim Poster and Thomas Breitling, who maintain their resort, a longtime downtown icon, was undervalued while it was under the MGM Mirage corporate umbrella.

Rather than use the Nugget as a dormitory for guests whose corporate hosts believed their time and money were better spent at sister properties on the Strip, Poster and Breitling are focused solely on improving things at their property. That personal dedication can't be matched by a corporate steward and their hired employees, Kelley said.

"I think we've shown, the Palms has shown and Tim and Tom have shown that pride of ownership creates a passion that can't be duplicated in the corporate environment," Kelley said. "It allows us to become closer to our guests. That makes them feel important, and I think that's a big advantage nowadays."

THE CAPITAL CONNECTION

None would argue small operators will have the cash reserves to match their large corporate rivals, but Maloof said having too much money can sometimes work against a business. Particularly when that money belongs to someone else.

As an example, Maloof cited his company's current plans to expand the Palms. Details of the project remain under wraps, but Maloof said the resort will soon have new amenities unseen at other Las Vegas hotel-casinos. And none of those amenities had to be approved by a penny-pinching board of corporate directors.

"I can spend more money on certain things and not have to justify it because I am a private company," Maloof said. "We're doing an expansion that's unreal with things that haven't been done before. ... There are things that I'm going to do that the other guys wouldn't because they couldn't make everything pencil out.

"But we're making good money and are in a position to do what we want to do."

Other independent gaming operators could benefit in different ways from the planned MGM Mirage-Mandalay and Harrah's-Caesars deals.

Insiders suspect the merging companies may wind up selling off certain properties, either at the behest of regulators or to avoid duplication within certain market segments. Should that happen, existing companies looking to expand their holdings could swoop in on the leftovers.

Other independents with large plots and older properties -- think Riviera, New Frontier and the Stardust, among others -- could be prime sites for redevelopment.

"There's no question these (large) deals will create a very vibrant marketplace for acquirers and those that wish to be acquired," said the unnamed casino executive. "These mergers are much more about Wall Street and the ability to compete against California than with what's going to happen within Las Vegas.

"Las Vegas will remain very healthy as a marketplace because mergers like this will allow for much greater capital investment."