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Best of Liz Benston

Gaming Guru

Liz Benston

Company to Face Scrutiny

13 June 2005

Long after Harrah's Entertainment Inc. closes its purchase of Caesars Entertainment Inc. -- expected to take place this afternoon -- regulators will be watching to see whether the company makes good on promises to improve its record on diversity in addition to increasing its contributions to local charities.

Harrah's cleared its final hurdle Friday when Nevada regulators unanimously approved the company's $9 billion acquisition, saying the transaction wouldn't hurt consumers or pose antitrust concerns. Regulators in five states signed off on the deal in addition to the Federal Trade Commission, which voted Wednesday to allow it to proceed.

The historic transaction creates the world's largest and most geographically diverse gaming company with $17.5 billion in assets and some $9 billion in revenue. Harrah's will have more than 95,000 employees and more than 40,000 hotel rooms. In Nevada, the company will have nearly 40,000 employees, pay about $252 million in taxes per year and pick up four Strip resorts for a total of six Las Vegas casinos.

Before approving the purchase Friday, regulators expressed concerns about Harrah's relatively weak diversity program and asked whether the company would slash donations once it swallowed Caesars, which has been more aggressive on both fronts.

"I'm a little disappointed," Control Board Member Bobby Siller said of Harrah's efforts to hire and do business with minorities. "I hope to see improvement."

Siller has met with gaming companies in the past several years to discuss their diversity programs.

Harrah's executives were prepared for the criticism and used the hearing to unveil some details of the company's first-ever corporate diversity program. Executives said they have been working on the program, which was delayed by the Caesars transaction, for at least the past year.

The program includes a newly appointed chief diversity officer who will head up a group of managers and report to Harrah's executives. Also new is an executive level diversity council that will meet quarterly and receive input from a committee of prominent minority businesspeople. Starting next year, Harrah's will also install a compensation system in which top executives will be rewarded based on the company's diversity track record.

"We've made progress," Harrah's Chief Executive Gary Loveman said of the company's diversity efforts. "But we can do better."

Also for the first time, Harrah's unveiled some statistics on minority hiring. Of all employees, 48 percent are female and 47 percent are minorities compared with only 39 percent of managers who are female and 17 percent who are minorities. That compares with 54 percent of MGM Mirage's entire staff and 31 percent of management who were minorities as of last year. Those numbers fell with the company's purchase of Mandalay Resort Group last month.

"This is not just to quantify who's in what category," Loveman said. "We want to build as inclusive an environment as possible."

Caesars, Mandalay, Harrah's, Boyd Gaming Corp. and Station Casinos Inc. have all refused to release statistics on minority hiring and purchasing to the public.

But Siller, at the hearing, said Caesars was further along than Harrah's.

Executives also promised regulators that Harrah's would honor charitable donations previously designated by Caesars and said the combined entity would at least maintain the amounts each company has separately given to local charities.

The state's largest gaming companies have an obligation to give back to their communities, in part because Nevada remains the friendliest state for casinos, Siller said.

"Now that you're a bigger player, you should be a bigger payer," added Gaming Commission Member Arthur Marshall.

Harrah's officials said the company gave about $1.6 million to Nevada organizations last year, about what the company expects to give this year. That's up from about $200,000 in 2000.

Harrah's officials said the company has spent a total of $385 million with Nevada vendors in recent years, with 34 percent spent with some 1,300 small businesses in the state. About 26 percent of the company's total purchasing comes from Nevada suppliers -- a disproportionately high number relative to the company's presence here, executives said.

Fearing that Harrah's would standardize all of its casinos through its widespread "Total Rewards" gambler loyalty program, regulators asked whether Harrah's intended to change any of the Caesars properties on the Strip and especially the company's crown jewel, Caesars Palace.

Las Vegas thrives on innovation and change rather than properties with the same products and services, regulators said.

Companies that get bigger have a harder time reacting to the competition, Siller warned.

"There are fewer and fewer creative minds with the flexibility, ingenuity and desire to keep reinventing Las Vegas," he said.

Loveman said Harrah's intends to maintain the distinct identities of the various Caesars properties in Las Vegas save for Bally's, which doesn't have much brand loyalty.

The company will likely rename Bally's and remodel the property to create a more memorable brand, Loveman said.

The Las Vegas properties would be categorized and marketed based on price, with Caesars Palace at the top followed by Paris and the Rio, Harrah's, Bally's and the Flamingo, Loveman said.

Caesars Palace will become the company's international flagship and fill a gap in the company's casino empire. It will continue to be run by President Mark Juliano.

"Our customers have wanted this and indeed have gone to Caesars Palace for a luxury experience that we can't provide," Loveman said.

A multimillion-dollar upgrade at Caesars Palace -- once a confused property with problematic access from the Strip -- fueled Harrah's interest in Caesars, he said.

"It would be our ambition to add to (Caesars Palace) over time," Loveman said.

Harrah's will control less than 30 percent of the Strip's market share in products and services such as slots and hotel rooms. That's far less than No. 1 operator MGM Mirage, with 11 of its 28 casinos on the Strip and at least half of the Strip's market share.

Regulators asked relatively few questions about market share and agreed with the company that the deal wouldn't create a monopoly or stifle competition.

Some regulators had words of praise for Harrah's. They congratulated Harrah's for being the only major gaming company to maintain an investment-grade bond rating throughout the acquisition process.

"These companies will be even (financially) stronger together," Gaming Control Board Chairman Dennis Neilander said.

Regulators also commended the company's ability to attract Harrah's customers from around the country to visit Las Vegas, broadening the city's customer base and creating future repeat visitors.

Loveman pledged to improve that track record as the No. 2 Strip operator.

The number of Las Vegas visitors who still don't visit either of Harrah's properties in town is "stunning" but will change once the company begins implementing a "six-stop strategy" at its properties, which all cluster around Flamingo Road and Las Vegas Boulevard, Loveman said.

Harrah's will own or operate more than 40 casinos across 12 states. The company isn't picking up any new states but is acquiring operations in new regional markets including Biloxi, Miss. and Southern Indiana. The company also gets three casinos on Atlantic City's famed boardwalk, becoming the seaside town's largest casino operator with five of its dozen casinos. It also enters its first non-U.S. markets, picking up management contracts at the Casino Windsor in Ontario, Canada and the Conrad Punta del Este resort and casino in Uruguay. Caesars also has contracts to manage casinos on three cruise ships that sail in international waters.

Harrah's plans to push forward with casino opportunities Caesars had pursued with a northern California Indian tribe as well as proposals in Singapore and Great Britain.

Harrah's and Caesars have sold off six casinos nationwide in the past several months -- a move that paid down Caesars' debt by unloading less desirable properties and also helped the deal pass muster with federal antitrust officials. Caesars previously sold casino assets in South Africa and Nova Scotia. Harrah's expects to close the sale of a ninth property, the Reno Hilton, by the end of the year.

The sales, applied to debt, reduced the overall cost of the deal from $9.4 billion to $9 billion.

Less than 50 Caesars managers, mostly corporate officials rather than property representatives, are expected to lose their jobs once the deal is consummated at or after 1 p.m. today. An undisclosed number of additional individuals were offered jobs but declined. More than 70 percent of all managers will be retained and another 26 percent will enter a transitional period.

Virtually all of the transitional managers will be offered other jobs within the company, Harrah's spokesman David Strow said. These are people Harrah's wants to keep on staff and most are expected to remain with the combined entity, he said.

Executives reiterated Friday that Caesars' rank and file workers would still keep their jobs.

Company to Face Scrutiny is republished from