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CEO: Leading Park Place is Like Being Admiral

LAS VEGAS--Commanding Park Place Entertainment Corp. is like being the admiral of a fleet, President and CEO Tom Gallagher said. There's a lot of firepower, but it's tough getting your ships sailing together.

"Our success has been getting (the ships) pointed in the same direction with their guns aimed at the competition rather than each other," he said.

"We had great battleships" two years ago when Gallagher was signed up as CEO of the newly created Hilton Hotels affiliate, but there was "intense competition between our own companies."

Sailing the ships in the same direction, he said, "goes to understanding the primary markets for each of the properties."

And as "admiral" of the world's biggest gaming fleet, Gallagher says his ships are ready to sail with all guns blazing.

"Our (current) strategy is straight-forward. We want to grow our revenues significantly, but in a profitable way. We've put a lot of focus on not just buying business," he said.

Central to the long-term Park Place strategy has been its so-called "Work Smart Program."

"Using best business practices, we have available throughout the company, we have focused value and (are) spreading it throughout the company," Gallagher said. "For example, investments in technology both increase revenues and help us run operations more efficiently."

For example, Park Place has made a major commitment to easy pay (ticket-in/ticket-out) slots to increase value to customers and cut (labor) costs at the same time, Gallagher said.

"We've (also) been very aggressive in improving benefits packages while streamlining costs and benefits," he said.

"We're trying to make sure we don't continue inherent inefficiencies. We've been benchmarking everything" such as comparing the cost of floor surfaces between different properties to see where better deals can be cut with contractors," Gallagher said.

Park Place earlier this year identified $100 million in operating costs it could reduce or eliminate out of total expenses, which last year stood at $4.2 billion, company filings show.

"That doesn't mean we'll go in and slash. We want to make sure we get the balance right between the experiences guests will have and how we deliver it," he said.

Specifically Gallagher seeks to improve performance at each resort, invest capital wisely and pay down debt to enhance financial strength.

"(That) strategy has involved positioning each property with the weaponry it needs to be a stronger and more profitable competitor," he said.

In Las Vegas, Park Place operates Caesars Palace, the Flamingo, Paris Las Vegas, the Las Vegas Hilton and Bally's. Between them, they account for about 15,000 guest rooms and suites.

"We've been through an analysis of (each of) our properties and made decisions on each. (Our plan) is designed to position each against a market segment that will work for it," Gallagher said.

"You want the most valuable customers you can find for each of the properties. You can fill a hotel on the Strip. The question is what rate will you get, how much time will you get with (guests)? You want to attract the most valuable customer possible," he said.

"Caesars (Palace) was the most obvious opportunity. It was a stepchild for previous owners for years," Gallagher said. "Most of the emphasis has been on Caesars where the main construction walls (on the Colosseum side) will be coming down at the end of October." he said.

"Then people will see this is really something," Gallagher said. "It's magnificent, without equal in this town. No seat is more than 125 feet from the stage. Magical."

The Colosseum is a key part of positioning Caesars Palace to optimize the visitor experience for its market segment and maximize profitability for the company, he said.

"The Colosseum has everything to do with the quality and value of the customers we expect to attract to Las Vegas," Gallagher said. "Nongaming revenue has become tremendously important, more so for us because we didn't do as much of it."

Dining and entertainment experiences in the casino are critical to the Colosseum expansion.

And in its third phase, the Forum Shops at Caesars is being expanded to bring more people in, especially from the pedestrian traffic on the Strip.

Designed to complement the new Colosseum, the 200,000-square-foot expansion will be done in partnership with Simon Property Group Inc. and Gordon Co., both of which were developers of the first two phases of the Forum Shops.

"The issue has been giving people more reason to stay with you, recognizing who are your most valuable guests and making them feel that way," Gallagher said.

"Caesars has been a construction site for far too long," he said. "There is a vision, but we need to get this phase up and running and demonstrate what the property can do.

"Longer term, some other pieces are yet to come. We needed first to get the basic box finished with additional restaurants, entertainment venues, parking and the Colosseum. Now, we can demonstrate what the Palace can do on the basis of those improvements," he said, referring to the next phase of the strategic plan.

"Then we can revisit the (new) tower issue," Gallagher said.

"We looked at every property for core constituencies and asked what we have to do to improve targeting," he said.

"Take the Flamingo. Guests are younger and more fun-oriented than anyone thought. That's the reason we made the deal with Jimmy Buffet to bring Margaritaville (to the Flamingo)," Gallagher said.

Flamingo guests tend to be younger visitors who want to stay at the "Four Corners," but avoid the costs associated with stays at Bellagio or Caesars Palace.

"We're doing the same thing at Paris. Paris when it was designed had some quirks we had to address. It did not relate to the Strip as well as it might. It wasn't pulling in the volume of visitors it could," he said.

Therefore, a decision was made to add a restaurant at the southwest corner where the Paris Opera House facade is.

"When it's finished, it will open up a direct route right in off the Strip. We addressed a bunch of problems on a cost-efficient basis at a cost of $10 (million) to $15 million and dramatically increased access from the Strip," Gallagher said.

In the spirit of getting the ships in the fleet to sail together, Park Place has launched a Connection Players Card program.

"We've developed some new technology that allows us to connect all our properties and customers in one database," he said.

The Connection card makes it easy for customers to redeem cash-back bonuses at any Park Place Las Vegas resort. The program is being expanded to other Park Place destinations.

Park Place also is making good use of capital dollars with the Gateway project in Atlantic City, linking Claridge and Bally's and redeveloping the Ocean One mall in Atlantic City, Gallagher said.

On future strategy and expansion opportunities, he said: "Our business is running destination-type facilities. We'd be interested (in expansion) if there are opportunities on a scale that's appropriate for us."

Analysts are bullish on Park Place's geographic diversity, arguing it provides insulation against future weaknesses in any one market. Park Place also operates casinos in the mid-South and is planning a casino in New York state.

"(Wall) Street's focus is on the numbers, but we're trying to work as smart as possible at each property," Gallagher said.

Second-quarter Park Place cash flow, defined as earnings before interest, taxes, depreciation ad amortization, were $310 million, unchanged from the same quarter 2001. In Las Vegas, Park Place continued its post-Sept. 11 recovery despite lower fly-in traffic compared with 2001 and reduced occupancy. Performance was enhanced by a 2.5 percentage point improvement in table hold to 18.5 percent.

In other markets, Park Place's performance was resilient in 2002, Deutsche Bank Securities analysts said.

"This is an industry that depends on its integrity. Our acceptability to society at root is based on whether or not people trust us," Gallagher said.

"The growth of gaming over 15 years has been the result of the fact we have won the confidence of the American people. We've created jobs for good pay, invested capital all across the country, paid enormous tax revenues and (accomplished great) diversity," he said.

"Now, we are wrapping up the roll-out of our long-term strategy. We've defined who we are and what we want to be. We have programs in place to accomplish that," Gallagher said.

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