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Rod Smith
 

Merger Agreement: 'Another Level' of Gaming

19 July 2004

Industry insiders who have sized up the proposed $9.4 billion merger between Harrah's Entertainment and Caesars Entertainment said Friday the deal -- if it gets done -- will possibly create the most powerful marketing tool in gaming.

Harrah's President Gary Loveman said Thursday in a conference call with Wall Street analysts that his company plans to combine the marketing power of its player-loyalty program, already the world's largest, with access to new markets and new customers offered by Caesars casinos.

The power of that combination, he said, will solidify and enhance the position of the combined company as a gaming industry leader.

While acknowledging that integrating the two companies and their divergent strategies will be difficult, Loveman said the combination of Harrah's database mining capability with Caesars' destinations will take the combined operations "to another level of performance."

Jim Medick, chief executive officer of the MRC Group Research Institute, Nevada's largest market-research firm, said the combination of database mining and market reach will have a sweeping effect on the gaming industry in Las Vegas and nationwide.

"It's huge if the database is mined properly. (Mining the database is) the first thing I'd be doing if I were them. Now, I'd know who all the customers are and I'd have even more properties to feed them into nationwide," he said.

Industry experts also thought the expanded database mining could help Las Vegas as a destination as well as Harrah's as a larger company.

University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said the network of hotel-casinos the combined company will operate nationwide will increase the number of customers it can feed into Las Vegas.

"They're all over the United States. Now they can say if you go to Harrah's St. Louis, you get comp points to go to Caesars Palace in Las Vegas. That makes St. Louis more of a lure for customers, and it increases the visitor traffic to Las Vegas, both at the same time," he said.

Kevin Bagger, senior research director for the Las Vegas Convention and Visitors Authority, said the combination of database mining and the expanded property reach should mainly benefit individual Harrah's-Caesars casinos. But it also has potential for supporting Las Vegas as a destination.

"If they aggressively tap into each other's (data)bases, it gives them a deeper reach and it draws more people to Las Vegas. Collectively, that's going to be a help for Las Vegas," he said.

Medick said databases are particularly powerful now because consumers want to be included.

"People want to sign up. They don't want to miss out on any opportunities or any savings. We see people actually plan their vacations around developments in casinos," he said. "This will give Harrah's the ability to play customers' vacations in their entirety. And they won't have to worry about them going off property. They'd be roaming to other Harrah's casinos."

Thompson said the merger will let Harrah's offer something for everyone, from rooms to amenities.

"No one calls and gets turned away, and they can reach every gambler and offer him or her something through their marketing programs," he said.

Medick said the database mining, if used subtly to maximum advantage, can also help convince customers to trade up and spend more.

"Marketing managers know there's a loyalty factor. But as a player, I have five or six casinos that I like and I'll float," he said. "By having one marketing program for every level of experience, I can market them all at one and move customers up the cost scale. Instead of trying to jump them to the top of the list, I can inch them up. This will give Harrah's a tremendous ability to know what players want and market specifically that to them. That's what databases give you."

Eric Hausler, a New York-based gaming analyst for Susquehanna Financial Group, said the principle benefit for Harrah's will be its larger and broader exposure on the Strip for customers already coming here and those it can lure here.

"It allows them to move gamblers in from other properties (all over the country) and gives them the ability to offer every level of experience," he said.

But he said it also creates a challenge -- one that is a major reservation for Wall Street and the proposed deal.

"Caesars Palace is a mixed income property. It's strategic focus has been diversifying its revenue stream away from gaming. It's growth has been off the casino floor," Hausler said.

While Caesars Entertainment has been successful in diversifying away from gaming in the past few years, Harrah's has focused specifically on the business of gaming and attracting customers to gamble, he said.

"How do they balance the casino for players from all the nongaming operations?" That, he said, in the principle challenge for Harrah's, Hausler said.

Largely because of that issue, Susquehanna downgraded Harrah's on Friday from net positive to net neutral.

Through the day Friday, investors seemed to share skepticism about the merger.

Harrah's closed at $46.85, down $1.06, or 2.2 percent, on 3.6 million shares traded. Caesars Entertainment closed at $14.99, down 6 cents, or 0.4 percent, on 11 million shares traded. Both were triple normal trading volumes.

Harrah's dropped 9 percent in value over the course of the week, while Caesars was up 12 percent after getting an early surge of 22 percent when initial reports of the merger caught Wall Street by surprise.

Merger Agreement: 'Another Level' of Gaming is republished from Online.CasinoCity.com.