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Rod Smith

Merger Stirs Vendors' Fears

20 August 2004

LAS VEGAS -- Blake Porter agrees the pending MGM Mirage and Harrah's Entertainment megamergers will be profitable for some people. Just not business people like him.

Porter, owner of True Power, a local $1.2-million-a-year construction-and-office-materials supply company, doubts small companies like his will get much new business if the multibillion-dollar mergers announced this summer are completed.

The local businessman knows something about how difficult it is dealing with big casino companies, too. He has twice bid on contracts with MGM Mirage, but both times was told his bids weren't even close to the winning bids. Harrah's Entertainment, which announced in July that it wants to take over Caesars Entertainment, has never solicited a bid from his company or even been willing to accept a bid, he said.

"The casino companies want it all for nothing. Companies like mine don't make any money on their deals unless there's also a back-end (nonbid) contract (offered as) a favor," he said. "So there's a double standard for dealing with casinos."

And Porter believes the $9.4 billion Harrah's-Caesars and $7.9 billion MGM-Mandalay deals will probably make it even more difficult for local vendors to get casino company contracts.

"It's only going to get worse. If the major companies persist in doing what they have been doing, I see no reason for anything to improve," he said.

For the local vendors, contracts with gaming companies is a tantalizing prize, too. MGM Mirage alone spent $766.1 million on biddable goods, services and commodities in 2003.

Porter's opinion on what the two mergers, if they win regulatory approval and are completed as proposed, could mean to local vendors is pretty much shared by other local business operators and the federal official in charge of the U.S. Small Business Administration's Nevada District.

John Scott, the SBA's Nevada district director, said the mergers, which will create the two largest casino companies in the world, would carry inherent problems for small business operators.

"When you get these megamergers, you get the top (ranks) of the companies going after efficiencies in their operations," he said.

The combined gaming operators would likely cut the number of local companies with which they do business as well as use their increased purchasing power to squeeze the prices vendors could charge, he said.

Absent an effort to fight this trend, the mergers may ultimately reduce the number of independent vendors in the community, Scott said.

"It's no different from a Wal-Mart store. All the profits will go to out-of-state shareholders, but a lot of small (local) vendors will go out of business," Scott said.

Jeanne Jones, owner of Alpha Services and a past president of the National Association of Women Business Owners in Southern Nevada, said many small vendors already have trouble working with casino companies because they are so huge.

"When you're coming in cold from the outside, it's rough. And small businesses often don't know the lay of the land," she said.

And if the combined companies decide to streamline their purchasing, as is likely, Lisa Burchard, president of Advance Office and Janitorial, agreed small vendors will probably face added problems.

"That will eliminate vendors. Being a small company, I can work with several of the casinos, but it's really hard for us to walk in there. And we can handle all the business. We could handle one or two of them so I think the mergers could hurt," she said.

Other onlookers, such as Nevada Minority Business Council President Diane Fonts, believes there would be some winners and losers among local vendors.

"For companies with existing relationships with MGM (Mirage) and Harrah's, it's very positive. For companies that don't have the relationships, it may be more difficult," she said.

"On the other side of the coin, if (a vendor) has ever had a problem with a casino property, it may prevent (them) from doing business with any of the (new companies') properties. In that vein, it's going to be very difficult," Fonts said.

She said the combined companies will need to develop mechanisms for dealing with vendors that have had problems obtaining contracts with individual casino properties because many of them involved innocent misunderstandings or personality conflicts.

"It's a big concern right now. Their corporate culture needs to be very sensitive to small vendors," Fonts said.

Scott and most local vendors agree on something else: The merged casino operators should make a real and innovative commitment to contracting to keep the megamergers from squeezing out even more small businesses.

"They need to step up to the plate to let small vendors know what they need and what the businesses can sell," Scott said.

Burchard said MGM Mirage has been trying to open its doors to companies like hers for a year, and that the mergers might, in the end, not hurt small businesses if the combined companies were to redouble those efforts.

"I'm in a perfect position right now. I've got a woman-owned company and MGM Mirage is reaching out. But I was trying to beat down their doors for years," she said.

"The fact they've been reaching out offers at least some hope. That's a major difference from where they were a year ago. I think the opportunities may be there, but it's a big 'if,' " she said.

MGM Mirage has won widespread recognition for its programs to encourage contracting with small vendors, and the company plans to expand such initiatives after its buyout of Mandalay Resort Group, MGM Mirage President Jim Murren said in downplaying vendors' concerns about dealing with a post-merger company.

"We are one hundred percent committed to the diversity programs MGM Mirage has pioneered and look forward to advancing these initiatives in the future," he said.

Harrah's executives failed to return telephone and e-mail messages Thursday seeking comments on this story.

Scott recommended that the merged companies could schedule annual vendor fairs.

"It would be a great public relations coup for them if they had an annual vendors fair or matchmaking event" that would give the small vendors the information they need to bid on contracts the casino companies will put out to bid, he said.

The fairs would also give vendors a chance to work with each other to land larger contracts that might be beyond the grasp of individual companies, Scott said.

Such a program would benefit the whole community because business landed by local vendors would generate income, jobs and tax revenues and have a spin-off, multiplier effect for other companies in Las Vegas, he said.

"From a public relations and community relations point of view, it would salve many wounds from years gone by. The challenge for (the giant companies) is to keep their focus on this and not lose sight of smaller vendors while they chase their efficiencies," Scott said.

Still, Porter has his doubts.

Porter dismissed the vendor fairs casino operators have run for small businesses in the past as a waste of time and called their programs to encourage local contracting nothing more than charades.

"They run you around, and then you get a few hours notice to bid on one contract -- you know you never had a chance when they call like that -- and then, after all the work, they tell you you were never even in the ballpark," he said.