Rio casino said to be turning corner

David Strow

Monday, April 2, 2001 | 11:24 a.m.

One of the key factors preventing Las Vegas-based Harrah's Entertainment Inc. from reporting a big year in 2000 was quarter after quarter of poor results from the Rio hotel-casino.

But following a tough year -- and two rounds of layoffs -- the Rio is turning a corner, a top Harrah's official said Friday.

"We're feeling very good about this quarter (at the Rio)," Gary Loveman, chief operating officer of Harrah's, said. "We're very pleased with this quarter and I'm very encouraged by our progress."

The company's first quarter ended Saturday. The official numbers for the Rio won't be known until Harrah's officially reports its first-quarter earnings April 18.

Loveman spoke Friday at the Millennium Hospitality Summit, held this weekend at the Rio, Venetian and Bellagio.

Turning the corner at the Rio would be a big psychological boost for Harrah's, which saw its earnings hurt badly by a string of very poor quarters at the off-Strip property. The Rio reported $29.2 million in cash flow for the year, down 70 percent from 1999, and an operating loss of $11.4 million.

Those poor results, combined with the bankruptcies of Harrah's New Orleans casino and National Airlines, were the biggest factors behind the net loss of 10 cents per share Harrah's reported in 2000. In 1999, the company reported net income of $1.62.

Loveman said efforts to reduce the Rio's expenses, combined with a beefed up entertainment offering, are starting to have an effect at the property. He refused to rule out the possibility future layoffs might be necessary, but sounded an optimistic tone.

"We're adjusting employment the best we can," Loveman said. "If business continues as it is now, we're probably at the right levels. If business changes, we'd probably have to make changes in our staffing."

The Rio has laid off 200 of its 5,000 workers since August, including 99 in March.

Loveman said the company remains committed to the Rio and its brand, which it orients toward high-end players and destination resort customers. In fact, Loveman said, it's possible a second Rio could be in the cards.

"We'd love to build another Rio," Loveman said. "There are other markets, like Atlantic City and Chicago, where we think this is an idea that has some legs. But these aren't cheap little buggers."

Loveman emphasized there were no current plans to actually build a second Rio, saying such plans would only proceed once Harrah's felt a market could support such a property. Convincing evidence in Atlantic City's favor could be supplied when the Borgata, a $1 billion hotel-casino being built by MGM MIRAGE and Boyd Gaming Corp., opens there in 2003.

"That will be quite informative," Loveman said.

Meanwhile, Loveman said Harrah's is not seeing the impact of a slowing economy at most of its 22 properties. The key exceptions, he said, have been Harrah's properties in Reno and Lake Tahoe.

"We are hurting in Northern Nevada," Loveman said. "It's a combination of the meltdown in Silicon Valley and the energy situation in California. We are not seeing much of an effect anywhere else. By and large around the country, the news is good."

Loveman said he believes Harrah's will remain relatively unaffected, even if the economy slips into recession.

"Harrah's is generally oriented to the older slot customer," Loveman said. "They (customers) are not really susceptible to minor changes in the economy. The win per customer is modest. It's a very modest gaming expense, and not enough to be curtailed (in a troubled economy).

"If I were Mandalay (Resort Group), I'd be concerned, but we're pushing a different model."

Loveman used his time at the conference to promote that model to hospitality executives from across the country. Rather than relying on the construction of new, expensive properties to boost earnings, Loveman said the emphasis at Harrah's lies with increasing play at existing properties, a phenomenon often called "same-store sales growth."

"We are very careful about who is the right customer," Loveman said. "About 20 percent, maybe even 15 percent, of our customers generate almost all of our profit. We have to be very careful not to base our decisions on customers (on who) we can't make a living."

That excludes families, Loveman said, who are "terrible casino customers." And it means that zero income from a hotel is acceptable, so long as the customers are great gamblers.

But the keystone of Harrah's efforts has been "Total Rewards," the company's slot club card. The card allows Harrah's to devote marketing dollars to those customers with the best potential as gamblers -- and makes it difficult for those customers to leave, as benefits improve as a customer moves along three different tiers.

"I am the poster child of customer monogamy," Loveman said. "We want our customers to love us and only us. We want to make it financially advantageous to be with us and financially damaging not to be with us."

Loveman said it's working -- in 2000, Harrah's posted 12 percent same-store sales growth, up from 10.4 percent in 1999 and 0.2 percent in 1997, while Harrah's properties outpaced the competition in many markets outside Las Vegas.

One of the most stark increases came in Laughlin, a market struggling under increased competition from California. In 2000, Laughlin posted a 5.25 percent increase in gaming win -- but Harrah's Laughlin posted an increase of 13 percent that year.

"(Marketing) was an area few (gaming industry) folks paid attention to ... and we've made it the centerpiece of our business," Loveman said.