Harrah’s CEO sees bright future for gambling giant

David Strow

Friday, May 4, 2001 | 10:14 a.m.

The year 2000 was far from a great one for Harrah's Entertainment Inc. of Las Vegas.

Three factors -- the struggles of the Rio hotel-casino in Las Vegas, the bankruptcy of National Airlines of Las Vegas and the bankruptcy of Harrah's New Orleans -- combined to cause Harrah's to post a loss of $12 million in 2000, compared to the $208.5 million in net income the Las Vegas-based gaming giant posted in 1999.

But it's a new year, and Harrah's Chairman and Chief Executive Phil Satre strove to paint a rosy picture for 2001 at his company's annual shareholders' meeting Thursday.

Harrah's posted a 43 percent increase in net income for the first quarter of 2001, as the Rio's performance improved and the company no longer recorded losses from the bankrupt airline or New Orleans casino. And just days ago, Harrah's said it would buy Harveys Casino Resorts of Lake Tahoe for $625 million, a deal looked upon favorably by Wall Street analysts.

All of this led to a strong rebound in Harrah's stock, which is up 81 percent since last June, and now trades near a four-year high, Satre said.

"Harrah's stock ... has been the best-performing stock among big-cap gaming operators so far this year," Satre said. "We're very excited about the future of this company, and hope you share our enthusiasm."

For the most part, investors shared Satre's optimistic outlook during the cheerful hour-long meeting.

"You're a breath of fresh air for me," one shareholder told Satre, noting that her other stocks had been battered in the recent market downturn. "I can't tell you how much I appreciate your work ... you've made my day."

"We're doing everything we can to ensure you continue to smile when you pick up a newspaper or turn on CNBC," Satre responded.

Satre argued that "organic" same-store sales growth, driven by Harrah's "Total Rewards" slot club program, was key to the company's future potential, together with "selective strategic acquisitions."

"Unlike other casino operators, we haven't spent billions of dollars constructing megaresorts whose financial performance often wanes after the very first year," Satre said. "Instead, we've spent money developing innovative technology that enables us to know exactly what our customers want."

Those strategic acquisitions, Satre said after the meeting, likely will not include further Las Vegas purchases.

"We don't need a third position here (on the Strip)," Satre said. "That wouldn't fulfill our need or our strategy."

However, Harrah's has said it eventually plans to expand the Rio.

The only real challenge Satre faced came when a former Rio Properties shareholder -- and current Harrah's shareholder -- asked why the Rio's performance sank so dramatically after Harrah's took it over in 1999.

"It seemed to be doing pretty well (as an independent property)," the shareholder said. "What happened to the Rio?"

Satre responded that the Rio's expansion had left it with much higher expenses, and that poor table game hold had hurt earnings. He added the Rio faced new competition from other Las Vegas properties seeking to imitate the Rio's successful formula.

But Satre pointed out that the Rio is staging a turnaround in 2001.

"We still have work to do, but we're very happy with the way the Rio is performing," Satre said.

The shareholder then asked Satre if he was concerned about the pending opening of the Palms, a $265 million, 42-story hotel-casino located across Flamingo Road from the Rio. The Maloof family, majority owners of the Palms, hopes to open the property in December with 470 rooms, and have discussed building as many as 2,000 rooms there over the next decade.

Satre replied that Harrah's properties had benefitted from new competition before, noting the rise in business seen from the openings of the Mirage and Venetian near Harrah's Las Vegas.

"It's never a concern of mine to have more rooms across the street," Satre said. "I look at the Palms as an opportunity."

Though Harrah's has only two properties on and near the Las Vegas Strip, it is the nation's most geographically diversified casino company, with holdings in all of the nation's major gaming markets. Once it closes on its buyout of Harveys Casino Resorts, Harrah's will have 25 casinos in 13 states, more than any other gaming company.