Hard Rock takes action to stem unpredictable high-roller wins

By Liz Benston (contact)

Tuesday, Oct. 26, 2004 | 11:11 a.m.

You win some, you lose some.

But that axiom of gambling is proving to be too volatile for many Strip casinos, which are continuing to shrink their exposure to high-limit games in order to reduce risk and ensure a steady profit.

The latest case in point is the Hard Rock, which says it will no longer accept high-roller action from gamblers with million-dollar credit lines who have the potential to lose -- or win -- millions from the casino.

"That's not really our core business," Kevin Kelley, Hard Rock president, said. "We don't have enough of those customers, nor do we have the type of amenities to handle those types of customers."

Only a few players make the list of top-tier gamblers in Las Vegas, often called "whales." For smaller casinos like the Hard Rock, even one player can mean the difference between a quarterly profit and a loss.

In the fourth quarter of 2002, for example, Hard Rock earnings took a hit after one player walked away with $3 million.

Plenty of players and potential customers have credit lines in the $10,000 to $250,000 range and will continue to be welcomed at the Hard Rock, Kelley said.

Analysts are applauding the move, saying it will translate into more stable earnings.

"I've always felt that the strength of this (Hard Rock) franchise never had to take that kind of risk," said Ray Cheesman, a bond analyst with Jefferies & Co. "The Hard Rock is an unbelievable attraction, like a candle to a moth."

Cheesman said the Hard Rock's success is based largely on the strength of its youthful image as well as its reputation as a boutique hotel.

"Everybody wants to be young again," he said.

The casino is too small to handle big action, he said.

"For the highest tier, the 'If I come I can do whatever I want' segment, you can't compete against MGM Grand and Venetian. You don't have enough volume to make the mathematics of the game work," he said.

The risks associated with high rollers are less problematic for a large chain like MGM Mirage, which can better swallow big losses and has more leverage in dealing with disgruntled players, Cheesman said. MGM Mirage also can afford to discount gamblers on losses, he said.

Kelley said the property caters to the kind of people "who are more inclined to enjoy the property as it is."

Part of that Hard Rock mystique comes from the emphasis put on table games, which are favored more often than slots by the young, hip crowd. The Hard Rock reported $3.4 million in profit in the third quarter but a decline in casino revenue on lower table game play. Table game revenue was $9.9 million compared with $4.1 million in slot revenue.

While the Palms resort competes head to head with the Hard Rock on the entertainment front, George Maloof's casino -- with slot tournaments, a slot club card and other slot-centric promotions -- receives more of its revenue from slots.

The Hard Rock isn't the only property moving away from high-roller action.

Caesars Entertainment Inc. has consolidated its top players at Caesars Palace following efforts over the past year to upgrade the company's flagship. During the company's third quarter earnings report last week, executives said they are no longer marketing to high rollers at Paris Las Vegas, the company's newest casino on the Strip, and are instead pushing high-limit action to Caesars Palace.

In part because of that shift, the Paris resort reported a 15 percent decline in gaming revenue in the third quarter. Cash flow rose 4 percent, primarily driven by an increase in hotel revenue.

Gaming revenue at Caesars Palace fell 2 percent in the third quarter on lower volumes of baccarat play and because gamblers on non-baccarat table games were luckier than normal, the company said.

The Golden Nugget, meanwhile, is appealing to higher-limit customers since the downtown casino was acquired by young entrepreneurs Tim Poster and Tom Breitling. The property, which was featured in the Fox reality show "The Casino," has raised blackjack limits to $15,000 per hand, created a high limit pit and attracted top casino hosts in an attempt to lure high-rollers from the Strip.