DAILY MEMO: GAMING:

MGM Mirage, Harrah’s take separate paths

One stresses competition, the other cooperation

Monday, Oct. 27, 2008 | 2 a.m.

Gaming and Business

To run a casino is to follow, with a few variations, time-tested formulas.

A Queen of the Nile slot machine is much the same no matter where it sits. So is a 24-hour coffee shop, a buffet or a high-limit pit.

The same goes for their rules of operation. A cash-intensive business with hundreds of hands on the money requires rigid rules followed with military precision.

Yet when properties grow into chains and those chains become empires, they develop their own cultures and practices.

As it turns out, the industry’s giants, MGM Mirage and Harrah’s Entertainment, have evolved into different animals at the top of their respective food chains.

Customers will be familiar with some of these differences.

While most MGM Mirage resorts are located on the Strip, Harrah’s has a national chain of mid-market casinos linked by the Total Rewards loyalty card.

A few months ago, MGM Mirage executives told investors they haven’t fully capitalized on technology-based marketing and the company’s loyalty card program. By contrast, Harrah’s in 2000 launched Total Rewards and has continued to improve its technological marvel.

Some differences go undetected by the majority of customers.

MGM Mirage executives are proud that their Strip resorts compete fiercely with one another for business. The fight for customers is especially stiff among similarly situated properties, such as, say, the neighboring Mirage and Treasure Island. Once an MGM customer is ensconced at a company casino, management also does its best to keep its guest’s dollars at the property.

Encouraging in-house competition keeps management on its toes and boosts results, executives say.

Yet Harrah’s says it has a different approach. Most of the company’s profit comes from customers who are members of the Total Rewards program, which allows gamblers to choose where they redeem their rewards card credits. A Chicago area gambler, for example, could redeem her credits by dining at the Flamingo and staying at Caesars Palace.

Unlike most companies, which have sales staffs that book meetings and conventions for a single property, Harrah’s has a single sales team for all its Las Vegas properties. Such a team can be unbiased and offer more choices based on a group’s price range or other needs, executives say.

As long as the customer is spending money at a Harrah’s property, the company is happy. And property executives are happy, too, because they receive bonuses tied to the performance of all the company’s Las Vegas properties.

Harrah’s executives believe their strategy is superior because VIP customers feel free to try out different properties rather than pressured to stay put.

Which strategy works best?

That’s hard to say, given that all companies are hurting in this downturn. Though profits at Harrah’s haven’t dropped as much as they have at MGM Mirage, Harrah’s has a lot more debt because of the company’s expensive leveraged buyout early this year.

One former executive for both companies says that although Harrah’s may preach a different marketing philosophy, that approach doesn’t work in practice.

“Most properties are like fiefdoms,” the former executive said. “They compete internally for assets and capital dollars.”

Las Vegas-wide casino performance is only a part of the compensation for Harrah’s executives, who also receive bonuses for customer satisfaction at their properties.

MGM Mirage’s competitive approach might be more realistic and time-tested.

Companies in other industries sell similar products under distinctive brands. Macy’s also owns the higher-end Bloomingdales, while Sears owns Kmart, a similarly mainstream brand. And ultimately, corporations are made up of people who have an instinct for competition and self-preservation.

“What they really care about is the (earnings) for their property,” the former executive said. “If that’s healthy, their jobs are protected.”

Discussion: 5 comments so far…

By neiman1

10/27/08 at 4:53 a.m.

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Does it really matter. With Pelosi and Reid guaranteeing us we will NOT drill for American energy the gas price will rise again and Las Vegas will lose jobs across the city as our visitors dwindle. The airlines have guaranteed us 20% less tourism by cancelling 20% of their flights for good. Nevada will only survive if we develop American energy with American jobs and Obama will kill that effort for good.
By scouser

10/27/08 at 7:17 a.m.

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Harrah's reported a $97.6 million second-quarter loss, compared with a net income of $237.5 million a year earlier. Industry watchers say the company has enough cash to survive in the near term, but may be hard-pressed to outlast an extended consumer crisis.
They also recently cut the hours at some of its casino VIP lounges, and even replaced plates full of hearty sandwiches with bruschetta and hummus. talk about spoiling the ship for a hapeth of tar.
By homer

10/27/08 at 8:42 a.m.

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neiman1, There you go again with the right wing lies. Let oil drill on the 80K plus acres it has lease rights on then worry about other drilling.
McCain is against drilling in Alaska as well.
If by chance there is oil found it will be years before a drop of it is refined.
Big oil would not take a new refinery if the Sierra Club built it for them . Having old refineries that are systematically shut down allows big oil to control prices.
Think before you post.
By gqbossing

10/27/08 at 1:46 p.m.

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Harrahs pays over $3,000,000,000 in interest a year, or $250,000,000 a month in interest as overhead on their nearly $40 billionin debt.

They leveraged the land under their properties in mortgages which they gave the money from that to shareholders.

Their problem is revenues dropped.

If they had the same debt as they did in 2007 of $13 billion they would have been fine, here's the pudding:

2007 total interest $1.2 billion ($100 million a month or $300 million a quarter)

2008 total interest $3 billion ($250 million a month, $750 million a quarter)

If they had $450 million less in interest payments a quarter they would have made $350 million less taxes last quarter instead of losing $100 million...
By dave202

10/27/08 at 6:15 p.m.

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Hey, gqbossing

Can you source your $40 billion in debt? According to company filings, Harrah's has "only" $23.9 billion in debt....