Q&A: Randall Fine, Managing Director, Fine Point Group

By Richard N. Velotta

Friday, March 5, 2010 | 3 a.m.

Randall A. Fine has accumulated a wealth of experience from big-time gaming operators in his eight-year casino career.

Fine was corporate vice president of a 40,000-machine slot operations group at Harrah’s Entertainment and its Total Rewards loyalty program. He also was chief marketing officer for Carl Icahn’s casino holdings.

A Harvard graduate, both bachelor’s and master’s degrees, he was named CEO of Detroit’s Greektown Casino and lead the turnaround for the bankrupt operation.

Before his gaming jobs, Fine worked for McKinsey & Co., a management consulting firm; Wall Street financier Lehman Brothers; and the House of Representatives. He also taught economics at Harvard.

Today, Fine is managing director of the Fine Point Group, a Las Vegas gaming consulting and management group. He talked with In Business Las Vegas about Southern Nevada’s gaming landscape, the Greektown turnaround and policies he would implement to rescue companies from the effects of the recession:

IBLV: Why do casino operators need to hire firms such as yours for consulting and managing contracts? Don’t casinos generally have this expertise in-house?

Fine: The two things are separate. There’s consulting and management. They’ll typically have operators and marketers in their roles. But you get three things when you bring in a firm like ours. We don’t focus on running a property. We create skills and specific disciplines: slot-floor optimization, table-games management, database marketing. So we may have deeper expertise in one area than their general operators. You also get bandwidth. When you’re th­e general manager or the vice president of marketing, you have a lot to do every day — you have a day job. Relaunching a players’ card or redeveloping a staffing plan can take a lot of time that you may not have.

We’re also a fresh set of eyes. Even in my business, every year or two, I try to get someone in here from the outside to tell me what I could be doing differently because, inevitably, we put on blinders. So we give it a fresh perspective. We may not be any smarter than our clients, but we haven’t been looking at the same situation day in and day out, and we can offer some fresh perspective.

On the management side, there are situations where management doesn’t exist, such as when a Wall Street bank takes over a casino. That’s not something it knows how to do. So it can, one at a time, go out and hire 10 people who have never worked with each other and may not have a skill set or personality fit. Or, the bank can hire a firm like ours where we’ve worked together for the last eight years and can drop in instant offense from Day One.

In how many states are you licensed?

Our firm has been licensed in three, and I, personally, have been licensed in five and some of our folks are in eight or nine.

What generally do your services cost? Is there a standard rate or percentage of revenue you charge?

It depends. The traditional pricing model has been 2 percent of revenue and 5 percent of EBITDA (earnings before interest, taxes, depreciation and amortization) for a management contract. But we prefer to take a different approach. We will charge a relatively low management fee, but ask to participate in the upside if we can make the property more successful. I’m not interested in being paid if I don’t create value.

In the case of Greektown, a very public situation, we got up to 30 percent of the incremental profitability we created. Because we generated $30 million more in profitability than folks expected, it turned out to be very lucrative for us. Had we not done that, we wouldn’t have made a lot of money.

On the consulting side, we tend to price our services on a fixed basis. I don’t like clients to feel like if they call me, a meter is running. That is why I didn’t go to law school. I didn’t want to bill by the hour. So we come up with a price with our clients that we think is fair and then it’s all you can eat.

If you want to call me at 3 in the morning about a high-limit player who has gotten a lot of credit, I’ll take the call and if you want me to get on a plane at 4 in the morning, I’ll do that, too.

So it’s all priced differently based on the casino?

Sure. A $70 million tribal casino we work with in ... Washington is interested in a different set of services than a $1 billion operator in Las Vegas. We have to be flexible. And as a small company with 20 people, we have the ability to do that.

Your company was in the news recently for first winning in 2009 the Greektown management contract and then being replaced by another firm this year. What were the circumstances of Fine Point not being retained?

We actually haven’t not been retained yet, if that makes sense. We were brought in by a set of creditors over the objection of the tribe that owns that casino to run it for them, and we were given a one-year contract. The expectation was the casino would exit bankruptcy over the course of that year, but because the owner — the tribe — sort of dragged its feet in the bankruptcy, the case has still not concluded. When our contract ended at the end of the year, the tribe that never wanted us in the first place didn’t want to sit down and renegotiate. The creditors preferred that we continue to do that work.

What were your successes and disappointments at Greektown?

Successes, I think you can look at the numbers. We grew revenue 9 percent year over year. Our competitors, MGM Mirage and Motor City, fell 5 percent. We increased profitability 40 percent year over year and market share by 23 percent. This was 2009 in Detroit, so it was not a great time anywhere.

Another success, frankly — and this isn’t really quantifiable — is that we learned a lot about bankruptcy. This was a topic that gaming operators never thought they’d have to learn about. I didn’t know what an indentured trustee did. I didn’t know what all of these liens and subordinated debt was. Didn’t understand any of it. So the success was that we had a year that we got a great education in how bankruptcy works. Fortunately, I’ve never led a company into bankruptcy.

Disappointments, I’d have to say I tried very hard to be impartial in the bankruptcy and say, “I don’t really care who gets the pie. My job is to make the pie as big as I could.” There were times when we got drawn into the fight that I wish we could have avoided. I don’t know that we could have and I don’t know, realistically, if that was even possible, but it was certainly something that I tried to do that I didn’t succeed at.

Who are some of your major current customers?

We’ve been working with Station Casinos for the past year or so, helping it redefine and relaunch its relationship marketing capabilities. We work with the Barona Valley Casino, about 30 minutes from San Diego. We work with the Chehalis tribe and its Lucky Eagle Casino in Washington. Other clients have included Philadelphia Park, the Seminole tribe in Florida. We’ve been in 18 different states in four years, so it’s hard to remember all of them. We’re spending a lot of time right now to take over a property in Atlantic City. Unfortunately, I can’t say which one it is, but there are only 11 choices so it’s one of them. It’s very exciting because there’s never been a commercial management contract in the 31-year history of Atlantic City, so for us to be the first to go in there and pave that ground is something we’re very excited about.

You talked about growing revenue and increasing value at Greektown? How were you able to do that, especially considering the tough environment and competition?

It was a couple of things. First, there was a culture change. In many markets, people have overemphasized the importance of bricks and mortar, of capital. And if you don’t have the nicest property, you’re going to lose. When we arrived at Greektown, its marketing strategy was “We’re nice, too.” In that market, MGM Mirage built a spectacular billion-dollar property. Greektown is in 19 200-year-old buildings that had been stitched together. It was supposed to be a temporary facility. I very quickly said, “If you want to gamble in the nicest casino in … Detroit, it is two miles that way.” We’re not going to play that game because we’ll lose. But if you want to come to a casino that’s going to work hard for your business, have the best marketing, offer the best service and be for regular people who don’t want to have to get dressed up and be high end, we’re going to be the place for you. Instead of copying, we created our own niche. I called it “embracing your ugliness.”

I’m from Kentucky originally, so I didn’t grow up in a wealthy household in New York, so those were the people I know. And I said, “We’re not going to be the filet mignon place, we’re going to be the deep-fried hamburger place.” That was a big part of it. We stopped focusing on what other people do.

The flip side is that everyone in our firm has a mathematics background. I may be from Kentucky, but I’m actually pretty good at adding and subtracting. We have developed some cutting-edge statistical tools to helped us optimize expenses and revenue. So the success there was very simple: We controlled costs by surgically cutting. We didn’t lay off one employee in a year and we could have and they expected us to.

We said, “Maybe we don’t need the biggest shrimp on the buffet. Maybe guests don’t need a laundry bag in their room. Maybe people don’t need a newspaper. Maybe we can change hours of operation. Maybe we don’t need 2,900 slot machines. Maybe we can get by with 2,600.”

So we brought down the cost to operate the business, then used our marketing capabilities to bring in a ton of extra revenue. Those extra dollars generally fall to the bottom line. That’s why a 9 percent increase in revenue gives you a 40 percent increase in profit.

What Las Vegas company has the best loyalty marketing strategy and why?

I would say the two best in town are Wynn and Harrah’s, but in different ways. Harrah’s is very focused on data-driven mass-market relationship marketing and Wynn has perfected the art of high-end VIP, personal-touch relationship marketing. I think in the locals market, Station has made some real leaps and bounds. Its Boarding Pass program is always very well recognized, and it has combined great service and great marketing. If you look at Station’s performance since it filed for bankruptcy and you compare it with Greektown or Trump after they filed, most casino companies go off a cliff after they file for bankruptcy. That did not happen at Station, and I think the reason for that is a testament to the leadership it has and, frankly, its marketing programs.

What technological innovations are on the horizon in loyalty marketing?

There probably are three. The first is Las Vegas-specific and that is enveloping nongaming profitability into the vision of the customer. Outside Las Vegas, most casinos it’s 80 or 90 percent gaming and the rest is ancillary. But clearly on the Strip, nongaming revenue matters, and that’s part of why we’re hurting so much right now. No one has cracked the code to how to value gaming, hotel, food and beverage, retail and entertainment and at the same time to truly come up with a holistic view of the customer.

How do you trade off a guy who gambles $1,000 but doesn’t pay for his room with a guy who pays $400 a night for three nights and eats and shops, but doesn’t gamble? How do you make that trade-off? That’s an innovation that is coming, but I think it will only affect Las Vegas.

A second innovation is marketing to customers in real time at the slot machine. That’s really the promise of server-based gaming — not changing the machines or changing the denominations, but seeing that when a customer has a very bad experience, sitting down with $100 and feeding it into a machine and it is gone in three seconds — and recovering in an automated way by offering that customer proactively some food or free slot play. You do that by creating a rules engine that monitors what’s going on in real time. That’s going to be an innovation that stretches across the entire industry.

The third innovation will be continuing to embrace electronic marketing. There’s probably no industry that is as reliant on the U.S. Postal Service as we are. We send a ton of mail. It would be interesting to find out what percentage of the mail that gets delivered in Las Vegas comes from a casino. It’s probably a pretty sizable percentage. We have relied on the Postal Service, which is fine, but it’s expensive and it’s slow — not the delivery, but just putting together the piece, designing it, printing it, labeling it and then mailing it. With e-mail, mobile messaging and social media, I can conceive a marketing strategy today, execute it tonight and have results tomorrow. That’s what’s really going to take casino marketers from competing month to month, to competing week to week to competing day to day.

We’ve heard some casinos still get plenty of people walking through the door, but they are not spending as much. In this recessionary environment, what do casinos need to do to get customers to gamble and spend more?

That’s absolutely true, the value per visit has fallen far more precipitously than the number of visits and you can see that in the data from the Strip and in every market. I told you we got revenue up 9 percent at Greektown, but I didn’t tell you how we did that: We got trips up 32 percent year over year. If you get the same people to make the same number of visits, revenue is going to be down. The only way to get revenue back is to increase the number of visits and increase the number of customers. It’s all in the volume. We’re not all that enthusiastic about getting people to gamble more than they’re comfortable. If someone comes to a casino with $100, I don’t really want to figure out how I can get them to go to an ATM and get more money. That’s their budget and I’m going to be content with that. Most customers who gamble $100 may be making 10 trips in a month and I’m only getting four of those 10. Now, maybe those four trips are worth $80 a trip, so I’ve gone from $400 to $320. I’m not necessarily trying to get that $80 back to $100; I want to get that fifth, sixth and seventh trip out of the 10. I’m not burning out the customer or making them do anything they shouldn’t do. I’m trying to get more of their loyalty. So we’re very focused on coming up with strategies to consolidate visits among a wide variety of casinos.

A lot of the people who write comments to our online news stories say, “All you have to do to get more people to gamble is to loosen the slot machines and the people will flock to the casino.” Good idea or bad idea?

It’s a good idea and a bad idea. There are two types of casino patrons and I can use examples. I used to work for Carl Icahn and it took me 10 minutes to drive from the Stratosphere to Arizona Charlie’s on Decatur, one of the original locals casinos. At Arizona Charlie’s, the same customers come every day, they come with $20 or $30, they’re generally retired and on fixed incomes. They just want to have a good time and have their money last awhile. These, by the way, are the people who are writing to your newspaper. Whether the machines are tight or loose, you will win their money. So if you make it a loose experience, you give them a better time and they feel they’ve had more enjoyment. For that kind of casino and that kind of customer, a loose experience makes a lot of sense.

But if you go to the Stratosphere, folks are coming in from all over the country, they’re only staying three nights, we only have a short period of time to generate the revenue we need and then the customer goes home. They’re not looking for time-on-device. There, loosening the machines would do no good whatsoever. Part of my job as an adviser to all kinds of casinos is to help them determine what kind of customer base they actually have and to make sure they optimize. Those readers are not wrong for them, but they don’t represent all gamblers.

What are casinos doing right and wrong in terms of marketing?

Things they’ve done right is that many have returned to value, but many of them took too long to get there. The days of $1,000 bottles of liquor and $15,000 cabanas and $500 room rates aren’t coming back. People need to stop talking about when the good times are coming back because they never are. The world returning to 2006 would not be good because we have 50 percent more stuff now. So we’d have to be 50 percent better than we were in 2006.

The things they’ve done wrong, the vast majority of casinos aren’t even scratching the surface of the data they have. At Greektown, we increased revenue 9 percent while taking 10 percent of the machines off the floor. How is that possible? It’s because more is not necessarily better, charging or having more.

Thanks to these nifty little players’ cards, we know an awful lot about our customers. Simply sending half of our database $5 every week and the other half $10 a week because they’re good customers leaves an incredible wealth of information. People of different ages, different incomes enjoy gaming differently. There are others: married vs. unmarried, kids vs. no kids, education, game type. There are literally dozens of variables that we can use to optimize our product and our marketing experience for our customers. And very, very few casinos are doing anywhere near with their data what they could be.

Where do you see Las Vegas moving in terms of visitor volume, hotel room rates, retail sales associated with casinos and gaming win in the next few years?

I don’t see this year as being better than last year. This year may be the same as last year, but on an individual property basis, that won’t be very good. When you can get a room at the Mandarin Oriental a month after it opened for $100 a night as my friends did, it means we’ve got a long way to go before we can get things back to where they were. Some of these changes are going to take some time.

Some of these restaurants are going to have to convert from $100 a person to $30 a person. These will take time. Right now if you walk through most Strip casinos, the very fancy restaurants have a sign outside that says, “pre-theater menu” or “special spring menu.” That’s a Band-Aid over a larger problem, which is people don’t want to spend $200 for dinner anymore. The same thing applies to retail. Do we need six Louis Vuitton stores in Las Vegas? I may be off by two or three, I don’t know.

Or do we need more value-oriented entertainment experiences? I try to think of my friends and my family back home in Kentucky because the fact is, the Las Vegas Strip isn’t for Las Vegans and it’s not for Las Vegas gaming executives. It’s for our customers. When you look at Allegiant Airlines and the extraordinary growth it’s having, it’s going to places like Bozeman, Mont., and Dubuque and Council Bluffs (Iowa) where real people live. What we need to be doing is giving those real people the kind of experience they’re looking for. That really involves a great time for a great price and I think Las Vegas just lost that.

After having such a high-end mind-set, how to we get back to being a value destination? You don’t want do dumb down your product, do you?

I don’t consider giving the product that the customers want to be dumb. Making a statement that folks from the Midwest or Southern California want a more value-oriented product is dumbed down probably means that we casino executives built the wrong product for them. It’s not easy to make those changes, in large part because many of these buildings were built assuming they would make huge amounts of money.

What happens is that you end up with new owners. Carl Icahn is in the news again and is an example of that. Before he sold his (Stratosphere) property to Goldman Sachs, it went from making $11 million to making $45 million. I think Carl paid around $200 million for it. At $45 million on $200 million, more than 20 percent return … that’s really great. “Good job,” he would say. Bob Stupak built it for $650 million. Making $45 million on $650 million is still a disaster, an 8 percent return. So some of these structures may not be able to support the basis that has been invested in them and they’ll have to reset at lower amounts for a reasonable rate of return. That’s going to be the hardest part — ownership changes and resetting the bar to a level where folks can make a reasonable rate of return.

Do you agree with the common thought that nothing else will be built in Las Vegas for several years? When do you see Carl Icahn doing something with Fontainebleau?

I actually think lots of things are going to be built in Las Vegas, they’re just not going to be new buildings. You’re going to see new restaurants and new retail shops and the large structures we have get redesigned to appeal to this new market. So there aren’t going to be billion-dollar construction projects, but lots of million-dollar construction projects as people reorient their facilities to this new market.

As for Carl Icahn, he’s by far the smartest guy I’ve ever worked for. He has the ability to not really care what other people think. He doesn’t follow the herd and he has enough money to back it up. So he’s a triple threat: smart, rich and independent. I wish I had all three of those attributes. I wish I had any of them. He will build Fontainebleau when he thinks the time is right. For him, that may be whenever the deal closes, or it may be never. He may just hang onto that piece for a very, very long time. He’s a patient guy and he’s not going to have shareholders or other people compelling him to do things he doesn’t think are right. That’s a real advantage he has.

If you had control of Fontainebleau, what would your strategy be?

That’s a hard question because I haven’t been in the structure and I’m not familiar with the plans. The first thing I would do is apologize to all those people in Turnberry (Estates) who have to look at that big, tall concrete wall there. Maybe I would paint it like the sky, blue with white clouds, so they have something nice to look at. I have some friends who live in that complex. I would try to link that asset up with a regional operator to whom a database exists that I could fill the asset. You can’t find successful stand-alone projects in Las Vegas. The new Aladdin was not a success and it’s now going through a second change. It went from a (high-end property) to a medium to a low, it took two resets. Now, maybe Harrah’s can make it work. There’s an independent stand-alone property that couldn’t work. Cosmopolitan and Fontainebleau haven’t even gotten that chance.

So I would try to build it out to work with a number of different companies, whether it’s Ameristar, or Pinnacle or Penn National, to leverage their substantial databases to bring customers in for the Las Vegas experience. Then, I would build a product that could support a $150 average daily room rate with reasonably priced meals.

I like to tell Greektown stories because so much of my work is under confidentiality, but I don’t have to hide anything about Greektown because I often have to testify about it. We opened a hotel at Greektown in a February in Detroit, 400 rooms. Occupancy at that time was about 18 percent. The people who drove the property into bankruptcy wanted to charge $249 a night, etc., etc. We said we’re going to open it at $99 a day. It costs $40 to turn the room, so we’re $60 to the good. We ran 80 percent occupancy. We often had more people at Greektown than every other Detroit hotel combined because it was a great value. When you sell a room for $99, people don’t expect 47 bottles of shampoo, hair spray, lotion and conditioner. They’re just happy if the room’s clean and nice and new. So I think you could build a property with a room rate of $150.

The other thing I would do is make a construction estimate that could be accurate. I personally don’t understand how you say something is going to cost X-hundred million dollars and then it ends up costing twice that amount. It’s how many pieces of steel do you need times the price of the piece of steel equals, and then you add it all up and then you go buy it. I think there were people who were doing these estimates that weren’t very good at math. A value proposition for the regular person is the only thing that will work in that location because now, it’s in the middle of nowhere. A value-oriented product with an established database is the only way it can work. Or do we need more value-oriented entertainment experiences? I try to think of my friends and my family back home in Kentucky because the fact is, the Las Vegas Strip isn’t for Las Vegans and it’s not for Las Vegas gaming executives. It’s for our customers. When you look at Allegiant Airlines and the extraordinary growth it’s having, it’s going to places like Bozeman, Mont., and Dubuque and Council Bluffs (Iowa) where real people live. What we need to be doing is giving those real people the kind of experience they’re looking for. That really involves a great time for a great price and I think Las Vegas just lost that.