A Talk with the King of Vegas Gaming

08/05/2011 9:30 am EST

Focus: MARKETS

Josh Wolfe

Editor, Forbes/Wolfe Emerging Tech Report

This gambling veteran has seen the booms and busts in the sector through a very different prism than most CEOs, notes Josh Wolfe in the Forbes/Wolfe Emerging Tech Report.

Gary Loveman is the chairman, CEO, and president of Caesars Entertainment Corp. A former associate professor at the Harvard University Graduate School of Business Administration, Loveman joined Caesars Entertainment as chief operating officer in 1998.

He drew on his background in marketing and service management to develop the gaming industry’s most successful loyalty and analytics program, Total Rewards, which boasts more than 40 million members.

Since being named CEO in January 2003, Loveman has presided over a period of growth that included the 2004 purchase of Horseshoe Gaming and the World Series of Poker, and the 2005 acquisition of Caesars Entertainment, Inc.

Loveman was recognized as the gaming and lodging industry’s best CEO by Institutional Investor magazine for four consecutive years. Loveman is the past chairman of the American Gaming Association and serves as a director of Coach (COH) and FedEx (FDX).

Two critical concepts for you seem to be people and information. What do you look for when hiring people for a service organization?

One concept I kept from academic life is the notion of a meritocratic hierarchy.

Harvard, MIT, and Yale have stayed strong for a very long time because they insist on having the best people working and the best people attending, even though that means many are pushed out. That can be a painful process, but that’s what sustains the quality.

I think organizations have to do the same thing, and I’ve brought that element here. I want to find the smartest, most motivated person—but I put very little weight on experience.

I look for tremendous intellectual curiosity and bandwidth, a lot of energy, and rigorous thinking; a person who puts structure around problems, and uses evidence to inform that process.

What’s the importance of using information in a service organization, and what type of data do think is most important to collect?

Two levels of data are important: the data our customers give us through their purchase behavior, and the data we learn about our employees through their behavior. We serve millions of people every weekend, so we need to make decisions based not on what we think, but on what we know about customer preferences.

I don’t want to act on hunches or on intuition, I want to gather evidence and think through a problem rigorously. That has served the company very well, not only in terms of good decisions, but also in avoiding situations where it was wise not to act.

In our business, much of the fundamental offerings are undifferentiated, meaning that the same games and slot machines are available everywhere. We have to distinguish ourselves through the intimacy we create with customers, harnessing our data and using it thoughtfully to meet the exact expectations of each type of customer.

How are you using technology to improve your operations and the experience for your customers?

We digitize content and take advantage of the ability to provide real-time experiences.

Until recently, we would mail out customized offers, and eventually we would observe their visit, and then the process would repeat. Today, the real action for us is in real-time digital interfaces, whether at a slot machine, on a mobile device, or online.

If you were to play a slot machine in some of our locations, you’d use your Total Rewards card. We would know your gaming history and interact with you in real-time. We might offer dinner that evening, or invite you to another, less-occupied game with a little monetary inducement.

We’d know if your room wasn’t ready, or if you were losing money too quickly—anything that might lead to a bad service outcome— so then we could intervene with something to improve your visit.

Is the implementation of real-time data analytics and behavioral adjustment becoming the norm?

At the moment, about half of our businesses have real-time interfaces up and running at the slot machine and at the table games, and the rest of our locations will have it shortly. The major encumbrance is getting regulatory bodies on board.

The movement to handheld devices is a little slower, and still rudimentary, but I think that’s going to pick up quickly.

NEXT: Changes Ahead

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Tell us about what’s happening in online gaming, and Harrah’s role in that space.

It’s important to distinguish between online poker, online casino games, and the broader world of online gaming.

In the younger crowd, online gaming may not refer to gambling at all. We are increasingly active in social gaming, where the underlying game is casino-related (such as the Texas Hold’em games on Zynga), but our company focuses on online poker—we own The World Series of Poker.

When online poker was legal in this country, it was a huge and very profitable business. We are pressing very aggressively for the US Congress to legalize online poker, and I think we have a very good shot.

Online casino games and online sports betting, both of which are legal in certain countries like the UK, are unlikely to be legal in the United States in the foreseeable future.

Vegas is a place of boom and bust, and recently several multi-billion dollar casinos have opened. Harrah’s has largely stayed the course, without building glitzy new properties. How has strategy that played out for the company?

If you’re standing on the Las Vegas strip, the 50-yard line is the intersection of Flamingo and Las Vegas Boulevard. We own 3/4 of that. We have Flamingo on one corner, Caesar’s on one corner, Bally’s on one corner, and then Bellagio is on the other corner. We own about 360 acres of contiguous land around that corner.

In the heyday of the bull market, in 2006 and 2007, everyone anticipated we would do a mega-project on that corner...but we didn’t, because we couldn’t make the numbers work.

Unfortunately, some of my competitors didn’t get the math right, and they went ahead with some ill-timed and poorly planned projects that piled up to the tune of about $16 or $17 billion.

The end result is thousands of new rooms that have fallen into the market when the demand is weak. It’s affected us all, because until then, the pressure on room rates was up, and now room rates are substantially down from their peaks.

Do you see poker maintaining its position as the frontrunner of games, and what exciting games do you see in the near future?

Poker is a great game because it has an element of fortune, but it’s principally a game of skill—it combines a behavioral element with an analytic element. Players practice poker like they practice golf or anything else—they take it seriously.

At the same time, I think interactive games have a very bright future. A few slot manufacturers are creating episodic slot machines with games like World of Warcraft or even Farmville.

Players are recognized by their Total Rewards card, so when they achieve a certain level, then exit, they can come back and pick the game up where they left off. Games based on science fiction, like Star Wars or Lord of the Rings, have this episodic flavor.

While the game has the same random monetary results of a slot machine, the context of the game advances like an online game. These use high-definition visuals, compelling audio, and multi-player schematics.

A new game of Clue is coming out, played on an enormous high-def screen that reflects the board game Clue. I played it and thought it was a hoot.

What’s the biggest cash-out anyone’s ever had at one of your casinos?

This is a vague answer, but for a single visit of a day or two where someone has played more or less consistently, we’ve seen losses or gains in the neighborhood of between $10-15 million—it’s a lot of money.

These are the people that bet $200,000 to $250,000 a hand, especially in baccarat. Just think of the arithmetic: baccarat has a house advantage that’s less than 2%. A guest who plays 800 hands a visit might wind up 40 hands better than the house, and they’ve won $10 million. There are plenty of instances where that happens.

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