LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS

EIGHTEENTH LECTUREOctober 30, 2012

William R. Eadington, Ph.D.Professor of Economics, College of Business

Director, Institute for the Study of Gambling and Commercial GamingUniversity of Nevada, Reno

www.unr.edu/gaming

GUEST LECTURER, NOVEMBER 13RICHARD SCHUETZ

HISTORY OF HARRAH’S (CAESARS)• Bill Harrah relocated his father’s bingo business from Venice, CA, to Reno

(1937)– Struggled as bingo operator; took advantage of similarity of name to Harold’s Club

• Purchased Lake Tahoe casino in 1959– In anticipation of 1960 Winter Olympics– Scientific management; strong on policies, procedures; employee and customer

relations• Opened Harrah’s Reno Hotel in 1969; Harrah’s Tahoe Hotel in 1973

– Very high quality; attention to detail and cleanliness• Took Harrah’s public in 1973; first publicly traded casino company• Died in an operation in Rochester, MN, in 1978• Harrah’s purchased by Holiday Inns in 1980

– Conflict of cultures• Company expanded into Atlantic City (1980), Laughlin (1987), Las Vegas

(1992) – Very wary of Las Vegas – Reputation of moving very slowly into new markets

BILL HARRAH

RECENT HISTORY OF HARRAH’S• Ill-fated partnership with Donald Trump with Harrah’s Trump

Plaza in Atlantic City (1982)• Moved Corporate offices from Reno to Memphis (1992); later

moved them to Las Vegas• Won the New Orleans land based casino bid in 1994

– Two bankruptcies, but then were able to turn it into a profitable operation

• Acquired various smaller casino companies to grow their markets in new jurisdictions– Players’ (1988), Showboat (1998), Rio (1999), Harvey’s (2001);

Horseshoe (2003), Binion’s (2004)– Managed various Indian casinos in CA, WA, NC, AZ, KS – Acquired Caesars in 2005; changed corporate name to Caesars in 2010

PRIOR TO 2008, VERY FOCUSED MARKETING STRATEGY

• Invested heavily in data base management rather than bricks and mortar

• Developed inter-property loyalty program with multiple tiers

• Developed strong employee incentives for strong performance

• Targeted a “meat and potatoes” clientele• Avoided the high end market; stayed out of

Macau in the 2001 bidding

Marketing: Unique Strategic Focus (2001)

Supply / Products

Demand / Customers

Multiple Brands One Strategy

DISTRIBUTION The Only Nationwide Network of Properties

Building Relationships AndRaising Switching Cost

LOYALTY

Identity, Loyalty & PremiaBRAND

On Target CustomersFOCUS

Not Merely Good . . . But Truly GreatSERVICE

Who is the Target Customer?

26% of players provide 82% of gaming revenues

Avid players spend approx. $2,000 annually

Multi-market players spend approx. $1,000 annually

Avid, experienced and multi-market players spend approx. $3,000 annually

Avid, Experienced and Multi-Market Players are 12% of Industry Customers and Provide 55% of Industry Revenues

Focus on the Customer

Multiple Brands One Strategy

DISTRIBUTION The Only Nationwide Network of Properties

Building Relationships AndRaising Switching Cost

LOYALTY

Identity, Loyalty & PremiaBRAND

On Target CustomersFOCUS

Not Merely Good . . . But Truly GreatSERVICE

Multi-brand strategy

• Maintains separate identities for each brand in order to maximize total return across separate customer segments.

VIP, Young Affluent

Avid Experienced Player

Mature Slot Customer

Entertainment At Its Best

Most Exciting & Rewarding Experience For Savvy Players

“Good Times Place”

Harrah’s Brands (2001)

“The Party’s at Harveys!”

Upper Middle Income Slot Customer

13

Harrah’s Total Unaided Awareness

0%

5%

10%

15%

20%

25%

30%

35%

2000 1996 1994

Harrah's

Caesars

MGM

Mirage

Trump

Circus/Excalibur

Brand: The power of Harrah’s in East Chicago

$10

$12

$14

$16

$18

$20

$22

$24

Jan-9

8

Mar

-98

May

-98

Jul-9

8

Sep-9

8

Nov-9

8

Jan-9

9

Mar

-99

May

-99

Jul-9

9

Sep-9

9

Nov-9

9

Jan-0

0

Mar

-00

Harrahs

Acquisition 6/1/98 Re-Branded a Harrah’s

(gaming revenues in $ millions)

Four Brands One Strategy

DISTRIBUTION The Only Nationwide Network of Properties

Building Relationships AndRaising Switching Cost

LOYALTY

Identity, Loyalty & PremiaBRAND

On Target CustomersFOCUS

Not Merely Good . . . But Truly GreatSERVICE

Service: Satisfaction Drives Loyalty

Satisfactionmeasure

Terrorist

Loyalty(retention)

Unacceptable

Merely Good

Truly Great

Apostle

1Extremelydissatisfied

2Somewhatdissatisfied

3Slightlydissatisfied

4Satisfied

5VerySatisfied

20%

40%

60%

80%

100%

Impact of Customer Satisfaction

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Great Good Poor

Would Definitely Return Share of Gaming Budget

Brand-wide, Return Intent and Share of Gaming Budget drop off sharply as satisfaction ratings decline.

Four Brands One Strategy

DISTRIBUTION The Only Nationwide Network of Properties

Building Relationships AndRaising Switching Cost

LOYALTY

Identity, Loyalty & PremiaBRAND

On Target CustomersFOCUS

Not Merely Good . . . But Truly GreatSERVICE

Total RewardsThe industry’s first and only loyalty programThe industry’s first and only loyalty program

• Comprehensive benefits and rewards

• Reward credits – communication vehicle

• Fully integrated – accepted at every Harrah’s, Rio & Showboat casino

• Aspirational -- the more youplay, the more you get.

• Comprehensive benefits and rewards

• Reward credits – communication vehicle

• Fully integrated – accepted at every Harrah’s, Rio & Showboat casino

• Aspirational -- the more youplay, the more you get.

Tiered Card Growth

Tiered card is an example of a program that incents play consolidation

Tiered Card1999-2000 Revenue Comparisons

NoGrowth

<1xGrowth

1-2xGrowth

2-3xGrowth

>3xGrowth

25%

19%

12%8%

36%

Results In 2000

In 2000, play consolidation was the biggest contributor to our growth

1999 - 2000 Tracked Revenue ComparisonsPlatinum and Diamond Customers

1999Revenue

$1,085M$165M

PlayConsolidation

$92M

Reactivate

$73M

NewCustomers

$109M

Attritor

Retention = 90%

$1,306M

2000Revenue

Growth = 20%

Loyalty = Cross-market Visits

0%

5%

10%

15%

20%

25%

30%

1998 1999 2000 2001

Same Store Sales GrowthSame Store Sales Growth

Proven Results Fueling Company Growth *

Proven Results Fueling Company Growth *

0

150

300

450

600

750

900

Gam

ing

Rev

enu

e

13.2%

* Harrah’s Brand

13.8% 13.5%17.9%

14.6%12.3%

11.6%8.1%

($ in millions)

‘00‘98 ‘99 ‘01

6.3%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

5.6%

Internet Functionality Increases Site Visitation

There are two key interrelated components of our e-commerce strategy

• Relationship Management: Add functionality to enhance profitability of customer relationships– Self-service through less expensive

channel– Deeper knowledge of the customer

-- leverage customer information• New Customer Acquisition: Increase

awareness of Harrah’s among prospects

Aggressive migration of marketing to electronic channels

1.1 1.0

1.8 2.1

3.2

4.8 4.6 5.05.2

6.7 6.6

0

1

2

3

4

5

6

7

Oct Dec Feb Apr Jun Aug

Page Views(millions)

Internet Site Increasing Room Reservations

481 408369274226304231114

1,522

432

790

1,111

941

1,2341,420

1,822

0

500

1,000

1,500

2,000

2,500

Jan Feb Mar Apr May Jun Jul Aug

Tracked Non-Tracked

Four Brands One Strategy

DISTRIBUTION The Only Nationwide Network of Properties

Building Relationships AndRaising Switching Cost

LOYALTY

Identity, Loyalty & PremiaBRAND

On Target CustomersFOCUS

Not Merely Good . . . But Truly GreatSERVICE

National Distribution

• The 1990s: a decade of distribution growth– Developed properties in new segments of

riverboat and Indian gaming – Created hub and spoke network of properties– Created regional and national cross-market play,

crossing three brands

Distribution - 1990 and 2001

1990

States that had passed casino legislation and/or approved Class III tribal gaming compacts

Distribution – 1990 and 2001

HET 2001

Harrah’sShowboat’s

Rio

H Harveys

H

H

HH

Strength from Distribution

Casinos / Locations* includes only domestic casinos and locations

Casinos / Locations* includes only domestic casinos and locations

# casinos# markets

Park Place

Harrah’s 25 21

MGM/Mirage

Mandalay 816

14 5

1121

Strength Through Diversity

Harrah’s 2000 Net Revenue by division

Chicagoland16%Nevada

33%

South Central

14%Atlantic City

23%

Managed & Others

2%

Missouri12%

Summary

• Unique strategy focused on a target customer

• Multi-brand approach serving unique customer niches

• Programs build loyalty from target customers

• Strategy yields cross market and same store sales growth which leads to EBITDA growth

• Results proving validity of strategy

HISTORY OF LEADERSHIP AT HARRAH’S (CAESARS)

• Bill Harrah (1937 to 1978)• Holiday Inns acquisition (1980): Mike Rose

(1980 to 1988)• Phil Satre: (1988 to 2001)• Gary Loveman: (2001 to present)

PHIL SATRE

GARY LOVEMAN