Harrah's Losing Streak

Harrah's Entertainment has some of the smartest people in the business. The way they've integrated the Total Rewards program throughout their system has provided value where little may have previously existed.

That's why it is so surprising to see that the company has failed miserably in trying to get its message out to important constituents, potential operating jurisdictions and employees.

The vote last November in Rhode Island was an abject failure for the company. Trying to establish a casino resort with the Narragansett Tribe, the state held a referendum on the development. Harrah's spent millions of dollars, but went down to a huge defeat. It wasn't even close. (To be fair, it wasn't the first time this proposal went down to defeat, but considering the money invested by Harrah's, it should have been closer, at least.)

And this spring, Harrah's lost two votes in Atlantic City in which dealers in both Caesars and Bally's opted to be represented by a union that has done nothing for them, up till now. Again, the votes weren't close, demonstrating that Harrah's could not convince most of the voters that they represent a better option than an untested union.

With all the smarts in Harrah's Entertainment, you'd think they could have put together a team with a plan that would have at least checked the union efforts and made the votes close. But the discontent must be so deep within the dealers' ranks that it was impossible.

Harrah's better figure out what they're doing wrong quickly. The company is coming before many regulatory bodies within the next year that are evaluating the company's purchase by two private equity groups, Apollo Management and Texas Pacific. We expect the company's powers of persuasion will be tuned up to high to get the OKs that are so important to the future of the company.

Private Equity

A recent trend in the gaming industry is causing consternation in both the boardrooms of casino companies and the boards of regulatory authorities. The trend is the purchase of several large casino companies by private equity groups. Harrah's Entertainment was recently purchased by two private equity groups, Apollo Management and Texas Pacific. But this is hardly the first private group that has bought casinos, large and small. In fact, the casino industry is founded in private equity. Yes, that funding was sometimes too "private" but the fact remains that family-owned casinos (not necessarily that kind of "family") and small investment groups were the dominant force in the gaming industry until Howard Hughes woke Wall Street up to the industry's profit possibilities. Colony Capital kicked off this trend about 10 years ago when it bought Harveys in Lake Tahoe and sold it several years later to Harrah's. Colony now has a subsidiary, Resorts International, that operates a string of casinos. It has also taken stakes in the now-private Kerzner International, as well as Station Casinos.

But the infusion of such huge amounts of capital—the Harrah's purchase will involved something like $25 billion—has everyone nervous.

Another private group, Columbia Sussex, was the unlikely winner for the Aztar Corp. in 2006. Primarily a hotel company, the newly named Tropicana Hotels & Casinos (in honor of its two flagship properties in Las Vegas and Atlantic City—above), the company has a different operating model than traditional casino companies. Part of the operating model is to cut costs to the bone immediately upon buying a property and then evaluating what is actually needed as they go forward. In both Atlantic City and Las Vegas, Tropicana fired hundreds of workers and was the brunt of criticism from inside and outside the industry.

Regulators have started to become concerned. Neither Nevada nor New Jersey has specific requirements about how many employees a casino must carry to operate a casino. Nor do they have any requirements on reinvesting in a property. Nevada officials are voicing concern that these private equity companies will come in, cut and slash costs, create huge profits and walk away with them while not reinvesting in the property. New Jersey officials are worried that one of the intents of the Casino Control Act is being compromised—the creation of jobs. Both jurisdictions are said to be considering changes in the statutes to address these issues.

That would be a mistake. The strength of the gaming industry in both these states is the hands-off regulatory systems when it comes to the operation of the businesses. Everyone agrees that the industry should be held to certain standards when it comes to integrity, but when you try to regulate how a business operates, that's going too far.

The market should determine how a casino operates. If a company decides to drain a casino of its cash, it also drains if of customers, making it less valuable for any prospective buyer. Yes, the short-term results may be disagreeable, but a new company is bound to come in, buy the property at a bargain price and rebuild it to at least its previous level. Even if that doesn't happen, nothing justifies the intrusion of government into the operation of any company. There are few other industries where this would even be considered. Now this might be understandable if you're talking about companies whose operations affect the public welfare, such as transportation or power companies, but certainly not casinos.

Hall of Fame

The American Gaming Association announced the inductees for the Gaming Hall of Fame a few weeks ago. There were two somewhat curious choices, but fitting nonetheless.

John Wilhelm (top right), the head of the hospitality division of the UNITE-HERE union is one of the honorees. While Wilhelm has been a supporter of gaming, he's also been a rather bitter opponent in some cases, most recently being the 2004 month-long strike of hospitality workers in Atlantic City. In Las Vegas, he's only partially successful, mostly with organization on the Strip. His union is notably absent, however, from the Station Casinos, the Venetian and some other larger hotels in Vegas.

Wilhelm deserves the nomination, however, because of his role in the 1999 National Gaming Impact Study Commission, which was set up by anti-gaming congressmen to dig up dirt on gaming, but actually validated its benefits and downplayed its negatives. Along with other members, most notably MGM's Terry Lanni and the Nevada Resort Association President Bill Bible, Wilhelm helped keep the study on the straight and narrow and not degenerate into a moral slugfest it could have become.

The other rather curious winner is Clifford Perlman (top left), the former head of Caesars Palace. Perlman and his now-deceased brother Stuart, took over the Palace from originator Jay Sarno, who could design and build spectacular properties (he also developed Circus Circus) but could not operate them. The Perlmans were able to effectively operate the property and make it a success. But when they went to Atlantic City in 1978 to open a Caesars there, they were rejected as unsuitable for licensing because of alleged connections to organized crime. (Five years later, the Nevada Gaming Commission permitted the brothers to be licensed when the y attempted to buy the Dunes.) The New Jersey commission alleged that the brothers' success with the fast food operation, Lum's, was funded by organized crime. Lum's was originally a hot dog stand in Miami, which the Perlmans bought for $12,000 in 1956.

The honor for Clifford is more reflective of his operational ability. Sarno's Rome had not taken off as he envisioned, but when the Perlmans came in, they used sophisticated (for the time) marketing techniques that they has used at Lum's.

In an article in the Atlantic City Press in May outlines the difficulties the Perlmans faced in New Jersey.

I can recall a house directly on the beach in Longport (a fashionable beachfront town south of Atlantic City) that Clifford Perlman had built in those days. It was an incredible property that hung over the ocean.

Yes, it is possible that Perlman has some organized crime connections. But this is the gaming industry and to deny the organized crime roots of the business is to stick your head in the sand. I think the Hall of Fame should honor people like Bugsy Siegel, Mo Dalitz, Wilbur Clark, Howard Hughes and many of the founders of Las Vegas and the gaming industry we know today. Yes, their pasts were colorful and checkered, but they helped make gaming what it is today. We should not ignore them simply because they may have been "connected."

Dealers

As a former dealer, I can appreciate the frustration that comes with the job. Long hours, sometimes nasty customers, often surly supervisors and a job that is more like a factory job than a skilled customer service position. They have some gripes, and they should be heard and appreciated.

That said, I believe many dealers are living in a fantasy world that could cost them much more than frustration and a smaller raise than they feel is necessary.

Las Vegas Sun columnist Jeff Simpson has been all over the tip sharing issue at Wynn Las Vegas, that has the dealers there up in arms. His column at the end of April demonstrated that the system is innovative and could work to the benefit of all involved. But Wynn dealers don't see it that way. So they're talking union.

Atlantic City dealers are involved in a major organization campaign by another union that has managed to secure positive votes from two casinos, with three more elections scheduled. Again, the dealers in Atlantic City are listening to rhetoric without thinking things through.

Let's talk about what can happen if a union comes in—all completely legal and ethical. Right now, there is a tremendous amount of flexibility when it comes to scheduling and working conditions. My column in the May Atlantic City Casino Connection just scratches the surface when demonstrating how a casino can prepare for the union on the casino floor.

A casino operator can dramatically alter the pay, working schedule and conditions of dealers if they so desire, all within the limits of a union contract. Remember, it's to a union's benefit to have as many workers on duty at any time so they get the maximum return in dues. To have a full complement of casino dealers actually works against the best interests of the dealers by increasing the number of hours worked divided into the tip pool.

Dealers in both Atlantic City and Las Vegas have to realize that the way to work through problems with management is to work with management, not with an alien third party.

—Roger Gros

The Battle for Las Vegas

It seems almost quaint when you discuss the days the mob controlled Las Vegas. But when you realize it was only a little more than 20 years ago that the mob lost its last hold on Sin City, there’s a little more urgency to the story.

Anyone who is a fan of mob movies has seen "Casino," with Robert DeNiro as Lefty Rosenthal and Joe Pesci as Tony Spilotro. Based on the non-fiction book of the same name by Nicholas Pileggi, the movie was a violent story about high stakes in Las Vegas casinos.

In The Battle for Las Vegas, Dennis Griffin gets back to the facts of the case and explains why it took nearly two decades to catch up with Spilotro, and then when they did, the antagonist goes down in a blaze of gunfire.

Spilotro was sent to Vegas to keep tabs on Rosenthal, who was running the “skim”—taking money out of the cash drop before it gets counted—for the Chicago crime family, which distributed cuts to other Midwestern crime groups. While Rosenthal was an effective manager, the mob was worried about his public persona, and Spilotro was dispatched to keep an eye on him.

The problem was, Spilotro expanded his Vegas empire to include loansharking, burglary, robbery and murder. And when his public persona eclipsed even that of Rosenthal, the mob got more than it bargained for.

The Battle for Las Vegas gives a face to the police, the FBI and the media personalities who pursued Spilotro for decades. It describes the facts—something the movie didn’t worry about—and how the mundane day-to-day operations were built into a powerful case against Spilotro.

A key figure in the book is Frank Cullotta, an associate of Spilotro, who rolled over on his boss. (Huntington Press recently released Cullotta, almost a companion book to The Battle for Las Vegas.) The capture and turning of Cullotta is the turning point in the battle to get Spilotro.

For anyone interested in the history of the gaming industry and the last gasp of organized crime as part of that industry, The Battle for Las Vegas is a must-read.

—Roger Gros

Unions

Unions seem to be targeting the casino industry this year. In light of the new workers being hired at racinos in PA, FL and now with table games in West Virginia, unions are trying to make some inroads into an industry where unions were previously only represented in the non-gaming side of the business.

In Atlantic City, the United Auto Workers have signed up dealers at five casinos. They've won two elections at Caesars and Trump Plaza and are waiting on results for three others. The goal of the union is to organize all 11 casinos, but there's no proof they can deliver what they promise. The dealers are being led down a garden path and may find out that joining a union costs much more than simply union dues. A casino can spread the floor (i.e., open all the tables) and flood the dealers' time cards with hours therefore reducing the hourly toke rate by as much as $5 per hour (they average around $15 per hour right now, not including their salary which can be anywhere from $5-$8 per hour).

In Las Vegas, the dealers at Wynn are attempting to unionize with the Transport Workers Union. They are upset over a plan that was forced upon them that has they splitting their tips with supervisors.

It seems to me that that answer to these problems is communication. The casinos in Atlantic City seem to have forgotten that and at Wynn, there apparently was a problem with a disparity in pay between the dealers and supervisors.

—Roger Gros