Christmas 2005 at Harrah’s Entertainment was said to have been an extravaganza, with ice skaters and all manner of frou-frou. This year’s Christmas party, I’m told, was a low-budget affair. Supposedly it consisted of a two-person version of The Nutcracker, two or three prize giveaways and was over by 9 p.m. (And to think that we Stephens Media employees thought our Christmas parties were small potatoes.)
The reason? "Thrift, Horatio!" Or so we’ve been told. After spending money hand over fist (including setting an all-time record (see last item) for election spending in Rhode Island, pushing a failed casino initiative), Harrah’s is said to be on an austerity kick, starting at the top. When it’s over, as many as 4,000 to 5,000 people may be looking for new jobs.
Vice President of Operations Anthony Santo is out and ditto Harrah’s president of Midwest operations, Anthony Sanfilippo. Harrah’s didn’t announce their departures and says it wasn’t planning to, either. Sanfilippo’s resignation is rumored to have been a protest move: after all, Harrah’s had pulled the plug on its $1 billion Biloxi project, which would have been Sanfilippo’s baby.
Total Rewards, the bedrock of Harrah’s success, has already seen workforce cuts at corporate HQ. Marketing and IT are also said to be targeted for deep cuts after Jan. 1, while all design and construction operations may be outsourced to Marnell Corrao Associates. Some of this personnel pruning will evidently eliminate redundancies from Harrah’s takeover of Caesars Entertainment (and possibly from both companies’ rapid engorgement of other brands in the early 2000s).
Whatever the case, it’s all the handiwork of Mackenzie Group, which has been letting its fingers do the walking through Harrah’s balance sheets, looking for departments to downsize, etc. The fact that Mackenzie was doing this as early as September lends an awful lot of credence to the widespread perception that Harrah’s solicited the takeover bid from Apollo Management and Texas Pacific that was announced Oct. 2; whoever was behind it certainly mustered his forces like a Napoleonic field marshal.
While it’s hard to reconcile this sudden frugality with the recent spending craze that saw Harrah’s buy London Clubs International, the Barbary Coast site, additional Gulf Coast acreage — and pursue what must have been a very expensive bid on Singapore’s Marina Bay casino concession — it’s not unexpected. I speculated on some the effects of a Texas Pacific regime on Harrah’s back in October.
More recently, Jeff Hwang of The Motley Fool observed that a Texas/Apollo-ized (Apollonian?) Harrah’s will have "one of the worst Debt/EBITDA ratios among casino operators." It’s 8.6-to-1 ratio would easily outstrip the 5.5-to-1 of MGM Mirage or the 5.3-to-1 of dead-in-the-water Isle of Capri Casinos. Hwang predicts a slowdown of development and asset sales.
Consistent with Hwang’s prediction, I’ve heard that all Harrah’s development, except possibly its latest revamping of Caesars Palace, has come to a screeching halt. If so, this would leave CEO Gary Loveman’s push to extend Harrah’s Strip holdings back to Koval Lane half-finished. As far as overseas development in the U.K., Spain and Slovenia … who knows? Informed speculation has Harrah’s shuttering its own international operations and outsourcing them to London Clubs (which was hinted at in the company’s rationale for the LCI acquisition). Again … who knows?
Gary Loveman does — at least until Texas Pacific and Apollo are in a position to call the shots, if they’re not already doing so. His predecessor, Philip Satre, was a very strategic, sometimes even Machiavellian thinker and he grew Harrah’s via selective, accretive moves. Not every one paid off, but most did. The post-Satre Harrah’s has sometimes resembled the gourmand who looked at the menu, handed it back to the head waiter and said only, "Yes."
Well, it looks like Harrah’s is about to go on a crash diet. Just how stringent the belt-tightening will be remains to be been.
