NOT LEAVING LAS VEGAS

Features August 5, 2010, 5:00PM EST text size: TT

How to Survive in Vegas

Gary Loveman left a Harvard Business School professorship to join Harrah's Entertainment. By putting his theories about customer service into practice, he built the world's biggest gaming company. Then came the crash

Illustration by ilovedust

By Karl Taro Greenfeld

BW Magazine

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Gary Loveman, the chief executive officer of Harrah's Entertainment, the largest gaming corporation in the world, sees his customers as a set of probabilities wrapped in human flesh. First he considers the most basic set of probabilities, gender and age, since females are more regular gamblers than males and older women are the most lucrative demographic of all. Then he factors in where we live, what we do, how much we make, and, most important, how we wager and what we play when we come to one of his casinos. From those details, Loveman can divine to a remarkably accurate degree how much you, or the set of probabilities you represent, will be worth to Harrah's over the course of your lifetime. "I am purely empirical," says Loveman, sounding like the former Harvard Business School professor he is. "I am not attached to any romantic notion of how this business should be run. I am only driven where the evidence takes me."

Loveman is a unique figure in American business: an academic theoretician who made the transition to operating a multibillion dollar corporation. Uncommon career path aside, he's not much of a gambler. He sees the floor at Caesars Palace as his storefront, and the people at the craps and blackjack and roulette tables and at his beloved slot machines—those computerized boxes that pay out less than craps tables and gather so much more information—as the customers Harrah's must strive to please. The happier they are, the more pleasant their experience at one of Harrah's 52 casinos, then the more likely the set of probabilities embodied in each of them will continue to pay out for Loveman. When you look out at a casino floor, you see people playing blackjack or the slots; when Gary Loveman looks out at that floor, he sees his slots or his table games playing you.

"Mathematics is the language of logical expression," he says, "and my mind works very logically. I have found in the casino business that is a great help most of the time." Since taking over as CEO in 2003, Loveman, 50, has relied on the numbers to build Harrah's from a regional operator of 15 casinos to one with 39 in the U.S. and 13 more overseas. He snapped up properties during the boom years, buying the World Series of Poker and three casinos from Binion's Horseshoe for $1.5 billion in 2004, Caesars Entertainment for $9.3 billion in 2005, and the Imperial Palace in Las Vegas for $370 million later that year. In 2007 he spent $600 million to acquire a golf course in Macau—the largest piece of land in the fastest-growing, most lucrative gaming market on the planet, according to the American Gaming Assn. (AGA). Late last year he bought the Planet Hollywood Resort & Casino in Vegas, once worth $1 billion, for just $70 million and the assumption of $550 million in debt. These were what Loveman calls "high-probability" purchases; each acquisition (except for Macau) provided immediate revenue growth as Harrah's Entertainment emerged as the largest owner of real estate on the Las Vegas Strip. (In October, Harrah's plans to change its name to Caesars Entertainment.) "My sort of logic excels at things like acquisitions or expansions or developments," he says, "where I can look at the numbers and make it a defined, deductive problem."

The numbers also compelled Loveman to reject the traditional Vegas business model of spending billions to build bigger, more lavish "slot boxes," as he calls the opulent casinos that dominate the strip. They tend to produce fantastic revenue their first year or so; after that, their performance steadily deteriorates as "other, better boxes are built." Instead, Loveman concentrated on building loyalty among Harrah's customers. Before he got to Vegas, casino marketing meant spending big money to lure "whales," industry parlance for extremely wealthy gamblers, to town. Loveman went broader, compiling a vast customer database and sending targeted offers and come-back-soon inducements to millions of people with the desired probabilities. The program has driven gaming revenue—far more profitable than food or hospitality—to 80 percent of Harrah's $9 billion business, vs. an industry average of 45 percent, according to the AGA.