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Posted At : March 13, 2009 12:28 PM | Posted By : D McKee
Related Categories:
Economy,Missouri,Harrah's,The Strip,Atlantic City,Isle of Capri,Illinois
Fourth-quarter and year-end numbers from Harrah's Entertainment are out and the report raises several red flags:
• Harrah's absorption of Park Place Entertainment has left the company seriously overexposed in Las Vegas, where revenue was down 20% in 4Q08, compared to much smaller declines in non-Nevada markets.
• Even though most regional markets showed or regained strength in the last quarter (Atlantic City and Illinois being notable exceptions), Harrah's remained weak. This trend continues to be confirmed by revenue reports from individual states. Last month, in Missouri, Harrah's was the only operator to register a decline -- even Isle of Capri is doing better. Something is very wrong here.
• One of the company's top cost-saving measures is to cut jobs. This was a foregone conclusion the moment the Harrah's LBO was consummated but, in such a customer-service-intensive industry, if the reductions are taking place in the front lines of the workforce, expect business to continue suffering.
• Another high priority for reduction: marketing expenses. There's a term for this and it's called "death-spiral marketing." That's where your revenues are down so you reduce your marketing outlays and if business continues to decline so does the marketing budget ... and so on. Which is too bad, because Harrah's has been launching some of the better casino ad campaigns I've seen in the past year. It would be a shame if all that creativity wasn't used to its full potential.
Just some additional thoughts on Harrahs and what I think is future bad news related to Las Vegas. Obviously it's only one persons sampling, but my ADT has gone down over my last 3 trips to Vegas, mostly due to MGM now fully comping me rooms. As that has happened, I've found no need to play at HET properties except if I'm in the vicinity or to try and put some play on the card for a double booking. My point is though, even at the beginning of this year (Jan, Feb, Mar) plugging in on the TR site, while I had assorted comped nights on the calendar. It was lower tier properties and still was hit and miss on weekend. Going into the summer, every property save Caesars is comped 7 days a week, and Caesars is comped for all weekdays. In comparison, I've never even seen one night come up for Caesar's on February's formula and all weekends for all other properties is also unheard of. My point is we know that tourism is down on the strip, but in my opinion, MGM with it's higher value properties is eating Harrahs' beating Harrahs at it's former game, why stay at a HET property in LV when an MGM property is offering free nights as well and free play. Again I recognize this is an extremely subjective testimonial, but I follow offers pretty closely on a day to day basis for future trips and have visited about 7 times in the past 2 years.
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