Game On! Clash of the Casino Titans

By Jason Schwartz | Boston Magazine |

The Players

1. Gary Loveman, Chairman, CEO & President, Caesars Entertainment

Stop us if you’ve heard the one about the MIT nerd hitting it big in Vegas…. After earning a Ph.D. in economics from the Institute in 1989, Loveman spent nine years teaching at Harvard Business School. Along the way, he started consulting for Harrah’s — later folded into Caesars — and somehow found himself running the show. Loveman continues to live in Wellesley, giving him both local ties and a hell of a commute.

2. Joe O’Donnell, Former Owner of Boston Culinary Group, Part-Owner of Suffolk Downs

If there’s anyone more politically wired around here, it’s news to us. The Boston Concessions mogul and 31 percent owner of Suffolk Downs is tight with Mayor Menino, which ought to be helpful in smoothing over Hizzona’s annoyance that Vornado Realty Trust — the real estate firm that ruined the Filene’s site in Downtown Crossing — owns a 20 percent stake in the East Boston track.

3. Richard Fields, Managing Partner, Suffolk Downs

The only thing that could make all this more fun is Donald Trump, right? Well, we’ll have to settle for a former Trump protégé. Once the Donald’s right-hand man on casinos (the two had a falling out that included a massive lawsuit), the New York real estate developer bought the largest ownership stake in Suffolk Downs (42 percent) in 2007, pretty much gambling that the track would someday become a gaming mecca.

 

Tip Sheet

Slots of Luck: “Slot machines are very important to us — they can be our salvation,” Suffolk Downs CEO Bob O’Malley said… in 1996. O’Malley may be long gone, but today the idea is the same: Horse racing is a dying industry, and a casino is likely the only thing that can save the old track and its 1,000 employees. Loveman’s been interested in opening a casino there since 2003, but it wasn’t until last April that Caesars bought 4 percent of the track (according to Suffolk) and struck a deal under which the company would operate the casino while Suffolk would retain control of its property development and licensing. Bottom Line: No casino means no future for Suffolk Downs.

Bread and Circus: Caesars, which runs some 50 casinos worldwide, caters to the mid-roller crowd. Originally the Harrah’s chain, it’s been content to be the big-box store of the gaming world ever since the ’90s, when it discovered that 80 percent of its revenue was coming from customers who spent a relatively paltry $100 to $499 per trip, but made many repeat trips, according to the book Winner Takes All  by Christina Binkley. That insight has informed Harrah’s — now Caesars’ — direction ever since. But because any successful casino in Massachusetts would have to appeal to all segments of the market, Caesars would likely have to lure top-end customers, too. Bottom Line: Like Wynn, they’d have to adjust. But Caesars has a short track record of operating anything high-end.

The Card Sell: Harrah’s was the first casino company to develop a strong loyalty-rewards system. Its Total Rewards program plies regulars with goodies like free meals and hotel rooms. Though just about every casino has copied it, Caesars remains the industry leader, in part because customers can use their rewards cards across all of the chain’s properties. Bottom Line: The program is the key to Caesars’ low- and middle-roller strategy, and could help draw out-of-towners.

Eastie Revival?: Governor Patrick has said that he prizes economic development — job creation — over sheer revenue production. The priority, UMass Dartmouth’s Barrow says, is “making jobs available to people who can’t get jobs in the high tech, high-end professional services sector.” And while Foxboro is already a relatively well-off place, there’s plenty of room for development and growth in a long-neglected neighborhood like Eastie. Bottom Line: This may be Suffolk’s strongest argument.

 

The Big Question: What About the $22 billion debt carried by Caesars

The company states in its most recent report that “Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments.” Not good, especially since most of that debt comes due in 2015 and beyond, or about when the Suffolk Downs casino would be opening. In 2010 Caesars’ shaky outlook forced it to pull back from a planned IPO. Since the third quarter of 2008, the company has cut more than $887 million in costs, meaning layoffs (though executives, including Loveman, received $7.75 million in bonuses last year). Beyond the casino chain’s 4 percent ownership stake, Suffolk won’t disclose its financial arrangement with Caesars, so it’s unclear how the financial problems may affect a Boston casino’s operation. But none of this reflects well on Loveman and his team.