Dear Gary Loveman: Casinos Are Not Mundane Business

Caesars Entertainment CEO Gary Loveman gave a talk yesterday in front of a group of local powerbrokers at Boston College’s Chief Executives’ Club of Boston. For Loveman, whose company has partnered with Suffolk Downs to try to open a casino in East Boston, the goal was to convince everybody assembled that casinos are nothing to be afraid of. That they’re facts of life now and nothing to worry about (speaking of facts of life, apparently he declined reporters’ requests to discuss his company’s deep financial troubles). The Globe reported him as saying:

“Across the world’’ casino gambling is “becoming increasingly mundane … Pick your favorite cosmopolitan destination or your vision of a very conservative US jurisdiction, and in every instance casinos have been around, they’ve operated for a long time, and they have become entirely noncontroversial in the context of people’s lives and their communities.’’

Loveman, a former Harvard Business School professor who still lives in Wellesley, also alleged that just one percent of casino gamblers are so-called “problem gamers” with addiction issues. Reading Loveman’s soothing quotes, I couldn’t help but think back to a passage in former Wall Street Journal reporter Christina Binkley’s excellent book on the rise of Steve Wynn, Loveman, and others in the casino industry, Winner Takes All.

Before getting to that, though, it’s worth recalling that Caesars’ strategy has long been to target low and middle-rollers (this started back when the company was called Harrah’s — it swallowed Caesars in 2005 and then changed its name). Basically, they don’t go after the rich guys or “whales,” who wager thousands, but the run-of-the-mill wage earner who likes to go pull the slots. Binkley reports that sometime back in the ’90s, the company discovered that 80 percent of its revenue was coming from customers who spent just $100 to $499 per visit, but made many repeat visits. That’s guided Harrah’s — and then Caesars’ — strategy ever since.

Using the swipe card from its loyalty program, the company maniacally tracks gamblers’ behavior so that it knows how to best entice them to wager more. Binkley reports that Harrah’s went so far as to assign “predicted lifetime values” to their customers, essentially calculating, based on their gambling habits, how much individual gamblers were worth to the company before they kicked the bucket.

Which brings us to the tale Binkley tells of Harrah’s executive Richard Mirman, a University of Chicago math wizard Loveman recruited to the company in 1998 to help transform the casino business into a science. One day in 1999, Mirman sat in on a customer focus group and listened to one person, named Robbie Ratliffe, describe how she never used to gamble, but was now driving after work to Harrah’s two to three times per week, gambling through the night, and driving back to work in a daze the next morning. Another person, a retired hotel manager named Linda Maranees, had needed some extra cash to keep up her gambling habit, so Harrah’s hired her part time and scheduled her hours around her preferred gambling schedule. Binkley describes Mirman as leaving the focus group shell-shocked and trying to justify his work:

“I know that these people will gamble at other places. I’m trying to get them to gamble more at Harrah’s,” he said later, his brow furrowing. “I think that makes me a smart marketer. Not an exploitive marketer.”

He conceded that he was walking a fine line in enlisting patrons to gamble more at Harrah’s without encouraging them to wager more overall. “I think about it a lot,” he said. “I am trying to beat my competitors. I’m not competing with customers. I’m competing with competitors.”

What about retirees who gamble all night, then work part-time jobs to make ends meet?

“I don’t know what I think,” Mirman said. He gave a long, pensive pause. “I have a very strong pedigree. I don’t want it to be tarnished by my association with the casino industry.”

Mirman also said that he believed problem gambling is more pervasive than research indicated. “I think it’s a lot more than 2 percent,” he told Binkley. Nevertheless, Mirman would eventually overcome his doubts to settle into a career at Harrah’s, before moving on in 2007.

But here’s the point: the casino industry is not like any other. Caesars has highly advanced and scientifically honed methods for influencing people to gamble. We’ve legalized casinos and they’ll soon be here, so there’s no sense in moralizing (especially considering the long-standing existence of the lottery). At the same time, before Gary Loveman says again that his industry is “mundane,” and “noncontroversial,” maybe he ought to go talk to his old protege, Richard Mirman. As pleasant as hearing Loveman’s assurances may be, being lulled into a false sense of security isn’t helpful. If we’re going to do this casino thing right, we’d better understand what we’re getting into.