Harrahs, MGM Mirage angling to be worlds top gaming company

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Call it gamings version of the Yankees vs. the Red Sox, the Celtics vs. the Lakers, Godzilla vs. Megalon.

In one corner is Harrahs Entertainment, with a mind-numbing customer database, unmatched rewards program and midmarket dominance that gaming expert Bill Thompson equates to Wal-Marts vice grip on bargain shoppers.

In the opposite corner is aristocratic MGM Mirage, majority controller of the Strips high-end gaming market and owner of top-shelf properties (Bellagio, Mirage) with fantastical but pricey Cirque du Soleil productions (O, Mystere), pricey but fantastical celebrity chef-run restaurants (Emeril Lagasses Emerils Fish House, Tom Colicchios Craftsteak) and ogle-inducing but free outdoor shows (Mirages exploding volcano, T.I.s musical pirate battle, Bellagios dancing fountains).

Having different niches meant the companies rarely engaged in direct combat.

Thats changed with recent mega-mergers -- Harrahs swallowing of Caesars Entertainment for $9.4 billion; MGM Mirage digesting Mandalay Resort Group for $7.9 billion.

For the first time, regionally diverse, 44-property Harrahs and Strip-centric, 28-property MGM Mirage are on the same playing field. Will there be a winner?

Let the games begin

The answer to this multibillion-dollar question, at least in the short term, is no.

As Harrahs and MGM Mirage settle into their biggerness -- pre-mergers, they were the worlds first- and third-largest casino concerns -- expect each to rely on core strengths, experts say.

If Las Vegas continues to do well, both companies will do well, said Brian McGill, a research analyst with Susquehanna Financial Group. MGM Mirage is really Las Vegas-focused. This was enhanced when it bought Mandalay, because it now has a higher concentration of its product there [eight megaresorts on the southern end of the Strip alone].

Harrahs has more diversified cash flows. Its in more regional markets like the Gulf Coast and Atlantic City, but it, too, has increased its presence in Las Vegas.

Bill Thompson, a professor

of public administration at the University of Nevada-Las Vegas and perennial go-to guy on all things gaming, says Harrahs and MGM are more similar than not.

Both have luxurious casinos, offerings for the bargain-seeking visitor/gambler and loyalty programs. Harrahs Total Rewards program is recognized universally as the industry standard.

Thompson said the merger with Mandalay Resort Group infused MGM Mirages database with millions of additional customers.

Still, this is a competition, and there are opportunities to encroach on each others well-maintained turf.

Harrahs now controls Caesars Palace, a venerable property blessed with luxurious accouterments -- the $95 million, 4,100-seat Colosseum built for Celine Dion; the recently opened, $365 million luxury tower; and the wildly successful Forum Shops.

But Deustche Bank gaming analyst Marc Falcone said Caesars wont necessarily siphon high-end market share from MGM Mirage.

If it can mimic Harrahs DNA, like its Total Rewards program, for instance, Falcone said MGM Mirage is better positioned to step on Harrahs toes.

Harrahs, by deftly mining customer information -- offering free rooms, shows, flat-screen televisions and other perks to loyal patrons -- helped boost its annual profit by 76% between 2001 and 2004, from $209 million to $368 million. Revenue jumped 23% to $4.55 billion from $3.7 billion during the same period.

MGM officials will be able to learn more about their patrons spending habits, Falcone said. This will help them as they try to capture a greater share of patrons wallets across their portfolio [of properties].

Post-merger, Harrahs has a better mix of entertainment.

The Colosseum can double as a concert venue for visiting celebrities.

Comedian George Wallace and Grammy-winning singer Gladys Knight routinely perform to packed houses at the Flamingo.

The long-running Jubilee at Ballys continues to draw raves.

And theres hope that Caesars can regain its prominence as the premier venue for boxings megafights (the 1987 middleweight showdown between Sugar Ray Leonard and Marvin Hagler is one example).

The celebrity craze engulfing poker could pay dividends for Harrahs, which owns the rights to the World Series of Poker, the granddaddy of tournaments.

Even with the expanded arsenal, Harrahs might be hard-pressed to dethrone MGM Mirage.

In November alone, the legendary performers U2 and the Rolling Stones and Jimmy Buffett are coming [to the MGM Grand Garden Arena], McGill said.

In terms of entertainment, he said, MGM doesnt take a back seat to anybody.

Concerted expansion

A confluence of factors -- limited U.S. growth possibilities, state lawmakers looking to tax their way out of deficits by targeting casinos, anti-gaming sentiment in some regions -- has led Harrahs and MGM Mirage to pursue the fertile Asian and European gaming markets.

The Big Two are among 12 companies competing for two Singapore gaming licenses. (Las Vegas Sands Corp., owner of the Venetian and the under-construction Palazzo, has sweetened the pot by promising to build a casino housing a Guggenheim Hermitage Museum as well as a monorail system and a cruise-ship terminal).

In Macau, three hours away by plane, the Las Vegas Sands, which plans to replicate the Las Vegas Strip on the Cotai Strip, just over a bridge from central Macau, joins MGM Mirage (its $975 million MGM Grand Macau is expected to open in 2007) and casino mogul Steve Wynn (his $700 million Wynn Macau will follow in 2008) in a fast-growing market expected to generate $5 billion this year. Guess whos also interested in the handful, or less, of casino licenses available in the U.K.s $4 billion deregulated market? The Las Vegas Sands.

Competition to buy a U.K. dog track saw the first real direct engagement between Harrahs and MGM Mirage; neither consummated their bids. Both companies also bought and then shut down money-losing gambling Web sites dedicated to U.K. and Continental European patrons.

Stateside, Harrahs is better positioned to grow. Tapping the high-growth tribal gaming market -- $16.7 billion in revenues in 2003, according to federal figures -- has generated additional millions in cash flow.

Harrahs would like to be in most major markets, McGill said, and this is a way to accomplish that.

The future

So whats in store for gamings Big Two?

Outside of what the companies release in statements, investor conference calls and quarterly reports, its anyones guess.

Thompson said MGM Mirage could go fully high-end, selling properties like Circus Circus as well as holdings in Laughlin and elsewhere. Harrahs could embrace luxury but would probably have to ditch its moniker.

Caesars is a better-known brand, Thompson said. Harrahs is like the Wal-Mart or Kmart of casino companies.

MGM Mirages $5 billion Project CityCenter ups the competitive ante, experts agree. Set to rise on 66 acres between Bellagio and Monte Carlo and opening in 2009 or 2010, the $5 billion condo-boutique hotel-anchored project is essentially a metropolis within a metropolis.

Harrahs has made a Stripfront move, too. The August purchase of the 2,640-room Imperial Palace for $370 million essentially turns the Flamingo-Strip intersection into Harrahs Avenue.

The company controls half of the intersection, with Caesars and Ballys and Paris on the northwest and southeast corners. MGM Mirages Bellagio is in the southwest corner and Coast Casinos Barbary Coast in the northeast.

Harrahs doesnt have enough land now to do something like Project CityCenter, but it really has improved its Strip holdings, Falcone said.

To contact the reporter who wrote this article, send e-mail to [email protected].

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See related article, Movers, shakers, real estate makers up the ante on Vegas.

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