Experts Debate Impact Of Big Gaming Mergers

Last summer's announcements of the biggest mergers yet in the gaming industry — Harrah's Entertainment with Caesars Entertainment, and MGM Mirage with Mandalay Resort Group — raised a lot of questions about how the formation of the world's two largest casino hotel companies will change the gaming destinations landscape, particularly in Las Vegas.

To get some perspective, MeetingNews contributing editor Maria Lenhart spoke with gaming industry analysts, meeting planners and others who keep a steady eye on the casino hotel scene. Because the mergers are still pending, executives from Harrah's, Caesars, MGM Mirage and Mandalay declined to participate in the discussion.

MeetingNews: Why are major mergers among casino hotel companies happening at this point in time?

Dan Stark, corporate director of marketing, Boyd Gaming Corp.: A strategic consolidation within the gaming industry on this scale was inevitable. Gaming has grown far beyond what it was even 10 or 15 years ago. It's much more accepted on Wall Street and in locations across the United States.

The current business climate in Las Vegas probably is fueling this merger-and-acquisition phase more than anything else. The demand to have a presence on the Las Vegas Strip has significantly driven up real estate values there. And whenever publicly traded companies are interested in growing their business, an acquisition is, in many ways, easier to finance than new construction.

Warren Marr, director of hospitality and leisure, PricewaterhouseCoopers: Most of the prime sites in Las Vegas have already been taken up, so acquisitions are the logical way for companies to expand.

MN: What are the ramifications for meeting planners in these mergers? What impact could there be on room rates, attrition clauses, etc.?

Wayne Stetson, senior vice president, conventions and meetings, National Association of Home Builders: When MGM bought the Mirage hotels, things did not change with the hotels. Last year we found every hotel still had its own contract — you couldn't tell that a Mirage hotel was an MGM hotel. We negotiated rates, room blocks and attrition separately with each hotel.

I don't think consolidation will lead to any significant rate increases. If we feel the rates are not good, we will go down the street to someone else. There is still a lot of competition in Vegas.

Marr: Particularly with the MGM and Mandalay merger, the advantage is in more choice and rate levels. You already have the range from Excalibur on up to Mandalay Bay, and this extends it over to Bellagio and other properties.

Ray Verhelst, owner, Expo2.net, a Las Vegas-based trade show technology firm: There may be more pressure to keep all the attendees at the same company's hotels. If you book convention space at Mandalay Bay, there could be pressure to keep the group within the MGM-Mandalay hotels. There is a huge investment involved in this merger, and it would be only natural for MGM to want to keep that share of the business. Hopefully, there will not be one big contract for all the properties with one big attrition clause.

David Forst, managing director, Key McDonald: The hotels do gain some competitive advantage by keeping rooms under the same parent. However, there is still plenty of other competition in Las Vegas, including Wynn and the Venetian. And, of course, these two big companies will have to compete with each other.

David Schwartz, coordinator of the Gaming Research Center, University of Nevada-Las Vegas: It might drive rates up, but if they go up too much it will be counter-productive. The rise of Las Vegas as a convention destination has come about partly because it's a low-cost destination. People are free to go elsewhere if the costs get too high.

Mike Burns, regional vice president, Conferon: The biggest mistake these companies could make is to under-estimate the value of group business. The number of high rollers is tiny compared with convention delegates. Las Vegas stayed busy during the hard times because of groups. You can't switch this off when times get better. People in this business have long memories. And we can always take our business to other cities. However, I am concerned that rates will be affected. You will have two very large companies. But they still have to sell rooms and deliver a value product to buyers.

MN: With the Harrah's-Caesars merger, Harrah's primarily targets middle-market leisure customers while Caesars attracts the higher end and is much more group-focused. Is there concern that the brand identity and group focus of Caesars could be altered by this merger?

Burns: Harrah's is a good company, but it seems that it's buying a business that it is not an expert in: group-focused hotels. However, it could work and it could elevate the Harrah's properties. Harrah's is not buying high-end properties with the idea of bringing them down. The market now is for high-end products. Just because Harrah's was not a group-focused company doesn't mean it can't become one.

Stetson: We have a great relationship with Caesars, but have not worked much with Harrah's. In the past, the Caesars hotels, including Bally's, the Flamingo and Paris, have seemed to operate independently. I'd prefer that this stay the same and that we don't have to go through Harrah's. However, we will build new relationships with the hotels if we have to.

Verhelst: To many long-time Las Vegas observers, this takeover is comparable to Wal-Mart purchasing Bloomingdale's. When Harrah's took over the Rio, they gutted it and took out the high-end restaurants. It's a different product than it was. If Harrah's history is anything to go by, it does not look good for Caesars and meetings.

Marr: Brand levels and identities can be maintained, but it's all in the execution. Outside of the gaming industry, Marriott has done a good job of combining such diverse brands as Ritz-Carlton and Fairfield Inns. The customer rarely crosses over, but there is synergy in the way back-office functions can be combined and distribution power is gained.

MN: What do these mergers mean for Las Vegas or for other gaming destinations?

Marr: While the MGM/Mandalay merger is almost entirely focused on the Las Vegas Strip, Harrah's and Caesars have much more diverse portfolios. Harrah's will become stronger across the country, particularly in Atlantic City. Having such strong bases in both Las Vegas and Atlantic City is very significant and will provide new opportunities for customers who do business in both locations.

Forst: No other market is really affected much by this other than Las Vegas. Atlantic City is not nearly so important, not even for Harrah's. In the gaming lodging industry, it is Las Vegas that counts.

Verhelst: It could mean a cultural change for Las Vegas — a more corporate market where there is less distinction between hotels. They may look different on the outside, but if they're alike on the inside, the city loses some of the individuality it is famous for.