—JOHN BOUSHY, HARRAH’S EXECUTIVE IN 2005
There was a time in Las Vegas when casino moguls were known for their big appetites. They were gamblers and poster boys for failed marriages, fast living, and self-destruction. Jay Sarno died after a night at Caesars’ tables. Bill Bennett built the Luxor and Excalibur but struggled with addiction. Thrice-married Kerkorian played craps and bet on sports. Wynn—well, we’ll soon see what his thing was.
Phil Satre’s only known vice is fly-fishing. Which helps explain why Harrah’s Entertainment zigged while the others zagged.
For many years, it looked as though Harrah’s Entertainment would always operate in a separate universe. As Kerkorian and Wynn tried to out-fantasize each other, Harrah’s ran a pitiable joint in Las Vegas that was once a Holiday Inn. Choked with cigarette smoke, its ceilings were low and its hotel rooms exactly what one would expect for a Holiday Inn on the Las Vegas Strip. Harrah’s was primarily a riverboat company, with dinky joints spread all over.
Satre doesn’t even look like a Vegas type. The jewel on his finger is a Stanford class ring—1971, with a degree in psychology. There is, even in his later years, a fresh, coed air of “Go Cardinals!” about him.
In the 1990s, when Satre was Harrah’s chairman and chief executive, the riverboat company’s headquarters sat in a bucolic corporate park in Memphis, Tennessee. Satre’s office was a former bedroom in a refurbished nineteenth-century home attached to a modern office building. The executive offices were furnished with antiques. Outside, trees shaded the long drive and grounds.
Wall Street shared Las Vegas operators’ condescension toward Harrah’s. This ate at Harrah’s executives, though there was some sense to the Street’s logic. Harrah’s growth came as states were legalizing casino gambling during the 1990s in pursuit of new tax revenues. Harrah’s beat its competitors to market with cheap, generic casinos.
By the late 1990s, when most any state that was going to legalize gambling had already done so, rivals began newer, nicer casinos right next door to Harrah’s places. Harrah’s had been proud of itself for beating the competition to market with a $40-million casino in Tunica, Mississippi, but then got slammed a couple years later when a couple of nicer, $80-million casinos opened up there.
“We were fed up with running our business as a victim,” said Colin Reed, who was then Harrah’s chief financial officer. “You build a property and someone else builds next to you, and you put up the white flag.”
Rather than tearing down all the old casinos and building new, fancier ones, Satre figured he might find a solution outside the gambling industry. It’s hard to emphasize how revolutionary this was. Casinos grew their own—raising executives from the casino floor, often without the benefit of a college education. They saw their business as different from drugstores and banks and clothing retailers.
But Satre wanted to be the Procter & Gamble of riverboat casino operators. People buy toothpaste from P&G because they believe Crest is better than Colgate. So he began to look at brands like Coca-Cola and Nike. “We don’t have a facility-based strategy,” Satre said in a 1997 interview. “We are trying to compete based upon a higher level of relationship with our customers.”
In 1990, a Harrah’s executive named John Boushy had begun doing something known as “longitudinal tracking” studies. Boushy came to Harrah’s by way of Holiday Inns, and his parents were college professors, not numbers runners. As vice president of strategic marketing, Boushy wanted to glean more information about what made gamblers tick. He buried the $100,000 cost of the studies in his budget. Each month thereafter, he surveyed 10,000 customers about who they were and where they gambled.
Unlike many Las Vegas executives, Boushy is still married to his first wife, Lisa, whom he met in 1970 in the hallway of their Fayetteville, North Carolina, high school. Boushy can still describe his first glimpse of sixteen-year-old Lisa in the summer after their sophomore year. “She was wearing a lavender skirt, a purple and black and white blouse with sort of fluffy sleeves, and she had long dark hair down to her waist,” Boushy says. “I was with my best friend, and I turned to him and said, ‘I think I just met my wife.’” Four weeks later, at a football game, he kissed her and said, “I love you.” The Boushys have six kids.
Also, Boushy has a master’s degree in applied mathematics from North Carolina State. So he can read a longitudinal tracking study. Armed with his data, Boushy convinced Satre that Harrah’s needed a customer-rewards program like those cropping up at airlines and credit-card companies. So Harrah’s came up with a loyalty program called Total Gold (later changed to Total Rewards). In 1992, it became the beneficiary of all that customer data that Boushy had been squirreling away.
Total Gold was what was known as a “slot club.” Gamblers enrolled and received a magnetic membership card to insert into a slot machine to earn points that could be spent on freebies, or “comps.” Once gamblers stuck their card into a slot machine, they might as well have been having a brain scan. Every bet they placed, how fast, how frequently, on what odds, for how long, in what pattern—all that information was fed into the casino’s database.
Pretty soon, Harrah’s was the repository of powerful information on how people behave while gambling. Other casinos were launching slot clubs too, but Harrah’s wrestled harder with how to make use of its customer data.
In 1994, Satre reached outside the gambling business to hire a chief marketing officer, Brad Morgan, who had previously worked at Visa and Procter & Gamble. When a headhunter first approached Morgan about the job, Morgan said he wasn’t interested. “I’m a Midwestern-values kinda guy,” he said.
But he reconsidered, and soon Morgan was in Memphis, sizing up gamblers “psychographically”—rating and segmenting them according to characteristics such as their careers, interests, attitudes, and where they lived. His approach was foreign to his colleagues at Harrah’s. “I was the Visa guy,” Morgan said. “I was the only guy on the management team who hadn’t spent their entire life in the casino business.”
Morgan and Boushy identified a small group of customers who produced most of Harrah’s profits. It turned out that they weren’t the flashy high rollers. They were low-rollers—average Americans who spent between $100 and $499 on a gambling trip. These people made up only about 30 percent of gamblers, but they gambled so frequently that they accounted for 80 percent of Harrah’s revenue and nearly 100 percent of its profits!
Harrah’s decided to make these highly profitable customers its core audience, calling them “avid experienced players” or AEPs. “I felt like I’d discovered the Rosetta Stone of casinos,” Morgan said several years later.
Although Satre didn’t fully grasp it at the time, the electronic card was generating some other key marketing intelligence. It helped the company to identify where the gamblers were coming from, and it turned out that many of them visited other Harrah’s casinos in addition to their hometown riverboats. Eventually, this provided a key new strategy.
In 1992, when the option to legally gamble was pretty much either Las Vegas or Atlantic City, Harrah’s found that the average gambler made three trips a year to a casino. By 1997, with casinos all over the heartland, the average gambler was making five trips a year. To take advantage of its national casino network, Harrah’s began to encourage its six million slot-club members to visit Harrah’s casinos while on business trips and vacations. Harrah’s called this “cross-market visitation” and figured it would revolutionize the company as gamblers became “brand-loyal” to Harrah’s.
This worked all over the country, but it didn’t work in Las Vegas. Top customers disappeared from Harrah’s data map when they traveled to Las Vegas. “I wasn’t getting their Las Vegas business,” Satre said. “I went through a period of frustration. I said, ‘Why isn’t any of this stuff working?’”
Satre got a jolt during a mid-1990s fishing trip to Alaska—an annual trip he made with his best customers from Atlantic City. His guests said they got treated be
tter elsewhere in Las Vegas. While they were recognized as high rollers at the Harrah’s near their home, they were just another face in the crowd in the gambling mecca.
Satre contended that Total Gold needed a giant, nationwide database that could be used by any Harrah’s property anywhere, so the casino president in Las Vegas knew when he had a lady worth $20,000 in video poker walking in the door from Vicksburg, Mississippi.
Constantly on the hunt for new talent, Satre had started a management development program as far back as the 1980s. He brought in two professors from the Harvard Business School, Stephen Bradley and Earl Sasser, because they argued that great customer service leads to greater profits. In 1992, Drs. Bradley and Sasser invited a popular young business school professor named Gary Loveman to join them.
“We decided to include Gary Loveman in the program because he was a terrific teacher and would benefit from the involvement with Harrah’s management,” says Bradley.
Loveman didn’t know a thing about gambling, though he’d once visited Monte Carlo in Europe. “Gary was the hottest labor economist on the market the year he came to Harvard,” says Jack Gabarro, a Harvard Business School professor who was then Loveman’s department head.
At Harvard, Loveman had been gathering case studies on businesses as diverse as the Merry Maids cleaning service, Kumon Educational Institute, and a Polish shipyard. He became interested in research spearheaded by a Harvard professorial triumvirate of Earl Sasser, James Heskett, and Leonard Schlesinger. They would later coauthor a groundbreaking business-strategy book called The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction, and Value. It wasn’t long before Schlesinger would “go native”—in Gabarro’s words—abandoning Harvard to join Limited Brands as its chief operating officer.
Loveman’s introduction to Harrah’s emboldened him to write Satre an unsolicited letter, suggesting how the gambling executive might grow his company’s business without spending money to build new casinos. Virtually on the spot, Satre hired Loveman as a consultant, hoping he could help refine rudimentary marketing programs like Total Rewards.
Loveman’s being at Harrah’s was weirder than Brad Morgan. He applied foreign concepts, such as “same-store sales”—a retailing concept that quantifies business in existing stores without being diluted by new store openings. He pushed Satre to segment customers: “Some customers are worth very little to you, while other customers are very valuable. This is not something that has been pursued very well at all,” Loveman said in August 1997.
The untenured associate professor began using Harrah’s data to test theories about how customers behave. The idea was to offer large numbers of customers the goodies they wanted so they would come more often and gamble longer—like rats in a maze.
This is one thing when selling airline tickets, but with gambling, it was a ticklish concept. Encouraging people to gamble more introduces the thorny subject of gambling addiction. Is it fair to entice people to make a bet they otherwise would not have? Loveman said Harrah’s wasn’t trying to entice people to gamble more than they otherwise might. It was looking to take customers away from rivals.
“For most customers, this is about switching from one property to another,” Professor Loveman said in 1997. “But there will be some customers who will do more gambling as a result of this.”
In 1997, Phil Satre told Morgan it was time to part ways. To replace him, Satre hired an executive search firm.
“I didn’t want a traditional marketing chief who had come up through the casino, knows all the games, that sort of stuff,” Satre said. He interviewed people from banking and retail, but couldn’t find anyone, he said, who “got the strategy.”
A few weeks before Christmas, Satre says he made a pilgrimage to Atlanta to see Sergio Zyman, Coca-Cola’s marketing guru at the time. The two men talked for two hours in an executive lounge at the airport—or, actually, Zyman talked while Satre scribbled notes. Zyman suggested that instead of a marketing executive, Satre needed a chief operating officer with a marketing background. With that broad authority, the executive could make marketing the driving force at Harrah’s.
Not long after that, Loveman invited Satre up to Cambridge to spend a weekend talking about the connection between good service and higher profits. Satre figured it was a sales pitch to get him to hire more Harvard consultants. He went anyway.
It would be too dramatic to say that Satre slapped his forehead and shouted “Eureka!” on this visit. But it was in Cambridge that he decided Gary Loveman was his guru. “It was like an epiphany—I thought, ‘I’ve got the guy,’” Satre said later. “‘He doesn’t know it, but he’s right under my nose.’”
Satre didn’t bother to consult with his board of directors. “I was afraid they might try to talk me out of it.”
That February, Satre invited Loveman to Atlantic City. There, as they exited the casino after a meeting, Satre asked if Loveman would consider becoming Harrah’s chief operating officer. “I was absolutely dumbstruck,” Loveman later recalled. But he was quick-witted enough to make it clear that his family wouldn’t relocate from Boston.
Loveman was a year away from being eligible for tenure at Harvard. According to his colleagues there, he was likely to get it. He says he discussed the job offer with his wife, Kathy, although he concedes, “There is a dispute between my wife and myself about how much we actually talked about it.”
Loveman finished teaching the spring semester. He arranged his departure from Harvard as a two-year leave of absence—keeping one foot in the door, just in case. Satre informed Harrah’s board later that month, wondering, “Am I out of my mind?”
“I’ve made a very unconventional decision,” Satre told his directors.
And of course, they did think Satre was out of his mind.
Chapter Nine
HIGH LIFE
Elaine and I had dinner with her. She’s a great girl.
—STEVE WYNN, REFERRING TO HER MAJESTY QUEEN NOOR OF JORDAN
Kirk Kerkorian had once been mistaken for a car valet. His primary home has, at times, been the one-bedroom guesthouse of his Beverly Hills estate, where a painting of Jack Dempsey fighting Gene Tunney hung over the mantel, a gift from Frank Sinatra.
In the years that the Wynns were establishing themselves as Las Vegas moguls, Kerkorian was cozying up with his young girlfriend, the tennis-playing Lisa Bonder. He spent a lot of time in California, invested again in the movie business, and launched a hostile takeover of Chrysler Corp. It wasn’t that he’d lost interest in Las Vegas. It was just that he had others to manage it for him—his preferred style after leaving the airline business—and he hadn’t adopted “casino titan” as a lifestyle.
It would be impossible to mistake the swaggering Steve Wynn for a valet. Luminaries were drawn to the Mirage, and the Wynns courted many of them as friends. Their lives took on an aspect of fantasy. “Bibi Netanyahu did his honeymoon at the Mirage with Sarah,” Wynn once blurted out. “I didn’t know he was going to be prime minister.”
George and Barbara Bush were frequently spotted with the Wynns—jetting to Lake Tahoe to use Steve Wynn’s speedboat, for instance, or golfing together. During a 1995 golf game at Shadow Creek, six U.S. Air Force Thunderbirds descended at high noon and dipped their wings in homage to the onetime commander in chief while Wynn giggled.
The Bushes were such frequent visitors that George Bush had learned to make his own coffee at the Wynns’ homes and was a favorite visitor among the household staff, according to a person who worked for the Wynns.
Wynn, acutely aware of what Kerkorian was doing, sniffed around Hollywood and made forays into other businesses. Unlike Kerkorian’s forays, however, they were rarely successful. Wynn toyed with and dropped takeovers of the Music Corporation of America, Hilton Hotels, and even the Walt Disney Company. He joined movie producers Steven Spielberg and Jeffrey Katzenberg as investors in DIVE!, a Los Angeles eatery.
At home, the Wynns had a but
ler, Pierre, and a driver, Albert, as well as several other household staff. There were Bentleys, Rolls- Royces, and Ferraris. Mirage Resorts owned some of the nicest planes around.
Mirage bought a new Gulfstream jet that could make the long haul to Australia—a trip the Wynns made annually, according to people close to them. Elaine Wynn preferred the company’s MD87, it was said, because they could put the whole family in it to fly to Sun Valley. “It was like a flying house,” said one former Mirage executive. While Wynn flew around in the newest planes, the company also kept an older Gulfstream III, which this same former executive referred to as “the beat-up old one that we used for customers.”
Wynn has said that he wishes his father could have seen his planes. He boasts that he hasn’t flown commercial since 1974. Almost. “Well, I flew the Concorde. Twice,” he says with a broad grin.
The Wynns traveled annually to Australia to vacation and check out casinos in that gambling-crazed country, often stopping off in Hawaii or Tahiti to refuel, Dan Lee said in a 2001 interview. At an estimated $3,000 an hour for fuel and operations, Lee estimated the cost to the company of each round-trip flight at $100,000. That was enough, at the time, to buy a nice middle-class house in Las Vegas.
There were regular trips to Sun Valley, Idaho, where the Wynns keep a vacation home. There was, for several years, the home at Lake Tahoe near the Milkens’ place. There was a company-owned apartment in New York—first in the Waldorf Towers, later on Fifth Avenue by Central Park. There were regular jaunts to Los Angeles for business, fun, and cosmetic surgery.
The Wynns traded valuable gifts with their jet-set friends. They received an early plasma-screen television valued at $10,000, which they installed at Shadow Creek. Stewart and Lynda Resnick, owners of the Franklin Mint, gave them a “Great Books” library, including a set of Franklin Mint encyclopedias, for their home at Shadow Creek.
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