“We’re still friends,” Schaeffer assured Murren.
The next day, Sunday, Schaeffer was invited to Terry Lanni’s swank office at Bellagio.
Lanni is studiously svelte, with thinning hair and a cool, formal manner. He has spent so much time cultivating Asian baccarat players that he instinctively holds to their codes of etiquette—not turning the sole of his shoe toward an associate, for example. For years, people have speculated that he would enter politics. He’s well behaved. Not flashy. For Christmas one year, he gave Jim Murren an Hermès blanket. It hit just the right note: rich, understated, with just a hint of warmth.
Now Lanni told Schaeffer, “I’m going to give you a price, and I’m telling you, it’s not going to be one penny over: seventy-one dollars.”
Schaeffer drove away thrilled. He had been prepared to take $70.
Sometime after five p.m., Schaeffer dialed Jim Murren on his cell phone and delivered a flippant “Hi, boss.” With its dual tones of humor and deference, this pleased Murren immensely.
Only months before, Ensign had sold three million Mandalay shares at less than $40 apiece in what must go down in history as one of the worst-timed insider stock sales of all time: Ensign had lost out on nearly $100 million in profits. In the way of these things, Mandalay’s board made some of it up to him with a gift of more shares.
With the seal of a handshake, it seemed the only thing left was a grand announcement Monday morning. Murren and Schaeffer were both eager to trumpet their deal. But the Mandalay executives couldn’t move as fast as Kerkorian. Only two nonmanagement members had been reached. “We can’t have the rest of them read in The Wall Street Journal that we have an agreement,” said Yvette Landau, the company’s general counsel. She wanted to announce that Mandalay “would consider” Kerkorian’s offer.
To MGM, this was no trifling detail. Murren hit the ceiling, thinking that Mandalay was backing out. “This is humiliating to us,” he stormed, according to a person who witnessed the events. Murren suspected that Schaeffer might screw him again, so Schaeffer headed into enemy territory after dinner, entering through a private executive entrance that bypassed the casino. He did this over the objections of all his advisers. “We told him to get the fuck out,” says Joele Frank, a public relations veteran of two decades of big Wall Street deals who was working for Mandalay. “We couldn’t believe he went in there.”
At Bellagio, lawyers, publicists, and strategists were shouting into telephones or picking at BlackBerrys. “We were like, ‘What the fuck are you doing?’ And they were like, ‘What the fuck are you doing?’” Murren later said.
People tried to contact Kerkorian. “Luckily, no one reached him,” said one person involved, who believes Kerkorian would have felt betrayed by Ensign. “Kirk is very much a handshake guy.”
Strategists on both sides watched in shock as the deal appeared to unravel again. “It was so frigging weird,” says Stephanie Pillarsdorf, one of MGM Mirage’s advisers who was there that night. Joele Frank calls the whole thing a “total fuck-up.” She explained: “Sunday night, everybody was exhausted. They began to scream at each other over stupid, stupid stuff. And Jim wasn’t exactly calm. Glenn was just sitting there getting yelled at by everybody. Glenn was truly a Ping-Pong ball.”
Around midnight, Schaeffer drew Murren out into the beige-carpeted corridor. They sat and talked as the deal team watched surreptitiously. Schaeffer leaned into the strung-out Murren and grasped him in an $8-billion embrace. “Don’t worry, we’re going to get a deal,” Schaeffer told Murren. “This is all just bullshit—we know that.”
In Schaeffer’s arms, Murren muttered, “These damn lawyers…”
Monday, June 14, 2004
The deal was announced in sloppy, contradictory press releases.
MGM Mirage claimed to have cinched the deal. Mandalay said its board would consider the sale. By the afternoon, the distinction was meaningless.
As Wall Street buzzed, Steve Wynn couldn’t help but take a canny stab at Kerkorian. He waved a red flag for government antitrust regulators by suggesting that Kerkorian would control the whole town. “Don’t worry,” Wynn joked by cell phone from New York. “Life’ll be good in Kirkville.”
Wynn had just left the Tony Awards, where Avenue Q had won Best Musical. He whispered into his cell phone as he sneaked down a hallway, heading to a surprise birthday party for the actor Hugh Jackman, who had just won a Tony himself. The world didn’t know it yet, but Wynn had just cinched a blockbuster agreement to bring Avenue Q to Wynn Las Vegas.
Days later, Wynn’s feat was said to be the dawn of a new era in theater. Avenue Q had been lured by the promise of an expensive custom-built theater paid for with casino money. Rather than travel around the country, its cast could live in Las Vegas. This proved so attractive that Avenue Q’s producers agreed not to show the production in many regional markets. This was a blow to regional theater owners, for whom a traveling Tony winner is bread and butter.
Broadway insiders griped that Avenue Q’s producers had garnered Tony votes by promising to take it on the road—all the while knowing they were about to sign with Steve Wynn. Some theater owners had voted for the R-rated Sesame Street–esque play, hoping to bring it to their theaters and hype its award-winning status.
Broadway fans shuddered that their milieu might be eclipsed by Las Vegas, but Steve Wynn finally had his Broadway show. It wasn’t Miss Spectacular, but it felt spectacular. Kerkorian had to buy other people’s casinos, but Wynn was creating his own. “The only one with growth in their company is me,” Wynn gloated over the phone, cackling as he crept toward Hugh Jackman’s party. “We’re here. Gotta go.” Click.
Back in Las Vegas, Glenn Schaeffer found the new world strangely silent. He was discovering that he was “yesterday” as far as Wall Street was concerned. “My phone stopped ringing on Monday. Really,” he said at the time, surprised. “No bankers. No analysts. Nobody’s calling me.”
A day or so later…
Ken Moelis, a Los Angeles investment banker, stood at the window of his Beverly Hills home. Outside, a group of ladies on a charity tour strolled through his gardens, familiar to some because the Moelis family lived next door to the Osbournes, whose MTV reality show had lately focused on battles between the Moelis family and their heavy-metal neighbors. In a recent episode, some Osbournes had tossed cat feces onto the Moelises’ tennis court.
Ken Moelis pondered whether Kerkorian’s Mandalay might generate some business for him. Moelis was head of banking for UBS Warburg, which made him an administrator most days. But he had started out with Drexel in its junk-bond heyday, and he fed off the macho energy of mergers and acquisitions. “Maybe I ought to be a banker again,” Moelis thought, according to a person privy to the moment.
Kerkorian’s deal-making had left only two other casino giants in Las Vegas: Caesars Entertainment and Harrah’s Entertainment. Caesars had a world-famous name and glam properties, but it was loaded with debt and had been undermanaged for years. Stephen Bollenbach, its chairman, was more focused on his day job as chief executive of Hilton Hotels Corp. and with moving about Beverly Hills society. As a result, the company’s casinos suffered.
Bollenbach had even broached the subject of selling the casinos to Harrah’s a few months earlier. Gary Loveman, who had just won the race for chief executive at Harrah’s, had politely demurred. Some CEOs are deal guys; there’s nothing they like better than screwing somebody. Their blood heats with the chase. That’s not Loveman.
Loveman saw all the work that Caesars required, so he wasn’t focused on what a marriage could create: the first truly national casino company—bigger than MGM Mirage and Mandalay together. It would own a powerful arsenal of Las Vegas casinos—including Caesars Palace, Bally’s, the Flamingo, and Paris. In the heartland, more casinos could draft gamblers and deploy them like soldiers to resort hubs in Atlantic City, New Orleans, and Las Vegas.
Seize the moment, Moelis advised Bollenbach a day or so later. Take ano
ther run at Loveman. “Sell now or wait seven years.”
Bollenbach saw what Loveman had missed. In doing so, he cinched the new future of the once highly competitive Las Vegas as an oligopoly controlled by two or three giants. Bankers like to give acquisition deals code names. This one was “Jekyll and Hyde.”
Chapter Twenty-four
CAESARS
Most of our people are still on their first marriages. You won’t find us at parties at four a.m.
—GARY LOVEMAN
Leading a double life, Loveman was a normal dad in Boston and a casino mogul in Las Vegas.
At home, the Lovemans attended their kids’ soccer games and ushered them through homework and friendships, leading a privileged life but not an extreme one. They built a vacation home on the beach in North Carolina, but there were no ski trips with movie stars or Park Avenue apartments. Kathy Welsh did not even want a housekeeper to interrupt her family’s privacy. So the Lovemans cleaned their home themselves on Saturdays. Among his various household duties, Gary Loveman cleaned the toilets.
Loveman did have a brief fling with a Ferrari. He sold it. He said it wasn’t a practical car.
A distracting consequence of his job as Harrah’s chief executive was the frequent requests by parents of his children’s friends who sought their own Vegas dreams. A dentist who wanted to work on anything but teeth asked for a job. Schools asked for Vegas getaways to be donated for fund-raisers.
Even as they came with their hands out, Loveman felt the bite of moral judgment. He heard he had been rejected from the Harvard corporate advisory committee when a dean at the university insisted, “No way. Not a gambling company.”
“People ask me all the time—old friends, neighbors. They say, ‘What’s it like to go from being a professor to gambling?’ And they’re not asking about corporations,” Loveman said sadly. “It’s a moral question.”
In Las Vegas, Loveman lived in a one-bedroom suite overlooking the Rio’s swimming pool. He chose this over one of the Rio’s Palazzo suites, which had been built for high rollers in the Rio’s baccarat days. “It would send a very bad message for me to be pampered like that,” he said. “Very bad.”
Hotel staff, concerned about Loveman’s increasing girth, kept a cereal bowl of pretzels and a few pieces of fruit on the dining table. He had a computer and an elliptical trainer brought in, and he hung a few suits in the closet, but otherwise lived the life of an ascetic in Las Vegas.
At work, Loveman fielded phone calls from his kids, and he often helped them with their schoolwork. “Your sister’s driving you?” Loveman barked into his cell phone once, while lunching at chef Bobby Flay’s restaurant at Caesars Palace. “Well, she’d better be taking her homework along to do while she’s waiting.” He rolled his eyes.
In his early years there, Loveman drove himself around Las Vegas in a used Mercedes. Exiting a casino with Steve Wynn or many other top casino executives can be like accompanying the queen at Buckingham Palace: Doormen snap to attention and a car magically appears at the curb. Leaving the Rio with Loveman was an anonymous act: He walked to the valet stand and waited in line for his turn.
As Loveman ran errands and navigated himself to meetings in Las Vegas, people warned that he and his family could become targets, as Kevyn Wynn had. Once, while buying a toothbrush at a drugstore near the Rio, several men walked up and said, “You’re Gary Loveman, aren’t you?”
So the company conducted a security study “and they came to the conclusion that I’m an idiot,” Loveman said. “They said I’m a moron—they’d never seen anybody in my position who lived as out in the open as I did.”
After that, Loveman sold the Mercedes, and Harrah’s employed a guard named Tony—a brawny fellow who drove Loveman around in a big SUV and stuck with him in Las Vegas from early morning until he headed to bed at night. In an attempt to keep his home life as normal as possible, Loveman did not use Tony in Boston, although the guard did conduct a security check and notify local police of the VIP in their midst. It is an example of Loveman’s cautious discomfort with the celebrity of his new role that he asked that neither the Boston-area town where he resides nor the names of his children be identified in this book.
Harrah’s began to transform itself under Loveman, and the propeller heads’ brainy tutelage. Loveman had won the race for CEO without much trouble. Colin Reed read his crystal ball and left Harrah’s after twenty-four years there, taking a job as chief executive of Gaylord Entertainment Inc., a Nashville-based convention-hotel operator, in 2001.
Phil Satre relinquished his role as chief executive in 2003 and as chairman two years later, after twenty-five years with the company. “I don’t think it makes sense to stay on as chairman when you’re not CEO,” Satre said. “You’ve gotta let the other guy have it.” Satre retired with a virtual squeal of joy, settling in on his ranch with his wife, Jennifer. He fished in Alaska and bought a Montana ski condo. Trimmer and with a new ruddy health, Satre grinned a lot after his retirement, his brilliant teeth flashing white. “There’s a lot of pressure in running a public company,” he said.
Once, on a visit to Las Vegas, Satre banged Loveman on the shoulder and said with a healthy smile, “I’m so glad you’re doing it and not me!”
Loveman gained weight and seemed to grow older as the job’s responsibilities sank in. Colleagues worried that he was a stress eater—and that there was no end in sight to his stress. His bouncy energy disappeared. Steve Wynn managed to surround himself with fun and adventure, merging his work with his hobbies. Loveman exhausted himself with work.
Once, in Boston, Loveman was being wired up for an appearance on CNN when his head began to nod. “I realized I was falling asleep,” he said.
“I’ve been chronically fatigued for two years,” he said in September 2005, two years after becoming CEO of Harrah’s. He was forty-five.
Loveman was transforming Harrah’s, though, with his scientific pursuit of gambler satisfaction and his insistence on using new technologies. By 2004, Harrah’s hotels were so technologically savvy that when a customer dialed the reservation lines, the computer checked the incoming phone number against its database and placed them into the appropriate service queue—fastest for high-value gamblers—before the operator ever answered the call. Even hotel room prices were calculated in that split second, based on a complex mathematical formula that took into account how long the customer typically stayed, the games they played, and amounts they wagered.
Wynn and MGM Mirage used plush hotel rooms like fishing nets—the idea being to get a customer booked into the hotel so they would be likely to gamble more in the casino. Harrah’s took the opposite approach. Harrah’s discounted its hotel rooms for the real gamblers and made less profitable customers pay through the nose.
If you weren’t a loyal Harrah’s gambler, it made no sense to pay the price of staying in the Harrah’s hotel. One day in the fall of 2004, a hotel room at the dreary Harrah’s Las Vegas was quoted to a nongambler at a nightly rate of $199—only $14 cheaper than a super-luxury room at Bellagio.
Revenue from gamblers who played at more than one Harrah’s casino accounted for half of Harrah’s revenues. This meant that gamblers were loyal to Harrah’s outside of their home territory. They had, as Loveman had hoped, become less promiscuous, spending about 43 percent of their gambling wallet at Harrah’s, up from 36 percent.
Satre and Loveman had bought up regional competitors whenever they could. One coup was the 2003 agreement to buy Horseshoe Gaming—a company started by Jack Binion, the son of legendary casino operator Benny Binion. Loveman even sniffed around Caesars Entertainment a few months later and came close to buying Station Casinos Incorporated prior to the Horseshoe deal. According to someone familiar with the talks, the board rejected the Station deal because the $110 million in golden parachutes—lucrative payments and benefits given to departing executives—for Station’s executives was distasteful to Harrah’s board.
In his quest to “normalize”
the casino business, Loveman sought to connect Harrah’s with more mainstream entertainment. He spoke with the owners of media distribution channels such as Liberty Media Corp., Viacom Inc., and News Corp. about melding gambling and interactive television or mobile communication devices. Would it be possible, Loveman posited, to build a gambling game around the outcome of a television show like Survivor? He considered buying a game show because marketing research shows that game shows attract viewers who tend to also be avid gamblers.
After repeated rebuffs, Loveman deduced that such an alliance “is the pink elephant at the cocktail party that nobody wants to talk about. So we always bring it up. We have profitable content, and they have distribution and we should find some way to put them together.”
Jan Jones tried to hush him, warning that he could end up with a “big red bull’s-eye” on his chest as far as several state attorneys general were concerned. She worried that then–New York Attorney General Eliot Spitzer would make a gambling-technology battle a part of his upcoming platform in a race for governor.
Some of Loveman’s ideas—namely blending games with mobile technologies—were widely viewed as illegal in the United States under federal laws. Undaunted, Loveman wanted to bang the drum with Congress. “Ultimately, you have to hit that head-on. If a family can make the decision to bring in pornography and sports channels,” he asked, then why not gambling?
All this while, Harrah’s was suffering for its lack of a high-end casino in Las Vegas. After finding little of interest to buy on the Strip—Kerkorian controlled half of it, and much of the rest was either in sorry condition or not for sale—Loveman became enamored with the idea of building a megacasino. He had come a long way from Harvard.
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