Winner Takes All

by Christina Binkley

  The thing was, even the people on MGM Mirage’s board were in the dark on this. They simply assumed Kerkorian would take care of things and that his daughters would somehow inherit. Kerkorian kept the various parts of his organizations so in the dark that it came as a surprise to executives at MGM Mirage when he made a sweeping move in May 2005 for General Motors Corp. in Detroit—another city that had drawn Kerkorian’s attention time and again.

  Kerkorian started by quietly buying shares in General Motors. The day he announced a tender to buy more, Kerkorian had a trusted lieutenant named Jerry York call to warn GM’s vice chairman, Robert Lutz. These moves were textbook Kerkorian.

  Wall Street suddenly suspected that Kerkorian had espied a hidden gem and started buying up the stock, sending the price above Kerkorian’s $31-a-share tender offer. Kerkorian later sold twelve million shares at a substantial loss, purportedly for tax purposes, but the move made a point to GM’s recalcitrant management that Kerkorian held sway with the company’s stock price: GM’s stock sank to its lowest price in twenty-three years.

  “Contrary to what most people say, Kirk is not an easy guy,” says Henry Gluck.

  As the GM news played out in daily headlines, Kerkorian’s rising age contributed to an unspoken sense of urgency among those jockeying to succeed Terry Lanni as chief executive at MGM Mirage. Because of Kerkorian’s hands-off management style, the role was a substantial one—nearly on par with Wynn’s.

  Lanni had long promised to retire when his contract came due in 2006, setting up a poisonous atmosphere of rivalry in the top ranks at MGM Mirage. Bobby Baldwin, who ran the former Mirage Resorts, and a casino veteran named John Redmond ran the MGM Grand and Mandalay casinos. This left Jim Murren to find another way—for example creating CityCenter and pushing expansions into hotels in China and Dubai—to prove he could add the most value to the company.

  The power triangle pleased Lanni. “I like having a little competition between them. I think that’s healthy if one of them wants to do better than the other,” Lanni said.

  Murren said that Kerkorian had indicated that he was next in line for Lanni’s job. This, in 2006, was keeping Jim and Heather in Las Vegas despite the yen to cash in and move to Europe. Others in Las Vegas were also noticing Murren’s talents. Loveman once said he would have tried to recruit Murren except that it would take a “truckload of gold bars” to lure him away from his contract with MGM Mirage. Even Wynn had his eye on Murren. “That guy is added-value over there,” Wynn said without affection. “He is smart.”

  It was a nasty surprise, then, when Terry Lanni extended his employment contract until 2010, the year CityCenter would be open. “I’m forty-four years old,” Murren said one day, frowning, noting that he’d be approaching fifty by the time the job came open.

  When Lanni handed responsibility for building CityCenter over to Bobby Baldwin, Murren gulped gracefully and acknowledged Baldwin’s years of experience building things for Steve Wynn. “I’m good friends with Frank Visconti, who’s head of retail, so at least I’ll have some input there,” Murren said sadly.

  Bound together by their rich employment contracts, the top five executives at MGM Mirage were the highest-paid chain gang in the gambling business. Collectively, thanks to their pre–Wynn-Las Vegas employment contracts, they earned $51.2 million in compensation in 2006—far more than the top five executives at Harrah’s ($29.5 million) and Wynn ($31.5 million).

  Murren, who earned $6.3 million in 2005, resented Baldwin’s $6.5 million that year. Murren’s frustration that Baldwin and Redmond earned more than him simmered beneath his wide-eyed, boyish exterior. “I know I’ve added a lot more value to this company than they have,” he fussed, frowning over a lunch of chilled salads in the kitchen of his sprawling, gated home in a gated subdivision in the suburb of Summerlin.

  Loveman, chairman, chief executive, and president of the world’s biggest casino company, distanced himself from the group as usual. “I don’t care who’s bigger,” Loveman said. “Jim, I’m sure, gets paid more than I do. I like the fact that I don’t live in Las Vegas and I don’t have a need to be the big guy there.”

  So he said.

  Harrah’s investors questioned whether Loveman had any business getting involved in high-end Las Vegas properties. But once he’d had a chance to see what was going on at Caesars, Loveman finally grasped that high rollers did more than gamble at Caesars Palace. The glamour of their surroundings drew other big spenders. They might not gamble, but they’d check into a $300 room in the Palace’s new tower, get a $180 basic facial at the Qua Baths and Spa, and eat a $300 dinner for two at Bradley Ogden’s restaurant before plopping into $225 seats at the Celine Dion show.

  These travelers were creating a New Las Vegas gold rush. Loveman and the propeller heads had been so focused on Harrah’s low-rollers that they hadn’t bothered to study their Las Vegas rivals. They were more familiar with the operations of RiteAid drugstores than MGM Mirage.

  It took nine months to dawn on Loveman that he’d bought entrée to a whole new world. It hit him in Tokyo in May 2005 at a board meeting for the handbag maker Coach, where he is a director. As the board discussed the hardships of building new luxury brands in Japan, Loveman realized that the legwork had been done at Caesars. “The Caesars brand has tremendously powerful impact internationally. I didn’t fully appreciate that when we bought it,” he said a few weeks later. “I feel better than I did a year ago. We made the decision [to buy Caesars] on less interesting grounds than we might have.”

  Loveman began to direct his analytic brain to Las Vegas entertainment—looking for productions that would attract the masses of shoppers, diners, and tourists.

  In the spring of 2006, Loveman and the Hollywood director James Cameron emerged from a white Caesars stretch limo and walked together into an interview for a CNBC broadcast in Singapore.

  “Just don’t use the C-word. Don’t say ‘casino,’” Loveman coached the director of Titanic, The Terminator, and Aliens.

  “It’s a theme-park environment,” Cameron rehearsed, looking earnest. His casual blue suit was slightly disheveled, and he wore a denim shirt with no tie.

  On camera, Loveman and Cameron discussed plans for a huge casino resort in Singapore. If they won the bid, Loveman would build a twenty-first-century theme park with an art center by the architect of Paris’s Centre Pompidou; entertainment programming by News Corporation’s STAR, Asia’s biggest broadcaster; and an immersive entertainment zone called iPort produced with Cameron.

  At iPort, people would eat in a replica of the Titanic’s first-class dining room, re-created “right down to the flatware.” Visitors could experience the moment the Titanic hit the iceberg, every ten minutes, in a replica of the ship’s boiler room. “The ‘I’ in iPort stands for immersion. A totally immersive environment,” Cameron said that afternoon. He seemed nerdily unlike the pompous-sounding director who shouted, “I’m king of the world!” when Titanic won eleven Oscars in 1998.

  “I’m pretty pumped to be part of the [Harrah’s] team,” Cameron said. “They actually had me about halfway through the first meeting. I’m kind of a gearhead, and I love to explore the engineering. iPort for me is basically Christmas morning.”

  Loveman lost the Singapore bid to Sheldon Adelson. This blow left Loveman, like Kerkorian, struggling to catch up with Wynn and Adelson in the promised land of Asia, where people believe in luck. Superstition and wagering are part of Chinese and other Asian cultures that go back centuries.

  Kerkorian finally got a foothold in Macao when MGM Mirage agreed to join Pansy Ho, daughter of Macao gambling magnate Stanley Ho, to jointly own a $975-million casino called the MGM Grand Macau that was set to open in 2007.

  Loveman needed in on Asia, so he was glad to hear Wynn’s voice on his cell phone one afternoon while Loveman was shopping with his family. Wynn offered to sell Harrah’s a piece of his action in Macao. He wanted $800 million for the legal right to build a casino there.

  Lov
eman feared he’d look like a chump if he paid that high price for nothing more than a right to build. This soon appeared to be a gross misstep. Wall Street was rewarding anyone with a toe in Macao with high valuations. One investment banker estimated that the Macao concession would have added more than $20 a share to Harrah’s stock value. Wynn turned around and sold the concession for even more money—$900 million—to James Packer, the son of Australian magnate Kerry Packer.

  With his continued focus on smaller markets, Loveman successfully pressed to secure casino licenses in Ciudad Real, Spain, 118 miles south of Madrid; and Nova Gorica, Slovenia, on the border with Italy. There was even an opportunity in Holland, and several in England. Loveman wanted to explore a business involving pachinko machines in Japan—slot-machine–like gambling devices that are all the rage there.

  Loveman had planned to change the parent company’s name to Caesars shortly after the deal closed. But then he was in Washington, dropping off his son at college, when Hurricane Katrina was bearing down on New Orleans and Biloxi, where Harrah’s had casinos. He stayed up all night in a Washington hotel room figuring out what to do. “We know how to batten down—we practice that twice a year,” he said on Tuesday as Katrina blew. “But what about after the storm?”

  Loveman was profoundly affected by the storm’s tragic human aftermath. He promised to pay the 6,000 Harrah’s and Caesars workers at the destroyed casinos for ninety days—forcing resentful rivals to try to match the offer. “Our people come first, Harrah’s comes second,” Loveman told his management in a conference call.

  “This is the end of the riverboat era,” the politically facile Jan Jones predicted. “They’ll all get rebuilt, but it’ll be on land.” And she was right.

  When Loveman finally broached the name change at an April 2006 management meeting, his top executives were adamant. “I had to get business cards once that said Caesars, because nobody would talk to me if I said ‘Harrah’s,’” said Tom Jenkin, president of Harrah’s western division. “I might as well have said Procter & Gamble—it just didn’t mean anything to them.”

  Rich Mirman, one of the first propeller heads, believed that the Harrah’s name was slowing the company’s international expansion. “People associate us with Wal-Mart,” Mirman said, as though that was now a bad thing.

  Disneyland is 85 acres. The Magic Kingdom in Orlando is a 107 acres. Epcot Center is 300 acres. Harrah’s had collected 350 acres along the Strip in Las Vegas. Loveman was planning a giant resort that he claimed would change the “gestalt” in Las Vegas. Its working name was Epicentre.

  Loveman conceded he had been slow to accept his new role as a casino developer. “I have on certain occasions underestimated the importance of buildings and have thought we could manage our way out of any problem,” Loveman said. “We let the competition get too far ahead.”

  Loveman hired dozens of consultants from theme parks and casinos. Among them was Tony Marnell, former owner of the Rio and the construction contractor for the Mirage, Bellagio, and Wynn Las Vegas.

  For the first dozen meetings or so with the propeller heads, Marnell discussed the value of customers who don’t gamble. Food, drinks, shows, shops… More than 60 percent of revenues in Las Vegas casinos come from not gambling—a gap that grows wider every year. Harrah’s hadn’t bothered to collect this data because the propeller heads had been so focused on gambling.

  Another epiphany followed. “We had never really looked at how people behaved by age patterns,” says John Boushy, the Harrah’s executive who was leading the Las Vegas effort at the time, “because we were focused on how to get more revenue out of existing customers.” And Harrah’s customers were mostly… retired. It turned out that Generation Y customers in their twenties were willing to spend huge amounts of money in casinos. Soon they would discover other lucrative subgroups. Harrah’s would begin promoting Paris Las Vegas’s “gay-friendly staff” and placing photos of gay and lesbian couples on its website.

  Marnell and Boushy pinned scores of photographs and drawings cut from magazines representing the spectrum of people of legal age to gamble. To one side was Generation Y, driven by style. There was Generation X, driven by status. There were the Boomers, aged forty to sixty, and the older-than-sixty Silent Generation—Harrah’s “avid experienced players.”

  “Gen-Ys don’t give a rat’s patootie about Total Rewards,” Boushy said. “They’re just interested in having a good time.”

  One afternoon in March, two dozen of Harrah’s consultants—almost exclusively white males—gathered in a Las Vegas conference room to brainstorm. They tossed around ideas to build an arena and a sports stadium, sketched out mass transportation systems, and fantasized about “omnimovers”—moving dinettes where people would drink, party, eat, and maybe even loll about in beds while being transported around Harrah’s 350 acres. “Can you gamble in these vehicles?” asked Craig Hanna, principal of Thinkwell Design and Production, a Los Angeles creator of theme-park attractions.

  Sheldon Gordon, the developer of the Forum Shops at Caesars Palace, was there. Gordon’s Bluetooth earpiece wasn’t picking up sound properly, so he fetched the amplifier from his suit pocket and moved it to the center of the conference table. “If this all comes to pass,” Gordon said, “the Strip is going to be yesterday’s newspapers.”

  Loveman stayed up late on April 24 to edit his son’s eight-page college paper on John Locke. The next morning, he led Harrah’s board meeting, listening to a complaint from director Frank Biondi, former CEO of Viacom, about plans for Jason Alexander to appear in a ninety-minute version of The Producers show at the Paris casino. “Not Jason Alexander! He’s terrible!” said Biondi. (“He’s been on the board for two years now, and this is the most heated he ever got on any subject,” Loveman later told his management team with a grin.)

  Loveman also presented his directors with a development plan that would cost at least $13 billion and take as long as ten years to complete. The plan called for ten new hotel towers, including new casinos designed to cater to Gen-Xers and Gen-Yers.

  At the development’s center, Loveman decided to build an avenue leading from the Strip into the deep interior of Harrah’s property. This had the effect of moving the street action away from the gridlocked boulevard and entirely inside Harrah’s domain. In effect, it would create a new Main Street, where Harrah’s would control every shop, restaurant, hotel, condominium building, and theater in the whole destination, much like what Kerkorian was doing at CityCenter.

  “This is a tale of two cities,” said one of Harrah’s consultants. “CityCenter and Epicentre.”

  With his rise, Loveman found that like all new CEOs, he was often lonely. “It’s an isolating job,” Loveman said. “It’s hard to have relationships with people absent any business motivation.” Rich Mirman, one of the original propeller heads, left his job at Harrah’s, saying he didn’t expect to work at another casino company, but Harrah’s just wasn’t the same familial place that had drawn him. Old friends didn’t always fit into Loveman’s new life. He took friends of fifteen years to Las Vegas. “It was a mind-blowing experience for them to see me here after the way they know me all these years,” he said.

  Friends told him that a nasty rumor was making its way around Wellesley that spring. People were saying, “Gary is involved with the Mob.”

  Loveman had planned to ask his board to approve his big development plans at the July 2006 board meeting, and then to announce them with a splash in September. Word was leaking that Harrah’s had some big development planned—and the stock was tumbling as a result. “Absolutely nothing had changed. It was just what the public markets had done to us,” Loveman said, sounding a lot like Steve Wynn in his last days at Mirage Resorts.

  Instead of discussing his plans with directors, Loveman found himself explaining the vagaries of the stock market’s evaluation of casinos. “This is the time for private equity in our industry,” he said.

  As it turned out, the private-equity guys were
sniffing over Harrah’s Entertainment. Representatives of two heavyweight fund groups, Apollo Management L.P. and Texas Pacific Group, came knocking at Loveman’s door that fall with an offer to buy the company. Loveman was so eager that he began discussing the deal with them before he notified his board. Still, after several months of high-profile dickering, Apollo and TPG agreed to buy Harrah’s for $17.1 billion in cash.

  So Loveman once again beat Kerkorian at doing the biggest deal in Vegas. This time, his feat was more extraordinary. Loveman managed to break the trend of publicly traded ownership of gambling: Casinos had become so profitable—and the billionaires so rich—that investment funds wanted to gobble them up for themselves.

  Loveman had also managed to sell the company and keep his job at the same time.

  Loveman was a fast learner. He got something else that Wynn had wanted: Bette Midler. Word got out that Steve Wynn was talking to Midler about doing a show at Wynn Las Vegas. In the midst of those talks, Wynn was peppy with optimism, chatting about his plans over dinner at Okada.

  It was an odd twist that Loveman managed to beat out Steve Wynn for a star like Midler. It proved Harrah’s was now in a whole new league. Midler signed a long-term deal to replace Celine Dion at Caesars Palace. A year later, in 2007, Loveman announced plans to build a $470-million sports arena behind Bally’s or the Flamingo. It was the precursor to nabbing Las Vegas’s first professional sports team—which at the time looked likely to be with the National Hockey League.

  Loveman, though, sometimes seemed surprised to find himself in league with Wynn. He would ask about the king of Vegas from time to time, sounding amused, at times, by Wynn’s behavior. He became incensed once when he heard a rumor that Wynn had suggested he might be tutoring Loveman.