Gary Loveman on restructuring and regulated online gambling

Under Loveman’s tenure Caesars underwent a significant reshaping, with a host of acquisitions – most notably of Caesars Entertainment in 2005, and its own leveraged buyout (LBO) by Apollo Global and TGP Capital Partners in 2006 – transforming the business. After taking over as CEO in 2003, Loveman oversaw a business that owned or operated 25 properties, as of 31 December that year. 

By that same date in 2015, by which time it had embarked on a bankruptcy restructuring, it owned, operated or leased 47 properties around the world.

The messy restructuring, involving legal challenges and recriminations, has been picked over in depth by other sources. Loveman admits “there’s always things you wish had gone differently”. 

In particular, he picks out two key regrets. First, he wishes the business could have understood “the calamity that would be Atlantic City earlier”.

“A lot of the pressure Caesars was under from 2008 onwards was a result of the absolute collapse of Atlantic City, where we had a very large position,” he explains. At the time of the financial crisis, the business had just taken on approximately $22bn of debt through the Apollo-TGP LBO.

Caesars, at that time, operated Harrah’s, Showboat, Bally’s and Caesars Atlantic City. Today subsequent acquisitions and divestments means it still operates the Caesars and Harrah’s properties, as well as the Tropicana. 

Loveman also professes to wishing the business had handled the period after the LBO, and during the financial crisis, differently.

“When you look at [that period], we dug in and battled for years to get the company back to a better spot, and the alternative to that would have been to reorganise the finances immediately after the financial crisis,” he says. 

He points out that Hilton found itself in a similar situation. The hotel giant had gone through a privatisation, leaving it heavily leveraged, meaning it was hit “catastrophically” by the crisis. What it did different was to immediately restructure and start afresh. 

“They didn’t go through the six-year battle we did,” he points out. “In retrospect that would have been a better choice for us, and would have made everyone’s experience a bit different. 

“You certainly wouldn’t see Eldorado owning Caesars today if we had taken that path.

“Otherwise I don’t have many regrets; I worked with a wonderful group of people. We did a lot of innovative and exciting things, and we treated each other well along the way.”

Change of ownership

Between 1980 and 2015, the business that started as Harrah’s had two CEOs, Phil Satre then Gary Loveman. Between 2015 and 2021 it had three. 

Former Hertz chief executive Mark Frissora succeeded Loveman. Tony Rodio, following pressure from activist investor Carl Icahn over the company’s post-bankruptcy direction, then took charge from 2019. Following Eldorado Resorts’ buyout, Tom Reeg now leads the operator.

Loveman says it’s hard to say what life will be like as a Caesars employee today. 

“Of course they’ve been dealing with Covid, which has made everybody’s life very tough, and I think they did fine in handling that,” he says. The management of the company since Eldorado took over, as far as I can tell, has been almost exclusively focused on cost reduction. 

“That was their story when they did the deal, that’s what they’ve said to Wall Street repeatedly, and they have. What that’s done to the experience of working there or the experience of the guests, I really don’t know. 

“Caesars Palace has continued to do exceptionally well. The rest of the properties, it’s harder to say,” he continues. “What they’ve benefited from is the rise of sports wagering and internet gambling, which a number of states, after years and years of struggle, have finally legalised. As they hold the best position in the US for online wagering, their stock has done very well as a result of that so that’s been a big boost for them.”

Vindication at last?

Loveman was a vocal proponent of online during his Caesars tenure. He had a hand in establishing Caesars Interactive, through which the business launched online in Nevada and New Jersey in 2013 – not to mention carving out a leading position in social casino via Playtika.

Loveman sees the rapid spread of legal sports betting in the wake of the Supreme Court striking down the Professional and Amateur Sports Protection Act in May 2018, and the belated push for regulated online casino, as “long overdue”. 

“I thought it was insane you could go to a facility in a state that offers gaming and play at a table or slot, but you couldn’t wager online, play poker online,” he says. The speed at which things moved, without any organised opposition, in the wake of the most prominent anti-online advocate and Las Vegas Sands CEO Sheldon Adelson’s ill health and subsequent passing, has been staggering.

“The whole milieu has changed completely. I think it’s terrific and it’ll never go back. I just wish it had happened ten years sooner, it would have been a lot of fun to be involved in.”

He admits that the online boom is the one thing he regrets having missed out on. The regular casino business remains similar to when he left, he points out – and he’s glad to have avoided the Covid crisis – but missing online rankles. 

“The exciting part of this is what you can do now with the online business, which has been allowed in the US in its simplest form,” he says. “There are much more sophisticated forms in other markets, and I think that will be coming to the US in time.”

And in the wake of his former company making a major statement of intent, by snapping up William Hill’s global business for $2.9bn to accelerate its digital growth, he feels it was the right move. “I think they had to do something like that,” he says. “The company didn’t have the capacity to make a compelling online sports wagering offering. 

“They had the licences, they had the skins, but they didn’t have the technology and the experience to run a real-time online wagering business, so they were going to have to do a deal with somebody. That’s true of all the US guys, they had to get a deal with somebody.”

This suggests he feels the current leading triumvirate of DraftKings, FanDuel and BetMGM are not guaranteed to hold their positions. The two legacy daily fantasy operators, he points out, have lost “astronomical” sums to get where they are today. “It continues to boggle my mind that they are valued as they are when they’ve yet to make a dollar profit. It’s stunning.”

He does temper that by noting each has a strong product, very good platforms, and a position that leaves them best placed to continue to lead as the market evolves. 

“But I do feel we’re in the very early stages of that business; there’s a lot more to be done there. It’s going to get a lot more interesting and a lot more fun. There’s plenty of room for innovation.”

Vertical integration

This push for innovation and disruption will be aided by the sort of proposition Caesars will be looking to build with William Hill, or Caesars Sports as it is now known. 

Loveman draws a parallel with Caesars Interactive and Playtika, which despite being wildly successful before, during and since it was under the operator’s control, was often overlooked in favour of “the mothership”. 

“The parent company is the one that your current investor group is paying the most attention to and relying on for quarterly earnings, while the new business, though very promising, is quite small in comparison,” he explains. “So if you look at BetMGM in comparison to the rest of MGM, it’s a tiny piece of the wider picture.”

This, however, is hindered by the fact that none of the management of the traditional brick-and-mortar giants has grown up in the online business. It’s been a separate set of executives turning the igaming businesses into billion-dollar corporations. 

“Over time you’re going to need to see more integration between the two. It would be interesting to see an online CEO become the leader of one of the traditional offline businesses,” he says. 

The big disruptive shifts are going to be driven in a similar fashion to Playtika, Loveman suggests, with a steady flow of new, creative games released to constantly engage and expand the audience. These products, he predicts, will be more geared towards women, rather than the current sports wagering offerings which largely target a male demographic.

“The games are going to be easier to play and more fun for people that have a more modest level of attachment to the games and teams, so they are going to become more real-time rather than the fixed model,” he continues. “I think that’s where the innovative edge of the industry is now; it’s not coming out of Las Vegas or Louisiana, it’s around the way the games are developed and marketed online.”

Loveman argues that changing how and where people learn about the mechanics underpinning new projects is part of this, pointing to the deal struck by his former employee Jay Snowden between Penn National and Barstool. He describes the partnership, which has resulted in the Barstool Sportsbook brand, as “just brilliant”. 

“The problem with sports wagering is that it’s a very limited pool of people who do it. In the old days, offline, it was something that sons learned from their fathers, or they learned in the military, so the audience was very small,” he explains.

“What you’ve seen with deals like Barstool, they expand the market and make the whole idea accessible to a wider audience.”

Keeping Vegas’ lights on

The fact that online innovation will drive industry growth doesn’t necessary mean Loveman believes Las Vegas’ status as a destination is under threat. He remains confident that after last year’s shutdown – the first since the Kennedy assassination, no less – Sin City will return to pre-pandemic levels.

He points to Apollo Global’s acquisition of the Venetian to illustrate the point, noting that its due diligence included “a careful look at its bookings for the next two or three years”. 

“What I’ve heard from Apollo when they’ve spoken publicly is that the reservation log for the Venetian looks a lot better than people would imagine,” he says. Interestingly, Loveman suggests that this could be influenced by home working. 

“[If] we’re all going to be working from home rather than going back to the office, there will be a greater need for occasional meetings,” he explains. “We don’t see each other in the office routinely, so we need to have these periodic meetings, and Vegas is going to pick up a lot of that. 

“They might not have as many of these big exhibitions, such as the [Consumer Electronics Show] in January or something like that, but you might have many smaller meetings that will take its place,” he says. “I think you will see a reversion to the hospitality-heavy model we had pre-Covid pretty quickly. There’ll be some adjustment path to go, but it’ll be back pretty quickly.”

However, the constant cycle of new developments that were checked by the 2008 financial crisis are unlikely to be back. Resorts World Vegas, which opened on 24 June, was the first Strip property to open its doors in more than a decade. Even then, it has been in the pipeline since 2013. 

Where there may be scope for some investment, or at least experimentation, is on the gaming floor, to close the loop between online and land-based gaming.

“We did some initial experimentation in our facilities that were focused on online types of gaming that didn’t perform very well early on, but I think we might have been a little ahead of our time,” he says. “People will need to continue to experiment with that and provide new concepts. 

It’s gaming where the experiment could be justified, rather than building out amenities. “The amenity offering in Vegas is fine, everything you need to attract a wide audience is already in place.

“I think any challenges Vegas is having, it’s not coming from a shortage of amenities.”

Vegas’ main priority, it should be noted, is staffing. Following 2020’s layoffs, which saw Nevada’s unemployment rate pass 30%, many employees have moved away from the city or are unwilling to return to the industry. 

“I think it’s the confluence of a couple of things,” Loveman says of this situation. “The relentless cost-cutting that went on took a toll on the desirability of jobs across the industry.”

But Covid was the main, and most catastrophic, factor. He compares its impact on the city to Hurricane Katrina’s on New Orleans. “[People] left, thinking they would come right back and just did not.”

This creates a situation where the operators that offer the level of care and support Loveman’s Caesars looked to pioneer will be top of the hiring chain. Wynn, he says, currently has the advantage in being known for treating its employees well. “I think some of the things we did for employees have not been a part of the current Caesars experience,” he says of his old company. 

Improving healthcare outcomes

But Loveman is now an interested bystander, rather than working within Caesars. Today, he splits his time between teaching at Harvard and Well, a healthcare business he established in 2019, after a short stint as president of US health insurer Aetna. The business has already completed a $25m seed funding.

Well is a consumer platform that engages individuals in improving healthcare outcomes. It a proprietary “health engine” that analyses clinical and consumer data to send targeted interventions, based on individual needs and preferences, to influence their behaviour. 

If this sounds familiar, it should. It’s based on the same principles as Total Rewards and Wellness Rewards, again employing behavioural economics. His experience with employee healthcare at Caesars, followed by chairing the business roundtable committee on healthcare reform during Barack Obama’s second term, saw him engage with the issues at a national level. 

“So when I left the casino industry, I wanted to really focus on this notion in healthcare – why do we have such great science and healthcare but such poor healthcare outcomes?”

The original plan was to build this into what Aetna was offering, though that was cut short by its sale to pharmacy chain CVS, prompting him to found Well. “We’re a young company, we’re off to a very good start and I’m encouraged that we’re going to make a lot of progress but we’re early on.”

Loveman sees his work as a continuation of what he has done throughout his professional life: analysing how individuals make decisions, and figuring out how those decisions can be changed. 

“So how do I get a player to go to Vegas, how do I get them to stay longer, stay at my hotel, eat at my restaurant? Now it’s to get that person to stay healthy, to seek treatment when they’re not,” he says. 

The business takes up two-thirds of his time, he says, with the other third devoted to teaching at Harvard.

“I have loved teaching at Harvard ever since I started, about 30 years ago,” he says. “There’s very few experiences like it, and I’ll probably keep doing it as long as I can. Covid had brought that to a very low level of activity, as we’re teaching virtually and the number of classes went way, way down. Starting in the fall I’m going to ramp that back up.”

It’s hard to argue that Loveman has come full circle. In 1998, he was a Harvard professor, moving into an industry with a new way of working that challenged an established order. In 2021, he’s a Harvard professor. And, yes, he’s moving into an industry with a new way of working that challenges an established order. 

When this is put to him, he tells a story about the OPM (owners, presidents and managers) programme he teaches, a course for company owners or executives. “So it helps to have someone with a lot of experience teaching that group, otherwise they don’t tend to listen very well.”

He was teaching a case about real options in drug licensing – ways of structuring agreements to anticipate uncertainty – but used two examples from his Caesars tenure.

“One [was] about how we structured entertainer contracts, and the other on how we arranged deals with our high-end baccarat players,” he says. “Both were examples of the same idea. How you take a relationship between two parties and you create a set of options that are well-aligned so both can prosper, in a way that in the absence of such an agreement there wouldn’t be a transaction between the parties. 

“The students find that sort of thing very interesting. They really love to hear these real-life examples that I was involved in personally, that illustrate the concepts we’re teaching.”

“[So] it’s funny you should say that,” he says of going full circle.

Gary Loveman picture credit: Russ Campbell