Vol. 4, No. 6, June 2007
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Carlos Tolosa
Carlos Tolosa, President Eastern Region, Harrah’s Entertainment The eastern region of Harrah’s Entertainment is one of the most important for the company. The four Atlantic City casinos produce a large portion of the company’s revenue. When you add the Illinois and Indiana riverboats, the eastern region gains even more importance. Carlos Tolosa is charged with leading this region and examining other opportunities in this area. A longtime Harrah’s executive—he started with Holiday Inns in 1971—Tolosa has held several important posts, including president of the company’s western region. He spoke with Casino Connection Editor Roger Gros in his office at Caesars Atlantic City in late March (before the smoking ban went into effect). The podcast of this interview can be accessed on the Casino Connection website (www.casinoconnectionac.com) by clicking on the Boardwalk Podcast button.
Casino Connection: In addition to the four Atlantic City properties, what other Harrah’s casinos do you oversee?
Tolosa: I have responsibilities for the two properties in Chicagoland, the Harrah’s in Joliet and the Horseshoe in Hammond, as well as the brand new property in Chester, Pennsylvania. I also have two Indian gaming properties, one in Cherokee, North Carolina and the other right outside Topeka, Kansas.
We’ll concentrate on Atlantic City. The Pennsylvania slots have recently opened up. Give us your evaluation of the impact on Atlantic City.
Well, there’s been a lot of trial, no doubt about that. As you know, we track our customers through Total Rewards, and we have seen many of our Atlantic City customers show up in Chester. About 60 percent of our play there is being tracked via cards that our customers received in one of our Atlantic City properties.
Early on, we’ve seen about a 7 percent decline citywide. Big slot houses, like our own Showboat and Bally’s, have been impacted more than others… more than Caesars, more than Harrah’s. If we assume that will continue to occur—and it’s really too early to tell—you would have to think that the Pennsylvania market will impact Atlantic City by between 7 percent and 8 percent.
Does this estimate include the proposed slot parlors approved for Philadelphia—Foxwoods and SugarHouse?
My comments are strictly related to the three racinos that have now opened—Chester, Philadelphia Park and Mohegan Sun at Pocono Downs.
But we don’t know when the Philadelphia properties may open because they are being challenged legally. If they were to open on time, we may see another 5 percent drop.
How about New York? The slots at Yonkers Raceway have been open since last September. Has there been any impact?
No impact at all. While I’ve lost some market share to zip codes around the Philadelphia tracks, I’ve actually increased penetration in the zip codes around Yonkers. It tells me that Atlantic City, with more hotel rooms, can reach farther out than it has in the past.
The tax rates in New York and Pennsylvania are not going to allow the casinos/racinos there to offer the same rewards as the Atlantic City casinos. Do the players realize this?
Yes, and we’re already seeing that. Customers who gave Philadelphia a try in the first six or seven weeks are already coming back to Atlantic City. The customers are very savvy.
In the Atlantic City market, we reinvest between 32 percent and 35 percent in our customers, depending on the property. In Philadelphia, the reinvestment is between 8 percent and 12 percent, so there is a big gap, mostly due to the tax.
Another issue Atlantic City is facing is the smoking ban. It went into effect in mid-April, allowing only 25 percent of the casino floor to remain open for smokers. And now the legislature is considering a full smoking ban. How will that affect the city’s casinos?
Our sources tell us that the legislative effort won’t go anywhere because they want to give the deal we struck with the city council of Atlantic City time to work. But the 75 percent is a reality.
The challenge will be in the 25 percent where smoking is allowed, where our employees will still be exposed to secondhand smoke. The option we are exploring is the construction of smoking lounges, where there will be no gambling and where no employees would be required to work. When the lounges needed to be cleaned, they would be taken out of service. It appears to be a solution that would be workable for us, but we’ll have to see how our customers respond.
I believe the casinos will go non-smoking entirely over a period of two or three years.
It would be great if we could require all the casinos around the country to go non-smoking at the same time, maybe through some federal regulation. That would include the Indian casinos, possibly through some OSHA requirement. That would give us a level playing field, and all casinos would be impacted equally.
I would love to have all our employees free from secondhand smoke. I’m one of those reformed smokers who really hates smoking more than anyone. If we were required to do it cold turkey, we would lose 20 percent to 25 percent of our business. But if we could tell our customers that, say, by January 1, 2009, we’d be entirely smoke-free, then we’d have the chance to build that reality.
How has the Pier at Caesars impacted the success at Caesars Atlantic City?
The Pier has brought us a level of satisfaction and a level of frustration.
We’re satisfied with the level of traffic that we get through the casino simply by the way we’re laid out, with the parking at the other end of our casino. We’ve seen sporadic increases in the level of play by people who come to visit the Pier from other properties.
The level of frustration comes from the fact that 2006 was the third year in which the Pier was supposed to have been completed. Now we can say for sure that the final pieces of the Pier will be in place this spring and we’ll see the full advantage of the Pier sometime this summer.
Bally’s Atlantic City has been a tremendous performer for your company. It’s always number two in revenue, sometimes number one. What changes do you have planned there?
It’s a tired property. My focus is going to be remodeling the hotel rooms, starting with the Dennis tower and continuing with the Claridge tower. We recently bought the Boardwalk stores in front of the Dennis, which we will demolish to open up the courtyard in front of the hotel there. We will put some money into the casino itself and in the long term, reposition the Claridge as a more boutiquey hotel.
Does that include a rebranding?
No, we’re very happy with the brand Bally’s. At some point, the Wild Wild West portion of the property will go away and it will all become part of Bally’s. But that’s down the road quite a bit.
Harrah’s has been a huge success in Atlantic City and is currently undergoing its fourth or fifth expansion. Tell us about the latest expansion.
It’s 960 rooms, a $550 million project. We’ve opened a portion of it already. We’ve opened the buffet and retails shops. We’ll open the spa, pool and more retail by Memorial Day. The dome we’ve constructed (the largest in the United States) is an amazing multi-purpose room. We can do banquets or meetings in there. The hotel tower will open in mid-2008. Everything we have done at that property has been successful.
How is it competing against your next-door neighbor, the Borgata?
It complements the Borgata in a way that’s good for both of us. We’re more slot-centric; they are more table-centric. It’s making the Marina district more of a destination where people don’t even want to come to the Boardwalk anymore.
]Tell us about Showboat. The House of Blues opened there a couple of years ago. How has that been working?
It’s been mixed. The programming of the music venue has sometimes been in conflict with our core customer. We’re fixing that.
The Showboat brand is terrific. The entire casino will have been renovated by this summer. All the hotel rooms are new. The only “old” things we have there are two restaurants that we’re going to remodel, and we’re bringing in a third party for at least one of those outlets. So I’m very excited about the future of the Showboat.
There are new casinos being discussed and planned across Atlantic City: Pinnacle, Morgan Stanley-Revel, the Barr-Bashaw development. Are you concerned that it will be too much?
Not at all. Every time a new casino opens in Atlantic City, it will grow the market. Just look at the Borgata. They grew the market 60 percent over there. And when you apply that factor to a $5.2 billion business, the future of Atlantic City looks pretty healthy.
Harrah’s is under a purchase agreement with Apollo Management and Texas Pacific. Has that affected the way you operate in any way?
No. Texas Pacific, Apollo and our chairman have been very clear: this is not a casino company buying another casino company. We will not be changing systems or technology. These are companies that share our vision and understand our strategies, so nothing will change.
