What Stays in Vegas (33 page)

A policy change on this scale required Loveman's buy-in. Shaukat brought up the issue on the weekly senior management call. Loveman knew the marketing team wanted to beef up the company website and
create a greater online presence. Shaukat referred to such efforts when he brought up the issue.

“By the way, Gary, one of the things that we are looking at is third-party data. For example, as we get more into digital, what types of third-party data are we open to using and not?”

Shaukat was new enough—a recruit from the world of consulting—that he could still question where the policy had come from in the first place without seeming unprepared. “There is a rumor at least that you said no third-party data under any circumstances can be used. Is that still true or not true?”

He waited for Loveman's response. The future of the company's marketing direction rested on it. Loveman, whose deep voice gave a powerful impression even through the tinny speakers of a conference call, replied, “I don't remember ever saying that, but we are absolutely not going to use data on personal, private information, such as information on assets, finances, and health care.”

Many data brokers try to piece together clues about how well-off people are financially, what assets they own, and what they earn. That information was too personal, the CEO said. But he opened the door on other fronts: “We are absolutely not going to use that sort of data. But using data like some of the demographic data that's out there, some of the social data that's out there, I'm open to rethinking where the right line is.”

Shaukat told Loveman that he would send suggestions on how the company should update how it used technology to handle customer data. They had moved the line.

Shaukat, Kanter, and others, including from the legal team, started a formal revamp of the policy, emailing back and forth until they hammered out a document cautiously embracing outside data. Caesars could use third-party services like cloud-based computing to handle customer data. They could turn to outside data brokers like Acxiom for more insights on customers, provided they secured the right confidentiality agreements and security controls. The executives remained mindful that they should still approach outside data with sensitivity. The last thing they wanted to do was alienate loyal customers.

“Data-driven marketing is so core to what we do that we have to make sure that we are preserving the trust and preserving our ability to actually use data to drive our relationships with customers. That's the DNA of the company,” Shaukat later reflected. “We no longer have to reject out of hand, without even thinking about it, policy around using third-party data. But we will always want to be several steps on the right side, on the correct side of that line. . . . If there is a gray area we generally try to stay on the whiter side of that as opposed to getting into the gray.”

Caesars needed to understand better how clients spent money beyond the casino floor, on things such as entertainment and dining, increasingly important slices of the Las Vegas casino revenue pie. Figuring out who the potential gamblers are based on personal data has always proved rather difficult. The only broad personal data category predictive of potential gamblers is small businesses owners: entrepreneurs have a risk-reward profile similar to those willing to wage an all-or-nothing bet at a gaming table. But entertainment is another matter. Kanter started exploring partnerships with companies such as Ticketmaster, the ticket distribution and sales company, which knows what kinds of shows people like. If you have bought tickets in the past to concerts of '80s rock bands, for example, Ticketmaster's data may prompt the casino chain to recommend Caesars shows in that genre, much as Amazon and Netflix do for their users. Or maybe more information about dining habits would allow Caesars to better target their many culinary offerings. Part of the value of a partnership with a concert promoter was finding new customers, appealing to Ticketmaster customers who were not Caesars regulars.

Behind closed doors, executives spent many hours considering how they might use personal data from social networks such as Facebook. They wanted to make the Total Rewards website more social so that guests could share with friends the news that they had just booked a room at the Flamingo Hotel in Las Vegas or that they were redeeming points for a gift in their merchandise store. When a customer signs in to the website via Facebook, the casino company can also see much of the data on the customer's Facebook profile. As shown in earlier
chapters, outsiders can infer a great deal of intimate information from Facebook, including from simple things such as “likes” and friends.

“If our hosts get access to that information, for example, as they are dealing with a customer, does the customer sort of recoil with horror that they actually know that?” Shaukat asks. “Or do they say, ‘I logged in using my Facebook account—of course they know that'?”

For now, the company has decided to limit how much Facebook data it will use. It will steer clear of certain personal information such as sexual orientation, even if such data might help sell tickets to certain shows. “The last thing I want is for customers to say, ‘You know what, you guys are creepy, you're invading my privacy,'” Shaukat says. “I draw the line when the stuff is very personal.” He also emphasizes that Caesars protects privacy by not selling data about Total Rewards clients to others, although it sometimes sends promotions from other companies. Such promotion partnerships often make good sense, such as when an airline wants to fill its seats to Las Vegas by advertising deals on flights.

As the head of Total Rewards, Kanter was on the front lines of data-gathering about customers. He wanted to know all he could about his clients. But he did not want to strip them naked through the most aggressive, cutting-edge possibilities of data aggregation. He sought to bring more customers through the door but also hold his head high and believe that he was doing the right thing. As he considered new data, he applied what he called the Sunshine Test: “If all the information were out there in the light of day, would our customers understand and be okay with what we are doing, and is there some kind of commensurate value that they are getting?”

Of course, anyone can gamble or visit a casino hotel without being tracked if they decline to join the Caesars loyalty program. But Loveman believes customers will continue to share data if they get something in return. “If you prove to the guest that you use that information productively, they tend to be quite generous with it,” he says. “If you prove to them on the other hand that you are a dope and you don't listen to them, then they are going to get pretty frustrated with it. For example, if you go to a grocery store and all your grocery purchases
are scanned and you're a lifelong vegetarian but every week you get an ad in the mail for meat, that pretty much convinces you that nobody is listening.”

Joshua Kanter of Caesars advocates a “Sunshine Test” when it comes to using personal data. Source: Author photo.

Data's Blind Spot

For all their power and potential, big data and data analytics, whether about specific individuals or broader business trends, are not all-powerful and do not always produce the right answer. For Gary Loveman, data's limitations in forecasting the future failed him when he most needed insight.

In 2006, rival casino innovator Steve Wynn offered to sell him a subconcession to operate in Macau for $900 million. Harrah's had already passed on an opportunity to buy into Macau in 2002. That year, the government there ended a decades-old casino monopoly and auctioned off three licenses, opening the market to foreign operators. Executives involved in the decision say Harrah's worried that association
with Macau's unsavory reputation could complicate their standing with US gaming regulators. Several years later Harrah's had a second chance when three more sublicenses went on the market. By then it was clear that gambling in Macau was growing dramatically every year and nearing Las Vegas in gaming revenue.

Loveman, his chief financial officer, and others delved into their spreadsheets and conducted their usual vigorous analysis. Could their mathematical models justify such a high price tag just for a license to operate in the former Portuguese colony? Looking at statistics from 2005, the math nerds saw that all of Macau earned casino revenue of $5.7 billion in 2005, up from $5.1 billion the year before.
¹

A few weeks later, Loveman called Wynn with his conclusion: “Steve, it's too expensive. We don't believe that we can sustain that number.”

“That's my price,” Wynn replied. “If you don't want to pay it, I'll find someone else who does.”
²

Wynn found a buyer at his full asking price almost immediately. The buyer's confidence in untested potential trumped rational analysis. Macau has since become the world capital of gambling, dwarfing Las Vegas, with about seven times more gambling revenue than Las Vegas in 2013. Chinese players have emerged as the world's biggest whales—mega-gamblers who wager millions of dollars a year, and they love Macau. Loveman looks back on that decision as the biggest mistake of his career.

“No one had ever paid $900 million just for a license—not a building or a business,” Loveman says. “The tremendous accumulation of wealth in coastal China, the desire of folks in that market to gamble, the quality of the facilities themselves to be built—there was no precedent ever in the history of the industry that could anticipate such a thing. So as a result the methods that we used, the kind of conventional analytic methods that we used—they just can't foresee that kind of thing adequately. So as a result we underestimated the value. . . . Even the most optimistic people—including Steve, who I consider to be wildly optimistic—could never have imagined that that market would be $35 billion in 2012, and that's exactly what happened.” By 2007, Macau was nearing Las Vegas in overall casino revenue; it surpassed
Vegas in 2008. Revenue continued to soar in the following years as Vegas went into a deep slump, and in 2010 Macau made $23.5 billion, more than double the casino revenues in all of Nevada.
³
Total Macau casino business had about doubled again by 2013, when it recorded $45.2 billion in revenue.
⁴

Wynn and Sheldon Adelson, the owner of the Las Vegas Sands Corporation, whose properties include the Venetian, both jumped at the chance to expand into Macau when licenses were first awarded in 2002, cementing their reputations as casino visionaries. Conventional wisdom had underestimated both men before. Many predicted Wynn would go bankrupt after he opened up the $630 million Mirage casino in 1989. “He's such a genius that I'm not sure any analytics could trump his intuition, so he's actually a little bit of an anomaly, I think,” says Patti Hart, CEO of slot machine maker IGT. “Steve has a very sophisticated analytics business. The problem is his ideas are always better than the analytics because he has just great intuition.” Conventional wisdom also expected Adelson to fail after he opened the Venetian in 1999. Both instinctual investors defied the skeptics.

Another example of the value of instinct played to the company's advantage over the long run. After Harrah's reached a deal to buy Caesars Entertainment in 2004 for $9.4 billion, Caesars Palace executives briefed Loveman and top managers on their deal with singer Celine Dion. She had agreed to anchor their new four-thousand-seat Colosseum starting in 2003, performing two hundred shows a year for three years. Many at the time thought a single headliner could not command big crowds like larger productions did.

Caesars Palace officials told Loveman and marketing chief Rich Mirman that the Celine contract had proved vital to reviving the Caesars Palace brand. The Harrah's financial team had looked at how much they were going to pay her and thought the deal made no sense. But in the first months after the show opened, on days when Dion performed, the hotel and casino showed additional income of $200,000 from more gambling and food and drink revenue.
⁵
“You know, we never in a million years would have done the Celine Dion deal, not in a million years. But yet it was the key to their success,” Loveman told Mirman as
they left the meeting. It was another case where a company experiences intangible benefits that did not show up in the numbers. Celine Dion remains a leading performer at Caesars Palace.

Caesars' Influential Shadow

Even using extensive data from its Total Rewards system, Caesars can sometimes be clueless in reading the intentions of their clients. David Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas, is a Total Rewards member who receives a stream of what he considers mistargeted offers. The author of three books on gambling, Schwartz cites as examples discounted “insider” rates to stay at the company's hotels in Las Vegas ranging from $20 a night at the Quad to $94 at Caesars Palace, under email headlines such as “Wish You Were Here . . .”
⁶
He gets offers to visit Atlantic City, an unlikely lure for someone living in Las Vegas. And to attend an overnight party celebrating the 2009 comedy film
The Hangover
. Schwartz is married with children and says the latter offer does not appeal to him.