The house always wins,” Mark Frissora says, repeating the maxim to remind his guests of the statistical predictability underpinning craps games, blackjack tables and slot machines from Atlantic City to the Las Vegas Strip.
Except in January 2015, one house lost: the operating company behind Caesars Palace and the Harrah’s casino chain filed for Chapter 11 bankruptcy protection, sunk by more than $18bn of debt stemming from the buyout its private equity owners, Apollo Global Management and TPG Capital, struck in 2008, just before the financial crisis ended Wall Street’s winning streak.
Two days after its owners announced the filing for Caesars Entertainment Operating Company, they named Mr Frissora as its chief executive. His task was to make the house a winner again.
Mr Frissora was reassured about his chances by his son Chris, who works in restructuring and had been studying Caesars. He was struck by his son’s explanation of how casinos generate cash — from hospitality and entertainment as well as gaming — and by his appraisal: “What a cool gig.”
Glad-handing high rollers and cutting deals with resident rock stars would have to wait, however. When Mr Frissora walked into the ancient Rome-themed resort in Las Vegas, which was founded by Jay Sarno in 1966, his immediate challenges were staff unsettled by rumours that the company would be broken up, and ugly headlines about creditors fighting Caesars’ private equity owners.
Mr Frissora was not the obvious choice. He started his career at General Electric and his previous chief executive roles had been at Tenneco, the auto-parts maker, and Hertz, the car-leasing company. His tenure at Hertz attracted scrutiny from activist investors, including Carl Icahn, and ended in 2014 after the company disclosed accounting errors.
Apollo and TPG, which had majority control of Caesars at the time of Mr Frissora’s appointment, wanted him to concentrate on operations, he says, but that still posed the challenge of keeping customers happy and employees focused on the business rather than the bankruptcy. “If you take your eye off the cash, customers or employees, you’re dead,” the 63-year-old says.
The bankruptcy examiner’s report into whether directors and former executives breached their duties was “pretty tough on everyone that had been on the board,” Mr Frissora notes, but he did not clear out the management team he inherited.
“I’ve always tried to be very careful about not getting rid of people that run operations [and] have the knowledge of the business, because that ends up being the golden goose, oftentimes,” he explains. The people running Caesars knew what ailed it, he adds: “You just go out and interview them.”
In the first three months, he toured 27 Caesars properties, asking staff: “If you were CEO for a day, what would you do?” There were 60 ideas, but he forced his team to “filter, filter, filter; prioritise, prioritise, prioritise”.
The amount Caesars spent on refurbishing each hotel room
Those priorities including revitalising Total Rewards, the loyalty programme that analysts estimate helps Caesars generate 10 per cent more revenue at a given property than its rivals; and investing in hospitality, recognising that Caesars makes higher margins in its bars than on its gaming floors.
Mr Frissora boiled the feedback down into wallet-sized cards he gave to staff, setting out a “strategic architecture” with the cornerstones of its business plan and four “accelerators” he saw as most likely to create value, such as sports betting and mobile gaming. His team needed to be “stabilised” and convinced about the right way forward. “I did a lot of hand-holding,” he recalls, “and always stayed positive.”
He focused on increasing cash flow by investing in projects that could pay back in two to three years. That led him to sign off on a programme to renovate hotel rooms that had been starved of investment while Caesars’ cash was being diverted to interest payments.
With less debt to service, Caesars could afford to refurbish at a cost of $20,000 per room and recoup that investment by raising rates by $20 to $40 a night. Sixty per cent of its 23,000 rooms on the Las Vegas Strip have been made over since 2014, helping it outpace its peers’ growth in room revenue.
Some changes are more obvious than others. A standard room in Caesars Palace overlooking a car park could be a berth for a travelling salesman anywhere. The difference is more visible in the 24 villas it has opened or redesigned since Mr Frissora arrived: sprawling suites boasting Chinese vases, hand-painted murals and 24ct gold taps. Amenities range from baby grand pianos to $12,000 reclining chairs.
“We’re spending $15m, sometimes $20m, to construct one. They’re like nothing I’ve ever seen,” Mr Frissora enthuses, describing them as “a heat-seeking missile” to attract high rollers from Asia and the Middle East (though they have also been popular with conference-going chief executives). A team of 60 butlers, many of them speaking Mandarin or Arabic, attends customers willing to spend $3,000 to $9,000 a night before they play their first hand.
Caesars Palace is “busting at the seams”, Mr Frissora says, with occupancy around 95 per cent. That has given him confidence to pursue ideas for undeveloped land Caesars owns on the Strip, where he sees “far more demand than supply” for the next five years.
He is building a $375m convention centre in Las Vegas, exploring deals to enter Japan, and programming esports championships. A recent decision by the US Supreme Court could unlock $1bn a year in sports betting revenues, he predicts. Caesars last month announced plans to roll sports betting out to New Jersey and Mississippi. Mr Frissora is exploring joint ventures and acquisitions in that market.
Caesars’ emergence from bankruptcy last October bolstered Mr Frissora’s optimism, but he still has work to do to persuade investors. Even after announcing strong earnings last week, Caesars spooked the market by saying it had seen pressure on Las Vegas room rates in July and August. “This is not some reason to panic,” Mr Frissora insisted. Nevertheless, the stock slid almost 15 per cent.
Shareholders who stuck with the company would not be disappointed, he promised, but much of its stock was held by short-term investors — or, in the gambler-CEO’s disapproving words: “fast money”.
Three questions to Mark Frissora
If you weren’t doing this, what would you be doing?
I’d probably be a coach. I love coaching. I have four kids. They’re ages 31 through 37 and I coached all of them in different levels of sports. One of my more rewarding experiences in life is to be able to get a team together and bring out the best in all the players.
What was your first leadership lesson?
I’m an only child. My father and mother were struggling musicians and my dad was my biggest supporter, my biggest fan, and he taught me something that has stuck with me all my life, which is don’t quit, don’t ever quit. No matter how rough the road is, no matter how many turns you take, persistence, relentlessness pays off.
He gave me a little poem, called “Don’t Quit” . . . I folded it up. It’s still in my little black box with all my memories of my dad. I read it when things get rough.
Who is your leadership hero?
I joined GE in 1978 and Jack Welch took over as the chief executive [in 1981]. I went through a group of management development programmes up in Crotonville and he would come and visit our classes, two or three nights a week. We would be up there, hammering out, learning the GE tenets, the GE blue books.
I couldn’t believe it. This guy was just incredibly passionate about the business and would sit there with us till 11 o’clock at night. He cared.
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