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Heart of the City

Caesars Chairman and CEO Gary Loveman outlines the city-integrated resort and the future of casino gaming

Heart of the City

Policymakers and social scientists increasingly understand that casino development projects offer the most economic and social benefits when they are specifically tailored to the needs of their host communities. The long-held view that casinos exist across a spectrum anchored at one end by neighborhood slot parlors and other forms of convenience gaming and at the other end by integrated destination resort casinos has become incomplete.

Over the past decade, a third dimension of casino gaming has emerged in North America that provides another option for urban policymakers to consider.

I call this model the city-integrated or urban resort. Its defining feature is integration with its location’s pre-existing business community and attractions. In this model, the casino itself is both a physical and a metaphorical hub. Its spokes radiate not only to amenities in the casino complex itself, but also to established restaurants, shops, hotels and recreation offerings in the larger metropolitan area.

It is outward-oriented, not inward-oriented. In this way, it is distinct from the integrated destination resort model, yet captures many of that model’s benefits. Many metropolitan areas can choose between two compelling alternatives, one of which offers the benefits of the city-integrated resort model.

All That and Less? City-Integrated Resorts vs. Integrated Destination Resort Casinos

By design, integrated destination-resort casinos are essentially cities unto themselves—the package of gaming, hotel, restaurants, etc., is “integrated” so that the whole is greater than the sum of its parts, all within the footprint of the resort property.

No one disputes that integrated destination resorts can be significant drivers of economic development—at least, no one who is familiar with Macau, Singapore or the sleepy desert hamlet that many of us call home, Las Vegas. But because integrated destination resorts are cities unto themselves, they might not be the most appropriate model in some urban locations.

The casino and non-gaming attractions within the destination resort are an integrated package, and guests are encouraged to come in and stay. Such casinos are not physically or functionally linked to other attractions in the local metropolitan area. In fact, virtually all of the attractions of a destination integrated resort casino are either literally under one roof or are under common control.

The city-integrated or urban resort model, by contrast, intentionally limits the type and scope of non-gaming amenities that the casino offers inside its facility, and requires the casino operator to forge active partnerships with established local businesses to serve the non-gaming needs of casino customers. For example, such a casino reserves blocks of hotel rooms at existing hotels for its guests, sends them to local restaurants and integrates its loyalty card program with local shops and attractions. The urban resort markets the entire city and its attractions, and encourages its guest to sample all of what the city has to offer. Instead of competing with existing attractions, the urban resort model employs them to establish the destination itself as its competitive advantage.

The urban resort model is most appropriate for downtown cores and other relatively intensely developed urban areas, especially those that already feature significant performing-arts venues, museums, hotels, restaurants and other amenities in pedestrian-oriented, or potentially pedestrian-oriented, locations. But non-downtown urban locations may take advantage of the benefits of the model by finding creative network linkages between and among the resort and existing hospitality businesses. 

The New Orleans Example

The pioneering and still principal example of a city-integrated resort is Harrah’s New Orleans. Harrah’s New Orleans has grown the local tourism industry, is ranked second to Walt Disney World as the most visited attraction in the South, and is the largest tourist attraction in Louisiana. Harrah’s New Orleans has invested more than $1 billion and entertained more than 56 million guests since opening in 1999.

The New Orleans property offers limited hotel rooms and restaurant offerings, in a city replete with them. Our Restaurant and Hotel Partner program explains its success and shows how the casino encourages its customers to visit all the attractions in a market, not just its gaming floor. 

Since opening, Harrah’s New Orleans, despite owning and operating 450 hotel rooms, has spent more than $95 million with dozens of local “partner” hotels and in excess of $45 million with scores of local restaurants and attractions over the past 10 years.

One of Harrah’s most visible investments in New Orleans is the renovation and restoration of the historic Fulton Street corridor, making available several new, high-traffic leasing opportunities for businesses near the casino and creating a gateway to a part of the city that previously was not connected to the primary tourist areas.

In fact, Fulton Street has become a destination in its own right and another reason to visit New Orleans, a new district that doesn’t compete with Bourbon Street or other established tourist destinations. In addition, the project has physically linked the French Quarter, the Central Business District and the Warehouse District, with casino-related pedestrian traffic contributing to the overall vitality of three separate neighborhoods.

The Cleveland Example

Another example of an urban resort, albeit on a smaller scale than Harrah’s New Orleans, is the new Horseshoe Cleveland that opened in May 2012.  Caesars and its partner Rock Gaming invested $350 million to transform the historic Higbee Building, a former department store in downtown Cleveland, into a state-of-the-art casino that retains the unique elegance of the building’s early 20th century art-deco design. The facility is sited in a prominent location in the urban core, adjacent to the professional basketball arena, baseball stadium and entertainment corridor.

Similar to the arrangements Harrah’s New Orleans has made in its host city, Horseshoe Cleveland, which includes a 200-room Ritz hotel, has preferred relationships with three downtown hotels, and those strategic partnerships are already making a positive impact on the city’s total room nights. The property has also partnered with nearly a dozen restaurants downtown, offering our loyalty-program members the ability to use earned credits for fine-dining experiences.

As in New Orleans, and as is the case in most of Caesars’ properties across the U.S., Horseshoe Cleveland also has three partner restaurant concepts inside of the casino (all extensions of well-established local restaurants). The casino also has developed formal sponsorship relationships with several professional sports teams and downtown attractions including the NBA Cleveland Cavaliers, MLB Cleveland Indians, AHL Cleveland Monsters, AFL Cleveland Gladiators and the Rock and Roll Hall of Fame, and supports various civic events. 

Making City-Integrated Resorts Work

While concept, location and design are integral to the success of a city-integrated resort, far more important are specific tools and strategies brought to bear in a particular market.

The experiences and tools that help Caesars deliver the benefits of urban resorts include our Total Rewards loyalty program, which leverages the distribution of our 52 properties and the size of our 45 million-plus patron database, and the business- and community-based organizational relationships we have developed around the country, in particular at urban-based operations such as New Orleans and Cleveland.

Loyalty Program Integration

Many commentators have identified Total Rewards as the leading loyalty program in the gaming industry. We agree that Total Rewards provides Caesars with some unique advantages. No other program allows patrons to earn reward credits or points at one property in Las Vegas, for example, and redeem them inside the casino in New Orleans or at a Harrah’s New Orleans strategic business partner’s restaurant in the French Quarter. No other gaming company comes close to matching Caesars’ distribution of 52 properties in the U.S. and on four continents around the world, all of which create marketing opportunities for our home communities.

Currently, there are more than 45 million customers in the Total Rewards database that have taken advantage of the program, 8 million of whom have been active in the past 12 months. The program provides for four tier cards or levels based on activity of the guest, with each card having a unique cadre of benefits. Patrons earn Reward Credits (points) while playing slots and table games, by making non-gaming purchases at our properties, or by using our Total Rewards-branded credit card to make purchases anywhere. These points accrue and can be redeemed across all Caesars Entertainment properties.

The integration of a successful loyalty program into a city-integrated resort can drive customers to existing restaurants and attractions. It can simultaneously leverage the geographic reach of the loyalty program to draw customers to the resort’s host city independent of specific loyalty-award propositions. These two dynamics explain why implementation of an urban resort development can boost demand for non-casino amenities in a community far beyond the degree to which introduction of a casino simply shifts consumer spending in a local economy.

Partnerships with Local Hotels

Caesars’ Revenue and Lodger Management System allows us to predict lodger demand based on such variables as historical business trends, planned events in a market or region and our own scheduled marketing programs. It is in our best interest, in the community’s best interest and certainly in the best interest of our customers that we have adequate and suitable accommodations to meet demand. To that end, when we expect our own hotel inventory is insufficient to satisfy the demand, especially on Friday and Saturday nights, it makes good business sense to depend on our in-market strategic business partner hoteliers to extend our accommodations capacity via a “virtual” hotel program. 

We rely on this local hotelier strategy in many of our markets. We typically contract with up to a dozen branded hotels in an individual market for 12- to 18-month periods for “block” rooms and/or overflow rooms. In the block agreements, we reserve a certain number of mid-week and/or weekend room nights each month and at an agreed-upon rate, which typically varies each month throughout the year. Once we commit, we pay for these blocked rooms, whether or not the rooms are used. With the overflow partners, there is no agreement regarding number of rooms to be used or availability of rooms. When we anticipate the need for an overflow room (the night prior or weeks in advance), we simply contact the hotelier and expect to pay the previously agreed-upon rate should they have availability. In either case, we will have established rates that make it efficient for the respective hotel operators to accommodate lodging guests.   

Our external hotel partners offer high-quality product and, as such, typically involve branded hotels such as Hilton, Holiday Inn, InterContinental, Loews, Marriott, Renaissance, Sheraton, Westin, W and Wyndham. Caesars chooses its hotel partners based on a number of quantitative and qualitative factors, including location (proximity to the casino is of critical importance to our patrons), available amenities, overall service, condition and economic terms. 

In 2010, Harrah’s New Orleans paid $9.8 million to external hotel partners under its external or “virtual” hotel program, which was instrumental in further maximizing the city’s resources and attractiveness. In 2011, Harrah’s New Orleans bought, on average, 74 external rooms on weekdays and 530 rooms on weekends, and spent more than $8.4 million with its 10 hotel partners. 

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Partnerships with Local Restaurants & Other Attractions

A patron’s loyalty to Caesars is highly correlated to his or her overall entertainment experience while visiting with us. That experience with us may involve a few hours a year or a few days a month, and may not be confined to our facilities. In any event, we are committed to ensuring each guest and their travel companions have a great time every time, whether it is playing their favorite game, relaxing in our spa or other hospitality amenity, touring the market and all of its attractions, enjoying an entertainment venue or dining on or off property, to name just a few popular options. 

The Total Rewards program provides a framework to facilitate unique experiences, a convenient currency to purchase products and services, and a valuable tool for us to develop and facilitate itineraries based on known customer preferences and interests. To maximize the utility of this tool, we form strategic business partnerships with restaurants, regional attractions and other entertainment venues in the markets where we operate.

In New Orleans, for example, we have partnered with more than 50 entities ranging from Besh Steak and Fuji Hana to Spa Laje, Haunted House Tours and the National World War II Museum. We have also hosted or sponsored community events such as the annual French Quarter Festival, as well as events with the professional teams, such as the New Orleans Saints and Hornets. The property’s support for the Audubon Nature Institute is especially noteworthy:  about $2.5 million since the property’s opening in direct support, including purchases of tickets to the zoo, aquarium, Insectarium and Imax Theater for casino visitors.  

Here’s how these partnerships work: In each market where we have strategic business relationships, we will have previously established agreements with a list of service providers where customers may redeem their earned Reward Credits or otherwise use a coupon or voucher from the casino to purchase products or services off the Caesars premises. In most cases the customer will have received a 10-20 percent discount off the listed retail price for the product or service just because that customer was referred to the particular vendor by Caesars. Prior to using their Reward Credits at an established third-party partner, the patron would secure from casino personnel a voucher to be used as currency. 

In the two-year 2010-2011 period, Harrah’s New Orleans purchased $8.6 million of goods and services from strategic business partners (including 30 local restaurant partners) using this Reward Credit program externally.

Support for local restaurants is important in the city-integrated resort model. But equally important is support for the arts, broadly defined. We know from decades of customer research that casino players love a fun night out, and that casinos are hardly the only vehicles for their enjoyment. Casino players love live music, plays and musicals, street festivals, food fairs, sporting events and the visual arts. The ability to help local cultural institutions grow and prosper is part of the mission of an urban resort and part of what makes it a valued community asset.

Again, New Orleans provides a good example. Harrah’s New Orleans has been an integral part of French Quarter Festival for years by helping it to remain a true community event that now attracts more than half a million people (about equally split between tourists and local residents) during its four-day run. French Quarter Festival has grown, in fact, to become the largest free music festival in the United States. Harrah’s New Orleans participates not only as a sponsor, but also recruits teams of employees who volunteer at festival each year, and provides audio/visual equipment for the festival’s free educational seminars about the history of New Orleans music. 

Independent Validation

While the city-integrated resort may be new to the casino executive lexicon, the economic development and urban planning communities have begun to acknowledge its ability to contribute to cities both large and small. For example, a recent independent analysis of casino developments in downtowns across the United States  identified the traits common among urban casinos that most benefit area businesses:

• Integration of a casino into a downtown’s urban environment to encourage patronage at other businesses.

Casino entrances are near existing food and drink establishments and hotels. Some parking is distributed within one to two blocks of casino. There is a “walkability” in the immediate area. A casino in this environment should not be fully self-contained in terms of other amenities, including restaurants, retail shops and other amenities that may be found in the area surrounding the casino.

• Partnership with existing businesses.

Each of the casinos includes existing businesses as partners with the casinos participating in their comp programs. Notably, non-comp businesses benefited from the opening of the casinos as well, just not as much as the casino’s partner businesses. In the case of Cleveland, group promotions and sponsored concerts/artists from the casino are anticipated to benefit usage of their theaters.

These researchers are documenting effects with which local stakeholders are intimately familiar. For example, Harrah’s New Orleans funds an extensive print destination marketing campaign in association with the city. As Robert Bray, the area general manager for Marriott in New Orleans, recently put it, “Harrah’s continues to be a major marketing partner with the city. By investing in New Orleans’ future, Harrah’s has helped broaden the effectiveness of ad campaigns, ultimately benefiting hundreds of hotels, retail stores and other businesses that operate in the downtown business district and the French Quarter.” 

Civic leaders in Cleveland also appreciate the urban resort model. Joseph D. Roman, CEO of the Greater Cleveland Partnership, wrote recently that the Caesars/Rock partnership there “has not only maintained but also increased its model to integrate a new casino with the other assets in the city. New infrastructure connecting the casino with our convention center and lakefront museums will amplify everyone’s business. Investment and expansions are occurring as a result of Horseshoe, and business throughout downtown is up and growing.”

The Bottom Line

Despite the proliferation of casino gaming around the world during the last two decades, many markets remain underserved—including many large metropolitan areas in North America, Europe and Asia. There is an enormous opportunity for the casino industry to implement additional city-integrated resorts in many locations, building upon the lessons of New Orleans and other case studies and improving both the concept and its implementation.

That’s exactly what we’re doing now with the project Caesars and Rock recently opened in Cincinnati, the project we’re jointly developing in Baltimore and the one Caesars is pursuing in Boston. I maintain that it’s in the industry’s broader collective interest to further test, refine and champion this model.

Caesars has always advocated that each community tailor casino development to its own local needs, constraints and aspirations. Policymakers considering the introduction of casino gaming should weigh the advantages and disadvantages of the full variety of options. These policymakers, especially ones representing large urban areas, should include in their deliberations whether and how they might employ the urban resort model to advance the interests of their own communities.

By explicitly prioritizing the intent of gaming as a catalyst for broad-based business growth and economic development, this model provides a compelling foundation for the support of gaming by many local communities and their leaders

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