1. LARGE PUBLICLY TRADED GAMING COMPANIES: CAESARS EIGHTEENTH LECTURE October 30, 2012 William R. Eadington, Ph.D. Professor of Economics, College of Business Director, Institute for the Study of Gambling and Commercial Gaming University of Nevada, Reno www.unr.edu/gaming

2. GUEST LECTURER, NOVEMBER 13 RICHARD SCHUETZ

3. HISTORY OF HARRAH’S (CAESARS) Bill Harrah relocated his father’s bingo business from Venice, CA, to Reno (1937) – Struggled as bingo operator; took advantage of similarity of name to Harold’s Club Purchased Lake Tahoe casino in 1959 – In anticipation of 1960 Winter Olympics – Scientific management; strong on policies, procedures; employee and customer relations Opened Harrah’s Reno Hotel in 1969; Harrah’s Tahoe Hotel in 1973 – Very high quality; attention to detail and cleanliness Took Harrah’s public in 1973; first publicly traded casino company Died in an operation in Rochester, MN, in 1978 Harrah’s purchased by Holiday Inns in 1980 – Conflict of cultures Company expanded into Atlantic City (1980), Laughlin (1987), Las Vegas (1992) – Very wary of Las Vegas – Reputation of moving very slowly into new markets

4. BILL HARRAH

5. RECENT HISTORY OF HARRAH’S Ill-fated partnership with Donald Trump with Harrah’s Trump Plaza in Atlantic City (1982) Moved Corporate offices from Reno to Memphis (1992); later moved them to Las Vegas Won the New Orleans land based casino bid in 1994 – Two bankruptcies, but then were able to turn it into a profitable operation Acquired various smaller casino companies to grow their markets in new jurisdictions – Players’ (1988), Showboat (1998), Rio (1999), Harvey’s (2001); Horseshoe (2003), Binion’s (2004) – Managed various Indian casinos in CA, WA, NC, AZ, KS – Acquired Caesars in 2005; changed corporate name to Caesars in 2010

6. PRIOR TO 2008, VERY FOCUSED MARKETING STRATEGY Invested heavily in data base management rather than bricks and mortar Developed inter-property loyalty program with multiple tiers Developed strong employee incentives for strong performance Targeted a “meat and potatoes” clientele Avoided the high end market; stayed out of Macau in the 2001 bidding

7. Marketing: Unique Strategic Focus (2001) Supply / Products Demand / Customers

8. Multiple Brands One Strategy DISTRIBUTION The Only Nationwide Network of Properties Building Relationships And Raising Switching Cost LOYALTY Identity, Loyalty & Premia BRAND On Target Customers FOCUS Not Merely Good... But Truly Great SERVICE

9. Who is the Target Customer? 26% of players provide 82% of gaming revenues Avid players spend approx. $2,000 annually Multi-market players spend approx. $1,000 annually Avid, experienced and multi- market players spend approx. $3,000 annually Avid, Experienced and Multi-Market Players are 12% of Industry Customers and Provide 55% of Industry Revenues Focus on the Customer

10. Multiple Brands One Strategy DISTRIBUTION The Only Nationwide Network of Properties Building Relationships And Raising Switching Cost LOYALTY Identity, Loyalty & Premia BRAND On Target Customers FOCUS Not Merely Good... But Truly Great SERVICE

11. Multi-brand strategy Maintains separate identities for each brand in order to maximize total return across separate customer segments.

12. VIP, Young Affluent Avid Experienced Player Mature Slot Customer Entertainment At Its Best Most Exciting & Rewarding Experience For Savvy Players “Good Times Place” Harrah’s Brands (2001) “The Party’s at Harveys!” Upper Middle Income Slot Customer

13. 13 Harrah’s Total Unaided Awareness

14. Brand: The power of Harrah’s in East Chicago Acquisition 6/1/98 Re-Branded a Harrah’s (gaming revenues in $ millions)

15. Four Brands One Strategy DISTRIBUTION The Only Nationwide Network of Properties Building Relationships And Raising Switching Cost LOYALTY Identity, Loyalty & Premia BRAND On Target Customers FOCUS Not Merely Good... But Truly Great SERVICE

16. Service: Satisfaction Drives Loyalty Satisfaction measure Terrorist Loyalty (retention) Unacceptable Merely Good Truly Great Apostle 1 Extremely dissatisfied 2 Somewhat dissatisfied 3 Slightly dissatisfied 4 Satisfied 5 Very Satisfied 20% 40% 60% 80% 100%

17. Impact of Customer Satisfaction Brand-wide, Return Intent and Share of Gaming Budget drop off sharply as satisfaction ratings decline.

18. Four Brands One Strategy DISTRIBUTION The Only Nationwide Network of Properties Building Relationships And Raising Switching Cost LOYALTY Identity, Loyalty & Premia BRAND On Target Customers FOCUS Not Merely Good... But Truly Great SERVICE

19. Total Rewards The industry’s first and only loyalty program Comprehensive benefits and rewards Reward credits – communication vehicle Fully integrated – accepted at every Harrah’s, Rio & Showboat casino Aspirational -- the more you play, the more you get. Comprehensive benefits and rewards Reward credits – communication vehicle Fully integrated – accepted at every Harrah’s, Rio & Showboat casino Aspirational -- the more you play, the more you get.

20. Tiered Card Growth Tiered card is an example of a program that incents play consolidation Tiered Card 1999-2000 Revenue Comparisons No Growth <1x Growth 1-2x Growth 2-3x Growth >3x Growth 25% 19% 12% 8% 36%

21. Results In 2000 In 2000, play consolidation was the biggest contributor to our growth 1999 - 2000 Tracked Revenue Comparisons Platinum and Diamond Customers 1999 Revenue $1,085M $165M Play Consolidation $92M Reactivate $73M New Customers $109M Attritor Retention = 90% $1,306M 2000 Revenue Growth = 20%

22. Loyalty = Cross-market Visits

23. Same Store Sales Growth Proven Results Fueling Company Growth * Proven Results Fueling Company Growth * 13.2% *Harrah’s Brand 13.8% 13.5% 17.9% 14.6% 12.3% 11.6% 8.1% ($ in millions) ‘00‘98‘99‘01 6.3% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 5.6%

24. Internet Functionality Increases Site Visitation There are two key interrelated components of our e-commerce strategy Relationship Management: Add functionality to enhance profitability of customer relationships – Self-service through less expensive channel – Deeper knowledge of the customer -- leverage customer information New Customer Acquisition: Increase awareness of Harrah’s among prospects Aggressive migration of marketing to electronic channels Page Views (millions)

25. Internet Site Increasing Room Reservations

26. Four Brands One Strategy DISTRIBUTION The Only Nationwide Network of Properties Building Relationships And Raising Switching Cost LOYALTY Identity, Loyalty & Premia BRAND On Target Customers FOCUS Not Merely Good... But Truly Great SERVICE

27. National Distribution The 1990s: a decade of distribution growth – Developed properties in new segments of riverboat and Indian gaming – Created hub and spoke network of properties – Created regional and national cross-market play, crossing three brands

28. Distribution - 1990 and 2001 1990 States that had passed casino legislation and/or approved Class III tribal gaming compacts

29. Distribution – 1990 and 2001 HET 2001 Harrah’s Showboat’s Rio H Harveys H H H H

30. Strength from Distribution Casinos / Locations * includes only domestic casinos and locations Casinos / Locations * includes only domestic casinos and locations # casinos # markets Park Place Harrah’s 25 21 MGM/Mirage Mandalay 8 16 145 11 21

31. Harrah’s 2000 Net Revenue by division Strength Through Diversity Harrah’s 2000 Net Revenue by division

32. Summary Unique strategy focused on a target customer Multi-brand approach serving unique customer niches Programs build loyalty from target customers Strategy yields cross market and same store sales growth which leads to EBITDA growth Results proving validity of strategy

33. HISTORY OF LEADERSHIP AT HARRAH’S (CAESARS) Bill Harrah (1937 to 1978) Holiday Inns acquisition (1980): Mike Rose (1980 to 1988) Phil Satre: (1988 to 2001) Gary Loveman: (2001 to present)

34. PHIL SATRE GARY LOVEMAN