Harrah\'s Entertainment With Over 80,000

Harrah's Entertainment

With over 80,000 employees and 48 casinos opened in three countries (operated under different brands), Harrah's Entertainment is considered to be the world's largest provider of branded casino entertainment. The company has had a very active 2005, with international expansion on the role in countries such as Spain and the Bahamas and new investments in Las Vegas and Atlantic City. These developments have marked an increase in the company's revenues, however, this did not materialize in a subsequent increase of net income, mainly due to a doubling of the operating expenses. On a very competitive market, the country will need continuously monitor its expenses in order to remain profitable.

Current Situation Analysis

Mission/Vision statement

According to the company's website, Harrah's vision statement points out towards the dedication that "each of our brands will be the overwhelming first choice for casino entertainment of its targeted customers." Briefly analyzing this vision statement, it is easy to see that the company aims to be number one in all the segments where it is operating, namely for all the brands that operate under Harrah's portfolio.

External Analysis

There are several important external factors that need to be looked into.

In terms of economic factors, the company is dependant on the general evolution of the economy. If the economy is booming, then it is likely that it will create new work places and will gradually increase the average income of the U.S. individual. This means that there will be a higher probability that he will be willing to spend the extra amount of money on leisure activities, including the entertainment activities offered at Harrah's. This applies to all income categories.

On the other hand, governmental and legal factors are also important, because they virtually regulate the market that the company is operating in. As such, the government may pass laws that could restrict the gambling activity, which would obviously have a negative impact on the company. Other regulations could equally either stimulate overall business levels (including general measures to stimulate the economy, such as tax reductions) or simply decrease it (for example, by increasing interest rates, thus making credit more expensive).

The technological factor is an important competitive advantage in Harrah's case as well. From supervising methods to gaming diversification, the technological factor can bring an impact in terms of decreasing costs and maximizing revenues from customers.

The social factor can be tied with the moral/ethical factor. In this sense, as an entertainment and, especially, as a gambling business, Harrah's position can be sensitive in terms of exterior perception from customers on the morality of this activity. This is why some of Harrah's programs are directed towards countering this potential effect. For example, the company's website has a page entitled responsible gaming where this notion is presented as one of the cornerstones of the idea of entertainment at Harrah's. This includes promoting responsible gambling programs such as Operation Bet Smart® and Project 21®, while also working with the National Council on Problem Gambling.

Industrial Analysis

The industry is characterized by increasingly high competition, especially in the past years. Among the most important competitors for the company are Boyd Gaming Corporation, MGM Mirage and Trump Entertainment Resorts. The first two more notably have significantly high market capitalization and yearly revenues. However, briefly looking through the comparative figures, Harrah's managed both the highest quarterly revenue growth and the highest gross margin profit of all the four companies.

In terms of suppliers, Harrah's has opted for a strategy relying on a diversified pool of suppliers that could thus reduce any potential supply risks. The company also encourages second-tier supplier programs.

Internal Analysis (non-financial):

Management

Gary Loveman acts as chairman, chief executive officer and president of the company, while Jonathan Halkyard is Chief Financial Officer and Treasurer. The management aims at maximizing Harrah's profits with instruments ranging from a keen management of the company's portfolio of brands and increasing customer retention to operational development and investment in new potential ventures, including overseas in countries such as Spain or the Bahamas.

Marketing

The company places an important emphasis on different marketing promotion campaigns, aimed both at increasing customer retention levels and at bringing in new customer for the company. For example, the company employs the Total Rewards program and it also hosts the World Series of Poker Tournament in many of its locations. This is an important marketing tool that can attract potential new customers' attention towards the poker phenomenon.

Operations

2005 was marked by the acquisition of Caesars Entertainment, for an estimated $9.3 billion. The period from June to December of the same year was employed with the fusing of the two operations, including unifying business systems and processes. Harrah's operations are also closely connected with property acquisitions in the Las Vegas and Atlantic City. Throughout 2005, the company has consolidated its land assets basis in these U.S. regions for further operational development.

Financial Analysis:

Revenues increased at Harrah's to $7.11 billion in 2005, an increase of 56.35% from 2004. On the other hand, net income marked a decline to $236.4 million, 35.7 $ less than the net income in 2004. This marks both an increase in operational costs, but it can also be assimilated to the increased investments for sales.

The total assets have grown in value at an exponential rate from 2004 to 2006, with 139%. This growth in asset value can be assimilated with the new land and property purchases in Las Vegas and Atlantic City, as well as with the opening of new casinos in countries such as Spain and the Bahamas. This practically sustained the idea that the company has had a constant development over 2005.

III. Statement of critical challenges

The challenges for the company are likely to come both from general economic and business factors, as well as from those deriving from the highly competitive entertainment and casino market in which the company is operating.

An important challenge that the company will be facing overtime is to be able to survive in this highly competitive market environment, which means that it will need to increase its level of customer retention and, at the same time, attract new customers at a faster rate than its competitors. This will determine the trend that its revenue and net income will follow.

Another challenge will be related to keeping operating expenses down, since the period from 2004 to 2005 marked an increase with up to 63.2% of the total operating expenses. Obviously, a reduction of operating expenses is likely to increase the profitability of the organization.