Caesars Bets on Growing Its Business With Non-Gaming Hotels

When it comes to the hospitality business, there’s usually companies that run hotels and those that run casinos with hotels.

But all that is changing as more traditional gaming companies are looking for opportunities to open hotels without the poker tables and slots: Caesars Entertainment is now one of them.

The Las Vegas-based company announced that it will now begin licensing four of its brands — Caesars Palace, Flamingo, The Cromwell, and The LINQ — to owners and developers who want to use those brands to build hotels and resorts worldwide.

Already, two Caesars-branded resorts and a beach club in Dubai are expected to open by the fourth quarter, and the company also signed a deal with Grupo Questro to open a Caesars Palace in Puerto Los Cabos, Mexico, as well.

Less About Gaming, More About Entertainment

Caesars’ desire to expand more into non-gaming hospitality reflects the fact that, increasingly, its business is being driven not so much by gaming as it is from non-gaming sources, especially in entertainment.

“More and more of our business is non-gaming related,” said Robert J. Morse, president of hospitality for Caesars Entertainment. “Our group business, our FIT [fully independent traveler] business, I mean, if you saw surveys now, over 20 percent of people who come to Las Vegas say they have no plans of gaming at all.”

That trend also holds true to Las Vegas overall, noted Caesars vice president and executive associate of hospitality, Dan Thaler. “Every single year, the portion of revenue coming from non-gaming is outpacing gaming now, particularly when you look at the customer statements of where that’s coming from. Most people, historically, thought of Vegas as gaming and then everything else around it. Now, gaming is just one piece of the broader offering.”

Morse described Caesars as “an entertainment company” and “the third largest booker of entertainment in the world” and that’s what makes will make its brands unique for hotel owners and developers who want to capitalize on that

He added, “We really have something that is different than most hotel brands have, and that is the fact that we look at the business as being entertainment as much as it’s just providing a hotel location … it differentiates us from others.”

Morse said the company has been contemplating an entry into non-gaming hospitality “for quite a while” but the company’s bankruptcy in 2005 temporarily derailed those plans.

“It was really only one portion of the company that was in bankruptcy,” Morse explained. “The company was still solid, we had good cash flow, but it was just too complicated.”

As the company dug itself out of bankruptcy, Caesars felt like this would be the best time to get into the hotel branding game.

Does This Make Sense for Caesars?

While most gaming companies tend to stick with gaming, these companies are increasingly looking to diversify their portfolios into other businesses. Prior to his departure from Wynn Resorts, Steve Wynn, for example, had plans to open a Disney-esque entertainment park, called Paradise Park. MGM Resorts International has also expanded its investments into various entertainment- and sports-related businesses, and also has a non-gaming resort in Sanya, China.

“This announcement makes sense on a few levels,” Dan Wasiolek, senior equity analyst for Morningstar Research Services said. “Caesars wants to extend its reach and brand, and this is a way to do it with minimal capital, following an asset-light model. If successful, Caesars can leverage and grow its loyalty network.”

Caesars Entertainment has a sizable loyalty program of its own, called Total Rewards, which has 55 million members, and last year, the company formed a loyalty partnership with Wyndham Rewards, which has 56 million members, allowing members of both programs to earn, redeem, and transfer points.

Morse said Caesars intends to retain its valuable loyalty partnership with Wyndham, and he also believes the company’s distribution strength and immense brand recognition will also be a benefit to owners and developers.

“We certainly have a very robust website, a big loyalty program, and the very well-known, unaided awareness worldwide with the name ‘Caesars’ is incredible,” Morse said. “You don’t have to teach people what Caesars is.”

Some Potential Challenges, Opportunities

The incredible brand recognition Caesars has could be a double-edged sword, too, in that some guests may expect future Caesars hotels to also have a gaming component.

Wasiolek also wondered “if the Caesars and Flamingo brands are too specific for there to be much demand.” He did, however, see room for opportunity with “the LINQ and Cromwell brands are more lifestyle, modern concepts that have driven success for traditional hotel brands. Further, these two brands offer culinary and nightlife differentiation to existing options for third parties.”

Morse said the company has major marketing campaigns in the works for the upcoming Caesars properties opening in Dubai, and that the company’s new chief marketing officer, Chris Holdren, a Starwood Hotels veteran, has big plans for marketing the brands.

The company is positioning Caesars Palace as “indulgent and fun luxury,” Flamingo as a “vibrant Vegas-style resort,” The Cromwell as a “luxury lifestyle boutique — the place to ‘see and be seen,’” and The LINQ as “social, sensory, and modern.”

And while Caesars is not a small company by any means — it operates 47 casinos and a total of 38,000 hotel rooms in five different countries — it is now more directly competing with other well-established hotel companies such as Marriott, Hilton, InterContinental Hotels Group, AccorHotels, Choice Hotels, and Wyndham to attract owners and developers.

Morse, however, believes that the increasing consolidation taking place in the hospitality industry is “a tremendous advantage” for Caesars. “As the consolidation has occurred, it gives owners fewer and fewer choices. The reservations system gets stressed with more and more room nights being pulled out of the same marketplace.”

He added, “If you want something that’s different, that’s a little bit more differentiated in the marketplace and it’s not a typical Marriott, Hilton, Hyatt, or IHG, that’s what we do.”