Slim fast

NEW YEAR'S WEEK AT HARRAH'S ENTERTAINMENT RESEMBLED A REVIVAL OF AGATHA CHRISTIE'S TEN LITTLE INDIANS. Every time the lights went up in the executive suite, it seemed, another body had hit the floor. While job cuts were rumored, even expected, Harrah's bucked tradition by downsizing from the top.

As of Jan. 1, Senior Vice President of Operations Tony Santo and Central Division President Anthony Sanfilippo were history. While both departures were kept well under wraps by Harrah's, neither was sudden or unexpected to insiders. In contrast to their leisurely leave-takings, Harrah's curtly announced on Jan. 3 that Chief Operating Officer Timothy Wilmott was resigning, effective two days later. According to the company, its second highest-ranking officer was departing "to pursue other opportunities," a favorite corporate euphemism when an exec's exit is less than amicable.

It wasn't long before the news wires were carrying reports of strained relations between Wilmott and CEO Gary Loveman, along with Wilmott's admission that his exit was prompted by recent events at Harrah's. Cheeseparing of the payroll soon began in earnest, with Loveman adding Wilmott's portfolio to his own and announcements that one divisional presidency would go unfilled, as might Santo's job.

The sudden -- and in one case, rudely abrupt -- defections from the top echelon of Harrah's prefigured more "efficiencies" and "streamlining" to come. Even Harrah's wasn't arguing that premise. And while the company's king-sized leveraged buyout might not go through for another 15 months, if it all, Harrah's was widely reported to be thinning out the king's horses and the king's men, as though the acquisition by Texas Pacific and Apollo Management were a done deal.

"They kind of telegraphed it," Morgan Joseph stock analyst Adam Steinberg says of Harrah's indications that cuts in corporate overhead were on the way. Steinberg puts the savings target at $100 million, which he describes as exponentially more than other casino companies, like Donald Trump's, spend on corporate overhead altogether.

Hired-gun efficiency experts are said to have been on site since September, riffling through balance sheets. An informed source said pink slips are expected to start going out in the next week, with at most 500 workers marked for termination. Most of the cuts are expected to fall upon corporate headquarters and none, so far, on the casino floor itself.

A microcosm of what could happen at Harrah's is already playing out at the Tropicana, where new owner William Yung is embarking on a long-promised purge of casino staff. Entire departments have been slated for elimination. These include accounting, purchasing and payroll, but others may not be exempt.

Like the Tropicana's, the brunt of Harrah's cuts are expected to fall on white-collar employees in areas like marketing and information technology. (A surprising choice, in that the holy grail of Harrah's success is its reliance on database marketing and numbers-crunching, as perfected by former Harvard wonk Loveman.) Once Harrah's goes private -- no more pesky Sarbanes-Oxley -- the investor relations department will surely be on a night train to the Big Adios, too. Harrah's might even follow the lead of Station Casinos during the 2000-05 period and outsource its media-relations and PR work.

While some Wall Street analysts have predicted -- or even called for -- a massive fire-sale of Harrah's assets, Steinberg disagrees. "You can't cut yourself to growth," he says. "You have to invest in the properties."

That would run counter to a reputation Texas Pacific gained during its unsuccessful attempt to gain control of Oregon utility Portland General Electric, a takeover that blew up in Texas Pacific's face when its downsizing schemes were leaked to the media. Beyond "a reduction of officers and high-level managers," Texas Pacific's five-year plan was to cut customer-service staff by more than 25 percent, reduce the workforce at one facility by as much as 50 percent, trim the maintenance budget by 8 percent and jack up prices, thereby doubling or tripling the company's profit margin.

Applied to the casino industry, this would be a recipe for financial catastrophe. History shows that decaying casinos with diminished customer service and low worker morale die horrid, lingering deaths. (The fates of the Maxim, Castaways and Binion's Horseshoe are cases in point.) But some elements of this recipe are already in place and, as early as Oct. 3, leading casino analyst Joe Greff was predicting "minimal investments" in Harrah's Strip pleasure palaces.

Thrift-minded Texas Pacific CEO David Bonderman, who thought nothing of dropping $7 million on a 60th birthday party for himself at the Hard Rock hotel-casino on Nov. 13, 2002, is a cagey fellow, though. When Texas Pacific co-owned utility Texas Genco, it quickly "flipped" it for a $2 billion-plus profit in a year.

How? Although Genco derived a substantial amount of its energy for coal and nuclear power, Bonderman's group discovered a loophole in Texas law that allowed them to peg the cost of energy to that of natural gas. The result? Skyrocketing rates ... and profits. Frequent assurances have been given that Loveman will still be calling the shots at Harrah's but it would not be unprecedented for Texas Pacific to bring a numbers-cruncher of its own to One Harrah's Court.

"One of the classic perspectives on leveraged buyouts is you have a company that is either underperforming or has a perception of underperforming," says William Eadington, director of the Center for the Study of Gambling & Commercial Gaming at UNR. "You can only make a weak case that would apply to Harrah's."

As for lower-ranking employees, Eadington still sees copious opportunity for the white-collar ones. "Las Vegas is in a very, very buoyant market," he observes. "If you're a professional with experience and a good record, I doubt if there's much problem getting reabsorbed. It's clearly inconvenient, as I'm sure executives at the Tropicana would tell you. But that's not a terribly deprived labor force" and experienced executives who aren't sought after here could be quite marketable to casinos in Macao and, eventually, Singapore.

Needless to say, that overseas option will not be available to maids, cocktail waitresses, busboys or front-desk personnel, should Harrah's austerity plan cut that deep. They'd have to hang tough until Steve Wynn's Encore, Sheldon Adelson's Palazzo Tower, MGM Mirage's Project CityCenter and Boyd Gaming's Echelon Place open ... events that are anywhere from months to years off.

"In Harrah's case, I don't know that [the LBO] is going to be great for Vegas," says Eugene Moehring, chair of UNLV's history department, citing the likelihood that it will crimp Harrah's growth. But he blames the investor class and its need for instant gratification: "They don't care about developing a Vegas resort and spending years and billions of dollars to do it."