Schuetz: Soaring Into The Stratosphere

“High All the Time”

— 50 Cent song title

I recently moved back to Las Vegas in order to undertake a writing project, and it has sparked a desire to talk about Vegas things.

I understand that I am traveling far from the pack, for it seems that more than 90% of the folks writing in the gaming space today are all-in on prediction markets. And that’s cool. But I do think that, when we talk about gaming in the United States, we should occasionally pay lip service to the casino segment. It actually does still seem to matter to a few of us.

One of my more curious past engagements with Las Vegas was with the Stratosphere Tower, which has an interesting and long history. My involvement with the Stratosphere began when I was an executive at Grand Casinos, Inc. 

Grand Casinos, Inc. was a company founded in late 1991 by Lyle Berman in Minneapolis. Its mission was to facilitate the development of casinos in conjunction with tribal nations on tribal land. The company saw a niche in providing financial capital and managerial expertise as the tribal nations entered the gambling space. And it worked.

The company reached a market capitalization of over $1 billion in four years, back when a billion dollars was serious money. Through time, we added non-tribal casinos to our product mix, primarily in Mississippi.

While Grand was rolling, Lyle was approached by Bob Stupak to fund an underfunded construction project in Las Vegas that Stupak was involved in driving. The project was the Stratosphere.

We all talked about it for some time, and, as a rule, I was death on it because I was the marketing guy for Grand and I did not want to subject our brand to the high risk of depreciation that I saw in associating with Stupak. But Lyle was very enamored of it, for I sensed that he saw Grand entering Vegas as joining the “big show” for the company — and for Lyle. 

He won that debate, as he should have, because he had the most dollar votes and was one of the smartest people I have ever been around.

A dog with fleas

Grand bought a big chunk of the Stratosphere. I basically stayed away from it, and when I reached the end of my five-year vesting period for my Grand stock options, I opted to cash out, step back from full-time involvement with the company, and focus on special projects. I also needed to chill a bit, for opening a half-dozen casinos in five years takes a toll.

As I was relaxing in my own little world away from Grand, the Stratosphere opened. They were kind enough to invite me to the opening, and during that event, I was very pleased to have had little to do with it. To me, it appeared not to be working, and unfortunately, that opinion was soon shared by the market.

As the initial negative reviews grew and the numbers shrank following the opening, I was contacted by the president of Grand, Pat Cruzen, who asked me to fly out to Vegas to take a look. I spent five days as a tourist at the property, with a funny alibi for being there. This even included meeting at the after-shift watering holes to visit with the casino folks. I then returned to Minneapolis and sent along a nonplussed write-up to the home office.

About a week later, Lyle called me, and somewhat unusually for Lyle, he asked one question and then listened. I was very direct about my criticism of the property, suggesting it was a dog with fleas from an operational and marketing perspective.

A few days later, Lyle dropped by my house and asked if I would consent to being the president of the property on an interim basis. I agreed. He said we would fly out in two days, and I should pack what I needed for an indefinite stay.

Well, being president (they later added the title of CEO) of the Stratosphere was a hoot. It was really a full-time job for I was living in a suite at the top of the hotel, and my home was approximately 1,600 miles away.

When a casino facility opens, it has been subjected to extensive thought and analysis, and to suggest that this has been going on for years is not an exaggeration. There is a huge amount of planning for the opening and operating plan of a casino. With me, I had two days’ notice. Strangely, some of the stuff we threw against the wall worked.

A huge advantage I had was that I couldn’t really screw things up. No one expected things to improve, so I was involved in a gigantic freeroll. I do not believe that the importance of this can be overemphasized. One never wants to get in a street fight with someone who has nothing to lose.

I was also on a short timeline. Cash was short, as was the investors’ humor. Things needed to happen quickly, so the typical approach of paralysis by analysis was neither an option nor a concern.

My right-hand Ann

One of the first things I did was to ask Grand for one person to help me. A woman named Ann Holland was involved in marketing the Mississippi properties for Grand, and I needed her. I asked Lyle to send her to me, and he agreed. During this time, Lyle was calling with some very weak cards, so he was working to keep me happy.

I was not sure what I specifically wanted Ann to do, but whatever she touched always seemed to improve. Most importantly, Ann was the type of person who, if I was screwing up or doing something inappropriate, wrong, stupid, or whatever, she would walk into my office, shut the door, and tell me. With a smile.

I believe that if the head of a property does not have an Ann, they should get one. It is a critically important role in a business enterprise. There are a lot of folks around an enterprise who will suggest that the CEO is quite brilliant, but far fewer who will be really honest. Ann helped me a lot.

One of the fascinating things about the Stratosphere was that no one, and I mean no one, in Las Vegas benefited if it failed. Yet, some elements of the local press could not push bad news out fast enough. And while I am always an advocate for honesty, they sometimes pushed out nonsense, for, apparently, it made a better story. 

Going into a three-day weekend, a local paper reported that we might not be able to make payroll for long. This was nonsense, and the reporter was away on a three-day holiday and was not picking up his phone. I spent about 20 hours telling every employee in the building that it was nonsense. 

People had left other jobs to work at the Stratosphere, and now they thought they were going to be out on the street. And it was all a stupid rumor being broadcast by someone getting a paycheck for supposedly being a journalist. 

Our real problems seemed insurmountable, and the often careless press, looking for a dramatic headline, only added to the burden. I did think that the late Gary Thompson of the Las Vegas Sun did a great job of covering the property without putting his thumb on any part of the scale. What Gary did was show up at the property, walk around with me, listen, and ask questions. The others usually called and wanted a statement.

Communication is key

One thing we did that seemed to pay dividends was to put our employee communication efforts on steroids. I had a meeting with every employee on the property, in groups of 10-15, lasting 30 minutes. They all knew who I was, what our situation was, and how we planned to dig out of it.

Another tactic I employed was to write a letter to the employees at about five-day intervals, signed “Richard.” This was not a slick handout, but a letter on our stationery. Amazingly enough, they read it, and my guess was that getting a letter just seems more important.

I also spent an enormous amount of time in the facility, not in my office, but managing by walking around. This was augmented by the fact that I was living in the facility, and when I would wake up at 4 in the morning, I would throw on some clothes and go visit the kitchens, the security office, receiving, the pits, uniforms, or wherever. This seemed to matter, and I am still a big believer that executives too often sequester themselves in the office area. I believe that if more executives got off their butts and went for a walk on their properties, it would improve their performance and the property’s performance.

Oh, and start showing up at 3 a.m. That will get their attention.

In terms of fixing the marketing, there were some huge obstacles. I had an occupancy problem, and when I mentioned this to the hotel brain trust, they bragged about the rate. I let them know that 50% occupancy was a non-starter and I was much more interested in bodies in rooms, for a start. Once we filled the rooms, we could begin focusing on increasing gaming revenue per occupied room.

The casino marketing challenge was fairly easy. Since we were short on cash, we really needed to be careful about how we did things. The first thing we decided was to significantly improve the casino’s gambling value proposition. Many casinos have advertised that they have loosened their slots and games in one way or another, but we made it real.

We took all of our dollar-and-above slots to a hold percentage below 2%. We offered single-zero roulette. We offered a huge odds boost on dice. And so it went.

Certifiably certified

We also certified these changes with a very official seal we had designed, which we used in all our marketing efforts. It said “Certified” in a very official way. It was funny when a Nevada Gaming Control Board agent came to my office and asked who certified our statements. I told her that I did, that I could walk down to the floor and show her the table games, and that I would show her all the par sheets detailing the math model for each slot machine. She was quite cool with all that, and we had great fun. The reality was that we were being quite honest.

We defined our market area as Las Vegas, for we did not have any money to go beyond that, so we aimed at every airline passenger, hotel guest, and resident in town. We could hit them inexpensively on the planes and in their rooms, and the locals were being bombarded by free media. It was also a large group. And, strangely enough, we saw a significant boost in traffic and revenue.

Another funny part of all this was our concern that our enhanced gaming product would attract some folks we did not want. This included the teams playing against our in-house progressives when they became EV-positive, and simply others who could cause mischief to our bottom line. I therefore hired a bunch of folks from around town who would walk around our casino and spot those we did not want in the building. This was a double bonus: Not only did these folks point out some problems, but since several of the problems were working for me, they were no longer a problem.

The public’s response was interesting, especially from the locals. They would get very upset when they lost and would sometimes suggest that we deceived them. I tried to explain that a 2% hold meant we still had the edge; they should just be able to extend their play. 

It was also interesting to watch the people who would play the table games. The single-zero roulette was generally no busier than the traditional double-zero game. I would visit with them about that, and they would tell me that a single zero was unlucky.

Well, the end of the story was not a surprise to many. While I would love to suggest that things continued upward and onward, the positive results from the new campaign didn’t last as long as I had hoped. Within about four months, things started slipping. After that, the numbers were not strong enough to prevent us from restructuring the debt.

I have had almost 30 years to do the postmortem on this all, and while I was very honest in the turnaround campaign, it created an expectation among players that they should generally win. And that didn’t happen. I find that funny.

I was also not prepared to go from the turnaround campaign to a maintenance campaign. That was something I missed. It was all great fun, however, and I resigned to the property’s board of directors exactly one year after I started. 

There were rich lessons in the whole experience. An effort doesn’t need to have been financially successful to have been worthwhile.

—

Richard Schuetz entered the gaming industry working nights as a blackjack and dice dealer while attending college and has since served in many capacities within the industry, including operations, finance, and marketing. He has held senior executive positions up to and including CEO in jurisdictions across the United States, including the gaming markets of Las Vegas, Atlantic City, Reno/Tahoe, Laughlin, Minnesota, Mississippi, and Louisiana. In addition, he has consulted and taught around the globe and served as a member of the California Gambling Control Commission and executive director of the Bermuda Casino Gaming Commission. He also publishes extensively on gaming, gaming regulation, diversity, and gaming history. Schuetz is the CEO of American Bettors’ Voice, a non-profit organization dedicated to giving sports bettors a seat at the table.