So Harrah's Entertainment
The deal has its obvious benefits. However, Caesars' shoddily inconsistent operation -- as well as both companies' control of the Atlantic City market -- will leave Harrah's with a mess that will take some time to clean up.
What Harrah's doesn't have and wants badly is a bigger presence on the Las Vegas Strip. With last month's $7.9 billion merger agreement between MGM Mirage
Harrah's wants the bigger Strip positions because it is the most widely diversified casino operator. Basically, that means that it has the largest stable of regular customers that it can scoot to its own properties in Vegas (see Spend Your Way Into Vegas and The Logic of MGM-Mandalay). And that's exactly what Harrah's does, and does well -- the only problem is that the company's lone Strip casino attracts lower-limit gamblers compared with the more upscale resort offerings on the Strip such as The Venetian next door, Bellagio, or Mandalay Bay.
Caesars' Strip presence would correct this.
On the other hand, what Harrah's has that Caesars doesn't have is an across-the-board standard of quality. If you walk into any Harrah's property in virtually any market in the U.S., chances are you're going to walk into a casino that looks just about the same as any other Harrah's casino, with a similar quality of atmosphere. In this regard, some people refer to Harrah's as the McDonald's
Caesars doesn't come off this way. For example, Bally's and Flamingo on the Strip feel outdated. And if you visit Tunica, Miss., you'll find that the subpar Bally's Tunica and the Sheraton have absolutely nothing in common with Harrah's pillar of class in the recently acquired Horseshoe Tunica (see Harrah's Gains, Gamers Lose), much less Caesars' Paris or Caesars Palace properties on the Vegas Strip.
With that in mind, there is a high probability that Harrah's will want to dispose of a few of Caesars' weak chips.
The other problem that would need correcting is the Atlantic City market, where a combined Harrah's and Caesars control the bulk of the market. It's likely that either Harrah's or Caesars would be forced to sell one or more properties in that market.
I think there are obvious benefits to Harrah's having access to Caesars Strip properties, but my feeling is that this is more of a one-shot act of desperation for both parties in reaction to last month's merger agreement between MGM Mirage and Mandalay Resort Group. And whatever happens -- and however the deal goes through -- it will be a long process before Harrah's has the streamlined, high-quality operation it wants.
Fool contributor Jeff Hwang owns none of the companies mentioned above.