SCOTT A. LAPORTA - PARK PLACE ENTERTAINMENT - (PPE)
CEO Interview - published 04/09/01

DOCUMENT # MAA613

SCOTT A. LAPORTA is Executive Vice President and Chief Financial Officer of Park Place Entertainment Corporation, the world’s largest gaming company. Mr. LaPorta is responsible for the company’s corporate finance, tax, treasury operations, accounting, insurance and investor relations functions. Mr. LaPorta most recently served as Senior Vice President and Treasurer for Hilton Hotels Corporation, a position he held from May 1996. Prior to joining Hilton, he was Senior Vice President and Treasurer at Host Marriott. Previously, Mr. LaPorta held a series of senior financial management positions with Marriott Corporation, which included Director of Corporate Finance and Vice President of Corporate Finance. He joined Marriott in 1989 as Senior Financial Analyst of Financial Planning and Analysis. Before joining Marriott, he spent three years with PriceWaterhouse. In addition to his position with Park Place Entertainment, Mr. LaPorta serves on the Board of Jupiters Limited, an Australian gaming company that owns the Conrad International Treasury Casino, Brisbane, and Conrad Jupiters, Gold Coast. He is also a director of Baluma SA, the owner of the Conrad International Punta del Este, Uruguay Casino and Resort. Mr. LaPorta earned a Bachelor’s degree in Accounting from the University of Virginia and a Master’s degree in Business Administration from Vanderbilt University.

Sector: Resorts, Casinos & Gaming Equipment

TWST: Could you start out by giving us a brief historical sketch of the company, and where you are today?

Mr. LaPorta: Park Place Entertainment is the world’s largest gaming company. We have 28 casinos, principally located in the United States. Our company owns the Caesars, Ballys, Flamingo and Grand Casinos brands, so we have some of the most widely recognized brands in the industry, which leads to a lot of repeat business for us and customer loyalty. Our company is very well diversified, both geographically and by customer type. Looking at the United States, which drives 90% of our revenues, they’re spread relatively evenly across the country within the regions, with a little over a third from the State of Nevada, another third from the State of New Jersey, in Atlantic City, and the rest of our EBITDA and revenues come from the mid-South region, which is Mississippi and Southern Indiana.

TWST: Can you give us some idea of the large scale trends that we’re looking at, and where you’ll be going over the next couple of years?

Mr. LaPorta: The past couple of years have seen a series of consolidating transactions in the industry, led by Park Place Entertainment. We’ve grown our company by assembling four different gaming companies together. The next phase in the industry’s life cycle will be more of a time of integration, where companies like ourselves will be focusing on driving as much synergy through all the different properties we’ve acquired. By synergies, I mean additional revenues. The past couple of years, we’ve been taking out all of the duplicative costs and now we have our information systems conversions completed so that we’re all on the same platform, and now we can begin to drive incremental revenues through the properties by cross-selling the brands to our customers leading to additional revenues and profitability. Brands and the location of a property are the important parts of our strategy. We have identified the three largest gaming markets in the United States, and then we identified the best locations in those markets and attempt to acquire or develop properties in the best locations. We also like to cluster our properties. For instance in Las Vegas, at the intersection of Las Vegas Boulevard and Flamingo Road (the famous four corners), we have four properties. It’s the most highly visited gaming destination in the world, and when you’re well-located, you get a lot of visitation, without having to spend the marketing dollars to attract those people.

TWST: This same-store growth that you’re talking about, does that mean expanded operating margins?

Mr. LaPorta: Yes, we’re very focused on driving our same-store revenue and earnings growth. At the same time spreading our overhead costs across more properties enables us to consolidate back of the house costs. This also leads to expanding margins.

TWST: Can you comment a little bit about how the company is managed?

Mr. LaPorta: We identified, back in 1998, a disconnect in the public valuations of casinos and what their cash flow generating capabilities were. That’s why we formed Park Place Entertainment; to take advantage of the low valuations and our access to the capital markets. Therefore, we were able to assemble this great portfolio of properties at very reasonable prices that represent only 50%-60% of their full value. In certain cases we identified assets that were underperforming because they were undermanaged or underperforming because they were undercapitalized. In each case, we saw a particular point that would allow us to increase the value of the property under our ownership. We’ve assembled properties that have the leading positions in the major markets — we have the best locations, not only in Las Vegas, but in Atlantic City, where we have three casinos connected at the center of the boardwalk. Now we plan to expand our market share by taking advantage of our locations, cross-marketing opportunities and strong capitalization.

TWST: How do you insure good management and good performance all the way through the company?

Mr. LaPorta: When I referred to undermanaged, I meant that when a small casino company has only one property, or two, or three properties, they’re at a distinct competitive disadvantage to somebody who has, for instance, 28 properties, like us, because we have the marketing systems and the marketing network to encourage cross-visitation in our properties. We have the ability to spread our corporate overheads over more properties, so we have a lower cost structure. So undermanaged meant that they were at a competitive disadvantage to a larger company, and by plugging them into our system, we could raise their level of operating performance. In many instances, it’s with the existing management that was in place before — they just didn’t have all the tools that we can provide them as a manager to drive customer service and profitability.

TWST: What do you do to get good performance at all levels of the company?

Mr. LaPorta: We have a very keen focus on customer service, number one. If you don’t treat your customers well, they won’t come back to see you. Secondly, we have a very strong focus on the cost side of the business. In order to invest money or to spend money, we make sure our managers understand that we expect a return on spending the money. It’s a combination of a very high focus on customer service, and keeping your employees happy. Enthusiastic and well-trained employees typically leads to high customer satisfaction levels, and if you throw on top of that a very strong financial discipline, that seems to be the formula that works for us.

TWST: What part of your business do you think will grow the most over the next few years?

Mr. LaPorta: We believe we’ll have some very strong growth on the slot side of the business, especially at the Caesars portfolio of properties that we acquired last year. The slot side of the business was not a big focus of the previous owners and so we continue to upgrade the slot offerings and the programs there. I think that we will also see a lot of growth through the cross-marketing of our properties, and enticing people to try out our other properties when they’re in town. For instance, we just rolled out a cross-charging program here in Las Vegas, so if someone’s staying at our Paris hotel and casino who goes across the street to Caesars Palace and decides to have some fun there and have dinner, they can charge their dinner check back to their room at Paris. By the end of this year, we will have an integrated, universal slot club for the four corners here at Las Vegas, so that the slot player will earn points at all four of our properties when they play there. We’re also very focused on the table game side of the business. Our domestic table game network of customers is probably the best in the business and we will continue to drive that as well.

TWST: Will increasing sophistication in technology mean a great deal to you?

Mr. LaPorta: We are very big believers in technology, both on the cost side of the business and, also, on generating incremental revenues. But everywhere we can, we’re using technology to reduce our administrative costs, or our cost of doing business. A perfect example is, on our Website, you can make reservations directly at any one of our properties and receive immediate confirmation back via e-mail or Fax. Last year, 5% of our room nights were sold over the Internet, and you can understand that not having to pay any commissions to intermediaries can be very significant to us.

TWST: Do you expect to grow much outside of the United States? What is the outlook for beyond the borders of the United States?

Mr. LaPorta: We’re primarily focused on the United States. It’s where the largest gaming markets are, and the propensity for people to enjoy gaming as a part of their entertainment is pretty high. We do look at some potential opportunities overseas, but so far, we haven’t seen anything, recently, that interests us.

TWST: What are the difficulties, the dangers, or negatives that you worry about?

Mr. LaPorta: I worry about rising costs in the general economy that might cause our customers’ entertainment budgets to contract. That would be my biggest fear.

TWST: Is there much to be gained by catering to persons who don’t gamble in your picture?

Mr. LaPorta: We provide a wide variety of entertainment options through the restaurants that we have and the live entertainment, both musical as well as performers. We do own golf courses in all of our major jurisdictions, so we do provide a nice amenity package. Our spas are also a nice amenity package for the couple or group of friends who want to come to Las Vegas. Not everyone has to be a gambler to come here and enjoy themselves.

TWST: Do you feel that there are any areas of the company that need strengthening?

Mr. LaPorta: We continually try to get better every day. We reexamine our performance and our assets on an ongoing basis, and I think we can improve everywhere.

TWST: What is your own personal focus as CFO right now?

Mr. LaPorta: I am spending most of my time right now working on our development and acquisition plans, assessing all the opportunities that we have as well as focusing on our capital structure, and making sure that it is in tune with the asset base that we have.

TWST: We hear of the aging of the population, we hear of baby boomers getting very mature, how does all that work for you?

Mr. LaPorta: For the travel and entertainment industry in general, the aging of the population is a positive factor. The largest segment of the population is the middle-class, empty nest baby boomers, who now have less demands on their time, less demands on their financial resources, and more time to enjoy themselves, like they haven’t previously. Most people who come to the gaming jurisdictions set aside some money for their entertainment budget, to come here and enjoy all of the product offerings. That segment of the population plays very well to what services and amenities we have to offer.

TWST: If it were the year 2004, and you were on a plateau looking back and looking around, what would you like to see for Park Place Entertainment?

Mr. LaPorta: I would like to see for Park Place Entertainment a continuing growth in our free cash flow. In the year 2000, we generated excess cash flow of $615 million, after we paid all of our bills, all of our taxes, and all of our maintenance capital spending. You think about that over our 300,000,000 shares outstanding, that was $2.00 per share of excess cash flow and, of course, if you put that over our stock price, that’s a pretty healthy yield of 18%-19%. I think that’s what investors should focus on. We plan to continue to drive our free cash flow and deploy it either into growth projects or to reducing the capitalization of our company. So five years from now I’d like to look out and see what I would say is a very strong company that has generated, if all the analysts’ forecasts are correct, over $3 billion of excess cash flow, and that we’d use that to improve our portfolio of assets, as well as de-leverage the company and buy in some of our stock. That’s a formula for a successful opportunity for investors.

TWST: Can you give us the two or three best reasons for the investor to consider you?

Mr. LaPorta: We have a couple of strategic, competitive advantages that others don’t have. We are a company that is the largest in the industry, which gives us purchasing power and margin advantage that others don’t have. Therefore, we turn the ability to be more aggressive on the marketing side into attracting and retaining new customers, taking market share away from our competition. We are in the best locations in the major markets. That is a strategic, competitive advantage that is just unparalleled. Our ability to cross market and encourage cross-visitation, now that we have the properties all assembled, should lead us to the ability to, again, take market share away from the competitors. Finally, as I just stated, we are a prodigious generator of cash flow, and generating, at the current levels, anywhere between a 15%-20% yield on our stock price. I think that’s pretty powerful in today’s marketplace. With the recent trends in the stock market, if people are looking for a company that is a cash earnings producer, Park Place is the place to look.

TWST: Thank you. (MC)

SCOTT A. LAPORTA
 CFO & EVP
 Park Place Entertainment Corporation
 3930 Howard Hughes Parkway
 Las Vegas, NV 89109
 (702) 699-5000
 (702) 699-51210 - FAX
 www.parkplace.com

Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include an Investors Brief or other highlight material to be provided and sponsored by and for the company. This interview with Scott A. Laporta, CFO & EVP, Park Place Entertainment Corporation is accompanied by an Investors Brief containing corporate information.

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