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There are 5 ways to get fired from Caesars: (1) theft, (2) sexual harassment, (3) running an experiment without a control group, (4) keeping a gambling addict away from the casino, and (5) chapter 11 bankruptcy proceedings

We first encountered the famous casino operator in February, 2011, when Michael Schrage was hyping the data-driven philosophy of its CEO, Gary Loveman, in Technology Review. Here’s a typical bit from the article:

Schrage: What do you like to tell your academic colleagues about the challenges of real-world experimentation and innovation?

Loveman: Honestly, my only surprise is that it is easier than I would have thought. I remember back in school how difficult it was to find rich data sets to work on. In our world, where we measure virtually everything we do, what has struck me is how easy it is to do this. I’m a little surprised more people don’t do this.

We next heard about Caesars in June 2012 from Sarah Koenig on This American Life. She reported on the elaborate efforts that Caesars puts in to bring gambling addicts back to the casino, again and again until there was nothing left to squeeze from them, busting them out (as Henry Hill might say). So that’s where all that data-driven research goes: to target people’s weaknesses and destroy them.

And then I opened today’s paper and saw this news article by Willam Alden:

Caesars Unit Files for Chapter 11 Bankruptcy Protection

The casino operator Caesars Entertainment was locked in a bitter standoff with some creditors on Thursday after it put its largest unit into bankruptcy. Caesars — which has labored under a mountain of debt since it was acquired by two private equity firms for about $30 billion in 2008 — filed to put the unit into Chapter 11 bankruptcy protection . . . But before it could begin in earnest, the Chicago bankruptcy process was halted by a judge in Wilmington, Del., who is overseeing a rival attempt by the creditors to force the Caesars unit into a separate bankruptcy on their terms. . . .

Whatever the outcome, the bankruptcy of the unit — which owns Caesars Palace in Las Vegas as well as numerous other casinos and hotels around the country — provides a vivid demonstration of the risks of buying companies by loading them up with debt. Caesars, whose buyout was emblematic of private equity’s golden age before the financial crisis, has since become a symbol of that industry’s excesses. . . .

But there’s this:

The company plans to keep its operations open as normal.

I wonder if they’re still doing the aggressive hooking of addicts, or whether they’re winding that down now that they’re going into bankruptcy.

P.S. I looked up Michael Schrage and found this:

Schrage has advised segments of the national security community on cyberconflict and cybersecurity issues. . . . Schrage helped launch a series of workshops sponsored by the Department of Defense on federal complex systems procurement.

What could possibly go wrong???

P.P.S. Some commenters seemed to think I was implying that the sleaze practiced by the Caeasars management was the cause of the bankruptcy. I wasn’t implying this at all. My impression from my occasional reading on the topic is that the company was in trouble before the business analytics gurus got involved. So it seems most likely that they did not sink the ship; rather, as the ship was sinking, they got on board and picked the pockets of a bunch of passengers before it was all over.

I am a bit disturbed that someone who’s involved in Defense Department procurement has a sideline in glorifying scammy business practices. And, as an MIT graduate, I really hate to see this sort of thing in Technology Review.

20 Comments

  1. Z says:

    Shhhh, some of us are counting on big data hype for employment.

  2. Dale Lehman says:

    It is not at all clear that the correlation between sophisticated (mis)use of analytics and bankruptcy represents causation. The bankruptcy appears to be due to financing shenanigans (a different sort of gambling) and may not at all be related to poor use of analytics. Unfortunately, we do not live in a world where justice is served in the end. However unethical their use of analytics to pry every last dollar from gambling addicts, I’m not sure that can be connected to this bankruptcy. In fact, their use of analytics may be part of the reason they were able to leverage as much as they were (so there may be something to the causation story of hype leading to bankruptcy).

    • Nick says:

      Yes I find it hard to believe that a casino that tries to manipulate gamblers into spending their last penny at the casino would fail as a result of those efforts. This seems more like correlation than causation. Of course, like parent poster I’m not surprised that a company that took on way too much debt went to those kind of ends to make money, or that the kind of company that would manipulate addicts would attract buyers that tried one too many “financial shenanigans.”

      So maybe we can chalk it up to karmic correlation?

    • Rahul says:

      +1 Schadenfreude?

      I think one needs to de-convolute several issues here. Big Data, the ethical morass that a casino sits on, & the current bankruptcy proceedings sound like independent axes to me.

    • zbicyclist says:

      Agree. It’s the private equity guys who loaded Caesar’s up with debt — and it’s likely that before the bankruptcy they had gotten their money out of there, perhaps in the form of obscene ‘management fees’.

      Private equity people don’t typically know much about the actual business. Oh, they think they do, just ask them. But they know it from a finance standpoint and they know what expenses they think are too high. But their knowledge of operations is sometimes not just nonexistent, but negative.

      Note they acquired Caesars for this mountain of debt in 2008. That means they bought Caesars at the very end of the bubble. That is not a good time to make a heavily leveraged investment.

      • Rahul says:

        I don’t know if I am sure I blame private equity for this one. Some fraction of businesses just fail. With or without PE.

      • Steve Sailer says:

        The Las Vegas Poker bubble of a decade ago was a direct result of the Nevada-Arizona-California housing bubble of the same time, which allowed a lot of people to treat their mortgages as their ATMs. Nate Silver, for example moved to Las Vegas and made a nice living as a professional poker player fleecing amateurs with lots of money to toss around. But the suckers started disappearing, according to Silver’s book, at the very end of 2006, leaving only the sharks to feed on each other. In the spring of 2007 he gave up and went into election predicting. Oddly, Silver never figured out what was going on. If had, he was in the right place in the right time to get rich off the Big Short.

  3. Chris G says:

    > I am a bit disturbed that someone who’s involved in Defense Department procurement has a sideline in glorifying scammy business practices.

    A bit disturbed, sure, but the least bit surprised?

    > And, as an MIT graduate, I really hate to see this sort of thing in Technology Review.

    TR turned up the hype when they went glossy – which is probably about 20 years ago now. I liked the older (uncool) version better.

  4. Rahul says:

    I’ve no priors about Michael Scharge but I found nothing scandalous about this particular piece. It sounded rather innocous.

    Should we debar anyone who has covered tobacco / casino / alcohol from Defense Consulting? In any case, if I must ride my ethical high horse, Defense-Procurement sounds like an ironical enterprise to stand up for; it’d make for an interesting ethical contest to pitch a bomb maker against a casino owner.

    Which part of the interview does Scharge glorify a scammy practice? Most of the description sounded like routine targeted marketing.

    • Andrew says:

      Rahul:

      I didn’t find anything scandalous about the article, I just found it irresponsible. I have no problem with a journalist covering the gambling industry. But I do have a problem with a journalist glorifying it, without reflecting on what is the purpose of all this impressive analytics.

      Michael Scharge may be a wonderful guy and maybe he just wrote this one article without thinking much about the topic. My entire knowledge of him is given in the above post.

    • Andrew says:

      The other thing is, as a statistician I am pretty disgusted about articles that celebrate the use of statistics to rip people off. This might be the same way that, if I were a programmer, I’d dislike articles that glamorize the hackers who scam people out of their passwords. Yes, statistics can be used for all sorts of bad ends and this should be vigorously reported. But not celebrated.

  5. On the topic of casinos manipulating gamblers, I strongly recommend “Addiction by Design: Machine Gambling in Las Vegas”
    by Natasha Schüll (https://www.goodreads.com/book/show/13748038-addiction-by-design). It’s a fascinating and riveting book about how the design of slot machines, casinos, etc. influence the psychology of gambling, and about gambling addiction itself.

  6. Kaiser says:

    Thanks for following up. It’s always interesting to know what happened to some of these companies that were previously hyped. Causars was, and probably still is, a leader in customer analytics but like Andrew, I’m a bit uneasy about all the stalking they do. The LBO (leveraged buyout) bankers probably sucked all the value out and now want someone else to hold the bag.

  7. Rahul says:

    All he is doing is asking questions. Mostly the questions seem quite neutral toned.

    Perhaps I could blame him for not asking a few hardball questions. Is that what you mean? Like interviewing Milosevich & sticking to a discussion of Slavic cusine.

  8. Question says:

    When new “opportunities” do seem to spring forth, is there someone that people can report them to? What would a proactive citizen protection agency look and act like?

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