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Environmental Analysis of Hospitality Market

Same-stores operating income also grew by 50. 6 percent, reaching $ 516. 6 million from $343. 1 million in 2004. With the acquisition of Caesar’s Entertainment last June 2005, consolidated operating income should have reached to $ 1. 9 billion, which is higher by 59. 7 percent from $ 1. 2 billion from 2004’s $ 1. 2 billion. However, despite the publicized acquisition of Caesars, Harrah’s Entertainment expect that its ability to integrate Caesars with its current operation will be the critical success factor in realizing the real potential of acquisition.

Harrah also had several acquisitions in recent years which accounts to its phenomenal growth in the hospitality entertainment industry. Acquisitions cost reached $ 11. 276 billion for a total of 19 established casinos and brand name rights (Exhibit 2). Currently, income from casino operations contributes 67 percent of Harrah’s Entertainment total revenues. Food and beverage and Rooms contribute 15 percent and 11 percent respectively (Exhibit 3).

50 percent of Harrah’s Entertainment total operating expense comes from its casino operations, while is property maintenance expenses contribute to 24 percent of total costs because of high investment in property and equipment. Food and Beverage and Food segments contribute only 8 and 2 percent

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respectively (Exhibit 4). Datamonitor defines the casinos and gaming sector as “consisting of all forms of online and traditional betting on sports, lotteries and slot machines, as well as gambling in casinos or bingo halls.

” Market value is derived from net winnings for all operators. Depending on the type of game and its location, net winnings ranges from 15 – 20 percent of total bets wagered. Market share of each company is measured on the basis of net winnings (Datamonitor 2005). Growth in the casino and gaming sector is attributed to the increasing popularity of gambling as a leisure activity. With the legalization of gambling in certain areas of the world, global revenues have shown consistent growth.

In 2004, the casino and gaming sector was valued at $ 280. 75 billion, following an expansion at a compound annual growth rate (CAGR) of 6. 3 percent since 2000 (Exhibit 5). Despite its maturity, the industry experienced growth with the expansion of online sites, which have made gambling more accessible to potential customers worldwide. However, with the recent legislation passed in the United States on online gambling, industry experts expect growth within to cap and consolidate (Datamonitor 2005).

Exhibit 5. Global Casinos & Gaming Sector Within the industry, slot machines still remains the largest contributor to gambling revenues, generating a net value of $ 86. 8 billion in 2004, or 30. 9 percent of global revenues (Exibit 6). Nonetheless, online gaming and casinos are increasingly becoming more popular to tourists. In addition, gambling on sports and racing events is also becoming more popular alternative (Datamonitor 2005). Exhibit 6. Market segments per type of game

Asia-Pacific region has the highest percentage of gambling revenues accounting for $ 153. 4 billion net win, or 54. 7 percent of total global revenues. United States account for 27. 5 percent of total global revenues, but industry experts expect this figure to improve further as gambling becomes legalized in a number of states (Exhibit 7). European region still has smaller revenues as compared to the United States and Asia-Pacific; however, growth is expected in the region with the adoption of online gaming sites (Datamonitor 2005).

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