The Real Jackpot in the Caesar's Palace Bankruptcy Battle: Customer Loyalty Data

Remember at the dawn of the information age when someone - at whom most people scoffed - said that one day information about a business and its customers would be more valuable than the business itself? 

At $1 billion for customer loyalty program data, we've arrived. JL

Kate O'Keefe reports in the Wall Street Journal:

The most valuable asset in the bitter bankruptcy feud at Caesars Entertainment Corp. isn’t the casino operator’s opulent Roman-themed resort at the heart of the Las Vegas Strip. It’s the company’s big-data customer loyalty program, valued at $1 billion by creditors.
The most valuable asset in the bitter bankruptcy feud at Caesars Entertainment Corp. isn’t the casino operator’s opulent Roman-themed resort at the heart of the Las Vegas Strip. It’s the company’s big-data customer loyalty program, valued at $1 billion by creditors.
Caesars chief executive Gary Loveman, a former Harvard Business School professor, said he devised the Total Rewards program in 1998 as a way to attract customers to the company’s casinos without breaking the bank to upgrade them.
Mr. Loveman said he purposely made it quick and easy for customers to earn and redeem points, unlike airline loyalty programs requiring several flights to get a free trip. “In our world, you gamble tonight, you eat dinner tonight,” said the executive, who is stepping down as CEO on June 30 but keeping his other position as chairman.
Caesars, in turn, uses the data it collects from the program to target its marketing campaigns and keep customers playing within its sprawling network of around 50 casinos, driving up overall revenue at the company.
Among the loyalty program’s 45 million members are some particularly loyal fans. Darryl McEwen, whom Mr. Loveman knows by name, runs a website called Seven Stars Insider, named after the top tier of the program. He offers tips on everything from redeeming big-ticket items to the pork chops at the buffet at Caesars’ Philadelphia casino. (They aren’t great, he said.)

 

Creditors view Caesars’ Total Rewards customer loyalty program as the single most valuable asset under dispute in a bankruptcy fight with the casino operator. Shown, an excerpt from a lawsuit filed Nov. 25, 2014 in Delaware court by senior creditors to Caesars’ bankrupt unit.

In a 2015 book about advertising called “Why Is Your Name Upside Down?” adman David Oakley wrote that word-of-mouth advertising convinced him to try the Total Rewards Visa credit card. He quickly became obsessed, charging everything from gas to a $387 bill to put his family’s beloved yellow lab to sleep.

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But Total Rewards has also become an obsession for a less friendly group—the creditors of Caesars’ largest unit. The unit, buckling under an $18.4 billion debt load, filed for Chapter 11 bankruptcy protection in Chicago in January.
In multiple lawsuits ahead of the filing, creditor groups alleged transactions involving the loyalty program were part of a series of improper insider deals engineered by the Caesars parent company and its private-equity sponsors Apollo Global Management LLC and TPG Capital.
The goal of these deals, which also included property sales from the now-bankrupt unit to other Caesars units that remain financially stable, was to keep the unit’s best assets for themselves—and out of bondholders’ reach—creditors alleged.
Caesars says that while the transactions reduced revenue at the now-bankrupt unit, they were necessary for the unit to get cash, pay creditors, and keep its properties within the Total Rewards network to maximize performance.
Representatives for Apollo, TPG and junior and senior credit groups declined to comment.
The Total Rewards transactions robbed the now-bankrupt unit’s creditors of at least $1 billion, alleged senior bondholders in a November lawsuit. Total Rewards is the single most valuable asset under dispute in the bankruptcy fight, according to the creditors’ valuations, trumping various Las Vegas properties and Caesars’ online gambling business.
The “practical effect” of the Total Rewards transactions was to transfer, for free, “virtually all of the attributes of ownership and control of Total Rewards” from the now-bankrupt unit to the Caesars parent company, alleged junior creditors in a February filing in the bankruptcy case.
The Caesars parent said in a statement: “The structure the Caesars companies established ensures that Total Rewards will have the resources it needs for maintenance and growth, that the program is available on fair terms to every Caesars-affiliated property, including [the now-bankrupt entity], and that each of the Caesars companies makes a fair contribution to the expenses of the system.” The company has also said the bankruptcy won’t affect the loyalty program’s operations.
Of all of the transactions that have been disputed by creditors, the ones involving Total Rewards are among the most controversial, said Chris Snow, an analyst at research firm CreditSights. The various property sales creditors dispute at least involved cash payments, he said. But the Total Rewards deal “just seems a little more beyond the pale.”
Though over 80% of senior creditors ended up signing on to Caesars’ restructuring plan, a speedy bankruptcy “seems increasingly unlikely,” said Fitch Ratings analyst Alex Bumazhny. Junior bondholders and bank lenders have still not signed on to the plan, and the judge presiding over the bankruptcy case last week gave the examiner more scope than the casino company’s parent wanted to investigate the deals disputed by the bankrupt unit’s creditors, including the Total Rewards transactions.
The judge could order Caesars to pay monetary damages to the bankrupt unit if it finds it had been improperly compensated in the deals, said Mr. Bumazhny.
Meanwhile, the people who actually use Total Rewards—Caesars’ customers—couldn’t care less about the drama playing out in bankruptcy court, said Mr. McEwen. “People don’t even know enough about the bankruptcy to ask the right questions,” he said. “I’m in it for the fun of it