Q&A: Joseph A. Magliarditi, CEO of Hard Rock Hotel

By Richard N. Velotta

Friday, Oct. 1, 2010 | 3 a.m.

When the Hard Rock Hotel needed a CEO to replace an executive who had died, they went to someone who not only had experience in the gaming industry, but someone who knew the Las Vegas market.

Joseph A. Magliarditi was named president and CEO of the Hard Rock and executive vice president of gaming for parent company Morgans Hotel Group in May. Magliarditi replaced Fred Kleisner, CEO of Morgans, who was filling in temporarily after the death of Hard Rock general manager Randy Kwasniewski in March.

Magliarditi was most recently executive vice president and CEO of the M Resort and Marnell Sher Gaming LLC. In his 16-year hotel and gaming career, he also served as vice president of operations of Harrah’s Entertainment and the Rio. Before joining the M, he was the executive vice president, chief operating officer and a board member for Tririga Inc., an enterprise software company.

Magliarditi was interviewed before the latest public relations problems for the hotel: The arrest there of singer-songwriter Bruno Mars on drug charges after being detained by hotel security; and a lawsuit filed by the owner of the Hard Rock brand seeking to cancel the Hard Rock hotel’s licensing deal for that name because of negative publicity from the Rehab pool parties and TV show.

IBLV: The casino industry across the board has suffered during the recession. How is the Hard Rock doing? What does the company do to stay ahead of the pack?

Magliarditi: Keep in mind that I’ve been here about 100 days. There’s no question the industry has been adversely affected by the recession. What we’re challenged with right now is fighting for business. In lieu of fighting for business, we’re trying to manage our business more efficiently to try to preserve cash flow.

What does managing more efficiently entail?

I think what that means is that, being in the casino business now, you have to spend your dollars as wisely as possible to make sure there’s a return on your dollars. From a revenue-generating standpoint and from an expense standpoint, we’re really at a point where it’s keeping on board with what you absolutely need instead of what you want. I don’t think the Hard Rock or, for that matter, any other companies are any different.

Most would look at Planet Hollywood or the Palms as your biggest competitors. Your perception?

I think they’re a close competitive set. I think that’s why people say that. However, unfortunately — and another function of the economy because we’re all fighting for business — we’re all competing for the same amount of business. We’re all in the hotel business, the rooms and convention business, we’re in the food-and-beverage business, we’re in the nightlife business. Now, everyone has all those amenities. And because now, prices have been driven as low as they have been … I think a lot of those lines have been blurred. It’s correct to say that Planet Hollywood and Palms are our closest competitive set, but I think they would tell you the same thing, that we’re all trying to get as much business as possible.

So the competition is everybody?

Yes. If you really think about it, you could stay pretty much anywhere on Las Vegas Boulevard for a relatively cheap rate right now, which puts us in the same position.

When does the company project a turnaround and a sustained period of rising revenue?

My feeling is that 2011 will be slightly better. When I say slightly better, I mean the low single digits (by percentage). Obviously, we’re hoping for more, but that’s how it feels to us. However, we as a company, with some of the things we’ve done over the last 100 days since I’ve been here, we think we’ll be in a better position from a cost standpoint. Some of the things I can’t talk about because they’re not part of the public record yet, but some of the deals we’ve done will be great for our revenue base.

So what have the last 100 days been like? What have you been doing?

The last 100 days have been interesting. Obviously, it’s like any new experience. It’s you getting to know the team and the team getting to know you. Then, it’s laying out my strategy: “Here’s how I think we make this property healthier.” It’s no secret that when I came on board our financial position was in a tough spot. I knew that coming in and that was part of the challenge. So I said, “Here’s what I know works and here are some of the things we’re going to try.” It’s about building that team and putting that team in place and going after it. It’s not like it used to be. It’s an everyday process.

How did operating at the Rio and in Laughlin help your career?

I was fortunate. I operated in the days of the Rio when things were great and everyone got to try different things. I hate to say it, but a lot of times mistakes got covered up by volume because the economy was great. We had an opportunity to pick up some assets in Laughlin and I had the fortunate experience of operating in a depressed market in a sharp downward spiral. And we went into that market saying, “You know, we can make it better.” That really makes you hone your skills. From operating in an environment like that, coming into this market, you know that at least now there’s some volume to make up for all those things you did. You really get to see, “Hey, this works, this doesn’t work.” In a market like Laughlin, because the revenues are so much smaller, any little mistake shows up as a big mistake. So that experience has been a big plus.

The Hard Rock has undergone some expansion and renovation. How has that changed the revenue picture for the company?

There are a couple of things. The room product in the HRH Tower is as good as anything that’s available in town. As the economy has an uptick, we think we’ll prosper from that because we have the right product. Secondly, The Joint is the best live entertainment venue in the country. From the layout to the sound and lighting, there’s nothing like it. So we’ll stay on the leading edge of entertainment and the venue speaks for itself. I think with those assets as well as all of the assets we’ve always had and have been successful with — food and beverage, the Rehab pool and our nightclubs — I think we’re in a position that when it comes back, we can capture it.

Any more expansion or renovation on the horizon?

I think what you’ll see between now and the early part of 2011 are a few additional alcohol and food-and-beverage outlets, some being food-and-beverage, some being strictly beverage. I think you’ll see an announcement here in the near-term future — within the next 30 days — of a very big entertainment offering in The Joint, a residency.

The Hard Rock is carrying $1.3 billion in long-term debt. Is it a viable business model for a property like the Hard Rock to be carrying so much?

We simply cannot afford to carry $1.3 billion in debt. We, like other companies in the valley, have to come up with a solution because we cannot service, in this economy, that amount of debt level.

At some point you’ll be paying more than 4.25 percent on that debt and it likely will have to be refinanced. Can the Hard Rock generate enough cash to service that debt?

I think what we’re talking about is that our joint ventures are in conversations among each other as well as our lenders to try to figure out the best solution.

So it’s in negotiation right now?

I wouldn’t say it’s in negotiation. We’re discussing it. As we sit here right now, I guess you could say we’re in a relatively good spot because we’ve made all our payments to date.

Is it possible that the sponsors would convert some of that debt into equity?

It’s way too early to tell. And when I say “discussions,” I mean preliminary discussions, as in we only got started in the last week or two.

How is Carlos Santana’s show doing? Will there be a contract extension? And what about that other residency you just mentioned?

Santana has been great for the Hard Rock. The customer feedback has been great. We’re actually talking with his team right now about how we work out a deal in the future. So far, so good. As I said, it’s been a great act for us so hopefully we can work out something that continues. We are pushing down the residency path and looking at some other residencies to supplement someone like Carlos, similar to what you’re seeing going on up and down the Strip. So residency is where we’re going and in the meantime, we’ll try to pick the shows that work best for the property and what works best for our customers.

So are we talking a specific type of musical genre for the residency? Is it someone we’ve all heard of?

Well, while the residency that we’re going to announce in the next 30 days is slightly different from what you’ve seen at the Hard Rock lately, one of the things we’re doing with The Joint is that we’re expanding our view on it doesn’t necessarily have to be just rock. So we are open to other genres of music because we think the venue supports it.

Tell us about the Hard Rock’s social media marketing strategy?

We’re using all the typical social media networks. The difference, though, is really not the vehicles that we use. I think the Hard Rock is a very content-driven hotel. There are a lot of things going on here and we see a lot of celebrities and there are a lot of key events going on. That makes the social media aspect of our marketing plan, I hate to say it, relatively easy compared with some of our competitors.

Part of that, I’m sure, is that your core customer is very familiar and comfortable with the technology.

For sure. Obviously, our core customer is very tech-savvy and are using all those types of vehicles to communicate. Between that and the content we have going through this hotel, whether it’s Rehab, The Joint, nightclubs or restaurants, it’s a natural fit for the Hard Rock.

The Hard Rock has had its share of bad publicity because of some tragedies associated with executives. Lawsuits alleged that the company shared responsibility because it promoted a drug-abusing, promiscuous lifestyle. How has the company reacted and is there some mechanism to help Hard Rock managers avoid these lifestyle hazards?

First, we do not promote drug use and excessive drinking. We set the example in the first 48 hours that I was here by performing random drug testing on the nightclub staff, security staff and executives. I think that sent a message as far as where we are as a company. As far as what we offer here, there’s no question we offer a party environment here, but it’s a party environment that we obviously want people to be as safe as possible and quite frankly, I think that we have taken measures to ensure safety that are ahead of the market. Keep in mind, there are 4,000 to 5,000 people out at that pool every Sunday and thousands of people through the nightclub and the hotel. I think that because we’re, I’ll say, the pioneers of that, we’ve developed safety and checking standards to make sure that environment was the way it should be.

What was the reaction to the drug testing after you had just walked through the door?

Initially, it was negative, but I think overall it was a positive message to send and the employees bought into it. One of the things I realized both in the interview process and being at the Hard Rock, our line-level staff is the proudest, most passionate staff I’ve seen in any hotel in Las Vegas. Overall, when we look back on it now, I’m sure it was a shock that day, but they look back it now as a positive.

The property has always been on the cutting edge of sexiness and its risqué advertising campaigns were targeted by regulators in the mid-2000s as being too sexual …

I remember those.

There were eight arrests at the Rehab pool in a drug and prostitution investigation in 2009 and regulators have expressed their concern about sexual escapades and underage drinking. What are you doing differently to ensure that the Hard Rock is in compliance with the law?

I can’t speak for 2009, but I can speak from how the company reacted to the events in 2009. We’ve worked directly with law enforcement in helping us improve those standards. I think our standards as far as avoiding those things you talked about — drug use, prostitution, underage drinking — I think our standards coming into the door are stricter than anyone’s in town. It’s black and white.

Obviously, you can’t control everything your customers do, but do you have some kind of process to head off trouble before it comes through the door?

Yes. We have professionals within the organization who show us things to look at. We have extensive training programs to try to identify those things, both from the security standpoint and the food-and-beverage standpoint. If you think about the volume of business that goes through our venues, I think we’ve done a pretty good job and I think our reaction since 2009 speaks for itself.

Why did the Hard Rock make the decision to outsource entertainment and nightlife to Angel Management Group, a third-party management company?

Everyone thinks that, but we actually did not outsource it. All Angel Management did … we used to market Rehab in-house. All they are now is a promoter for the Rehab experience.

So they’re not actually part of the management of the club?

We still have complete, 100 percent control of the operation. They are just a promoter.

How are the nightlife and daylife products doing for your bottom line?

I can say this: Our nightlife and daylife offerings — specifically Vanity and Rehab — have both done very well. I say that in the context of if you think about what’s happened even since the opening of Vanity on New Year’s Eve, we’ve had other nightclubs and daylife venues open and we’ve held our own in town. I think we’ve held our own because Rehab is one of those things that are institutional to the Hard Rock. I think there was an image of Rehab that people seemed to tie it in to some of the negativity, but the reality is that it’s still the biggest daylife party in town. Being in a 1,500-room hotel, we think Vanity performs very well in the market and we think it’s a good venue and when we look back at it, they’ve sustained themselves for the first eight months of the year, so we’re happy.

A number of companies made the decision to outsource entertainment and nightlife to third-party management companies? Do you feel your company has the expertise to do this right?

I would say we do have the expertise. I think what it really boils down to is the idea of being able to market and promote across venues. Look at MGM International Resorts and their situation. Their properties are tied together and they have one nightlife operator and they can move those customers among those properties. In our case, being a single property, we’ve developed our own customers that are specific to the Hard Rock so we tend to have an edge over other people because, as at Rehab, we were the pioneers there.

Some “experts” have said the daylife craze is a passing fad. What do you think?

I don’t think so. As I’ve watched daylife, it used to be that younger demographic of 21 to 30. Now what I think you’re seeing is that demographic still exists, but now its trending toward the older side as well. “Older” may be up to 55 because I think there are people who are saying, “Do I really want to be at a club at 4 o’clock in the morning?” They’d rather have some fun, have some cocktails in the daylife experience, have a good dinner and then maybe go to a lounge environment rather than walking with 5,000 other people into a nightclub and walking out of there at 4 in the morning. So I think it’s here to stay for a while. And it’s more and more competitive. When Cosmopolitan opens, they’re going to have daylife, Paris is in the process of opening up a daylife venue. So it’s going to become, like everything else in Las Vegas, hypercompetitive. So we’re going to have to be at our best. So I don’t think it’s a fad. If you really think about it, we all know that there’s a certain percentage of customers that have a certain propensity to game and there are certain amount of customers that come to Vegas for other things outside of gaming, whether it be food and beverage, shopping or, in this case, daylife or nightlife activities. I think that’s what Vegas is about.

When you say that the age demographic is trending older, what do you make of that?

I think that the slightly older demographic is utilizing daylife and smaller nightlife venues like ultralounges simply because they don’t want to be out later like we talked about. They don’t want to be out at 5 in the morning. The daylife experience is nice. You’re outdoors. They pick out a nice high-energy restaurant and maybe cap it off with an ultralounge and I think it’s perfect.

Maybe it’s older guys who want to be around younger women?

It could be that, too. The younger group could start out at 11 and keep going until 5, but we can’t do that anymore.

While the property’s nightlife, daylife and retail have done well, the Hard Rock’s casino has historically been a lackluster earner. What is the property doing to improve casino operations?

In most places, you have a casino and all these other amenities — hotel, pool, food and beverage, whatever. One of the things I’ve noticed about the Hard Rock is that it’s the opposite. We have a pool and, oh, by the way, we have a casino. So now the focus is about generating casino revenue and the customer focus is about the customer that has the propensity to game. That wasn’t the focus in the past and if it was the focus, it wasn’t the top focus, it wasn’t the priority. So that is the priority right now. Every decision we make right now is about, “Do we want that customer? Do they have a propensity to game?” So that was No. 1 — a big No. 1. No. 2 is that we had a casino floor that was not conducive to a local customer. What I mean by that is that the game types and the pricing of those games weren’t something that a local consumer would come to. We have completely redone the casino floor in the first 30 days that I was here. I think we’ve done the basics, but we’ve improved the flow of the floor. We’ve made it more conducive to someone who is a gamer that they say, “OK, this makes sense now.” So we’ve put some logic on the casino floor.

Any new equipment?

We’ve added some new slot machines. We’ve changed some things on both the table and slot side as well as on the high-limit side, so I think right now when somebody walks in here, from a local customer to an out-of-town customer, to slots, to tables to a high-end customer, they’re going to walk in here and say, “This is a real casino now.”

Anecdotally, we’ve heard that most Hard Rock players favor table games. True?

I think what you’ve heard is true. The focus has been on tables. The focus, from what I’ve gathered, has never been on slots. So now the focus is on casino revenue as a whole, whether it be table games, slots, poker, whatever. There are two types of customers to go after, the traditional casino customer that tends to be a slightly older demographic than the current Hard Rock customer and then there’s the current Hard Rock customer which I believe can have the propensity to game, but we’ve never talked to them and never tried to exploit that opportunity and that’s what we’re trying to do right now. We’re going to relaunch with a completely redone slot club program that gets announced to the world Oct. 10 – so 10-10-10. We’re going to start that out locally and then two weeks after that, out of town. The locals can say, “At least now, they’re going to pay attention,” and we’re back on the map. Right now, I don’t think we’re on anyone’s radar as far as local casino customers, which is unfortunate.

Will the Hard Rock brand be a part of the discussion of Internet gambling?

Internet gambling is not going away. Right now, there are no plans on the table, but I think it’s one of those things that anyone in the casino business at some point is going to have to address it because it’s not going away.

And the Hard Rock brand is internationally known.

For sure. The brand is huge. We’ve entered into a race and sports book deal with Cantor Fitzgerald, so they bring a lot of technology to the table as well as their mobile application. For Internet gambling, it’s not a matter of if but a matter of when.

What’s the timetable for Cantor?

The proposed opening is the last week in January, so right before the Super Bowl.

Let’s kill a rumor. Is the Light Group looking to buy the Hard Rock?

Rumors are rumors. The only thing I can tell you is that Andrew Sasson (founder and principle owner of the Light Group) is someone that I have had conversations with that I’ve known in the past and he’s expressed the idea of being involved in the Hard Rock from the food-and-beverage standpoint. We, like any other good operator, are looking at all our opportunities. It’s as simple as that. I met with him last week and I said, “Every time you and I seem to meet, there’s a rumor.”

Are there any new restaurants on the horizon?

We’re about two or three weeks away from signing three deals. What my ultimate goal is — and I hope we accomplish this in the next 30 days — that between signing these deals and construction, that by May 1, someone’s going to walk into the Hard Rock and see a new place. Right now, they can see a completely redesigned casino floor. They’ll get reintroduced to the HRH tower as well as the HRH parking garage, which nobody seems to know about. Hopefully, we’ll have three new food-and-beverage outlets. And they’re going to walk in and say, “Wait a second … a new residency in The Joint? You’ve got a new property here.” So it’s a pretty big deal. Hopefully, the economy in ’11 helps us out a bit.