CEO Compensation In The Shrinking Casino Industry

October 30, 2019 –  As the list of public gaming CEOs continues to shrink due to consolidation and the growing competition of technology-based options,  “gaming” in its broadest sense will force any entertainment organization to consider a multi-segment strategy (think the NFL, FanDuel, DraftKings, and Jay-Z). The casino industry will be no different, as younger adults focus on their mobile device and skills-based gambling. Thus, the annual AETHOS list of public gaming CEOs has dropped to its lowest level since 2002, when AETHOS started to track their pay. Today, only 12 CEOs run traditional casino operations.
 
Now in its 13th year of studying gaming industry pay, “we evaluated the performance of 32 public gaming companies in determining whether a CEO deserved his or her pay,” explains AETHOS CEO Keith Kefgen. The AETHOS pay-for-performance model compares significant financial metrics such as company size (market cap), stock appreciation (rise in stock price over 3 years), EBITDA growth (over 3 years), and total direct compensation (combination of salary, bonus, and Long Term Incentive Plans).
 
Several key findings of the AETHOS Survey of Gaming CEO pay include:
  • Size, in the form of market capitalization, tends to dictate CEO pay. The larger companies pay more significant dollars. Sheldon Adelson at Las Vegas Sands was the highest paid CEO in the industry at just over USD $24 million in total compensation. He also runs the most valuable gaming company at a market cap of over USD $50 billion. Ken Alexander at GVC followed with a USD $23 million package. Alexander received a bit a grief from shareholders and pundits, and in response took a USD $200,000 cut in salary. William Carstanjen at Churchill Downs followed with a $17 million pay check in 2018.
  • In total, 26 of the 32 CEOs earned more than USD $1 million in total compensation. The average CEO pay check stayed flat from the previous year at USD $7.2 million. A relatively new crowd arrived on the best CEO list on a pay-for-performance basis, plus Dan Lee, CEO at Full House who has been a top performer for the past three years. Blake Sartini of Golden Entertainment and Gary Carano at Eldorado were closely aligned for the top spot in AETHOS’s survey. Other top performers included Ed Pitoniak and Kevin Sheehan, relative newcomers to the industry. 
  • Only nine CEOs in the gaming industry received a base salary of greater than USD $1 million, a decline from last year’s 13. Sheldon Adelson and Lawrence Ho had the largest salaries, at USD $5 million and USD $3.5 million respectively. The average salary of the group was just over USD $1.2 million,  A slight increase over last year. In the bonus category, Sheldon Adelson led the group with a bonus of $12.5 million followed by Mark Frissora at Caesars with a bonus of over USD $6 million. The average CEO bonus for the group was USD $1.8 million, rising another USD $600,000 from previous year. This has become a significant trend in overall compensation planning for gaming executives. It also speaks to the annual financial performance of the group. Four gaming CEOs received no bonus including Blake Sartini who missed adjusted EBITDA targets in his bonus plan. This was interesting as he was in our top five performing CEOs on a comparative basis. It appears his EBITDA target was an absolute number rather than a relative number.
  • The largest component of CEO compensation continues to be long-term incentive plans (LTIPs). The average LTIP value was USD $3.8 million, a minor increase from the previous year. Ken Alexander topped this list again with his nearly USD $20 million stock grant. William Carstanjen followed with a stock grant valued at nearly USD $17 million. Twenty CEOs received an equity grant worth over USD $1 million, while only four received nothing at all. Although stock prices of gaming companies experienced drastic drops in the fourth quarter of 2018, there has been a solid rebound in 2019. 
  • One of the hot topic issues for compensation committees is that of pay inequality. New regulations require companies to report CEO pay-ratios in their proxies. For example, Arthur Peck the CEO of The Gap, Inc. was identified by USA TODAY as having a pay ratio at 3,566 times the typical employee. Interestingly, two restaurant CEOs and Bob Iger of Disney were in the top 10 executives with unacceptable pay ratios, but there were no gaming CEOs on such a list.
“It is critically important for CEOs and boards to be able to justify these big pay checks to investors and employees,” says Kefgen. “And Pay-for-Performance models such as our AETHOS  formula, need to be front and centre in articulating that everyone wins big if the CEO wins big.”