In partnership with Dr. Jim Short of the San Diego Supercomputer Center (in his Architecting for Value research) I've been exploring the topic of data valuation processes within the enterprise.
In a previous post I highlighted five different use cases where we are looking at how valuation occurs. These use cases include M&A, asset valuation, data monetization, the sale of data assets, and data insurance.
I've been diving into each of these five use cases and in my last post spent some time calculating an estimated value of the data that LinkedIn might have paid for during its acquisition of lynda.com. I posited that as more and more data assets are being acquired or sold, valuation practices will likely become more standardized and the industry will better understand whether or not the acquisition price of Lynda.com’s data (and others) was a fair deal.
In this post I'd like to explore a data valuation use case that is a result of a bankruptcy. The use case in question involves Caesar's Palace, and the data set under consideration is the highly valuable Total Rewards Loyalty Program database.
The Wall Street Journal ran an interesting article on the bankruptcy proceedings and made a remarkable statement about the value of the Total Rewards data:
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.
Dr. Short has spent some time digging through the public bankruptcy proceedings of Caesars and several other firms, and made an interesting comment in regards to the value of the data versus more tangible assets (such as property):
Note that the value of the Total Rewards program exceeds that of any of the Las Vegas properties (by themselves), and is 17% of the total value of all CEOC operating assets (see table in article).
Perhaps even more interesting is some of the data uncovered in the bankruptcy proceedings. Dr. Short commented as follows:
I think for now the bottom line is that the valuation process and estimated value of program assets appears to be legally and financially contested, and will be matters brought before the court. So I suggest what is accurate to state is that the valuation was undertaken by Caesars and its investment management and legal advisors, and that the exact valuation amount and procedures used will be contested in court. There are repeated references in court filings that Total Rewards enables Caesars to be one third more profitable than competing casinos.
In essence we have two sides disagreeing on the value of the data assets in the Total Rewards program, due in large part to the fact that the industry does not have agreed upon valuation policies and practices.
In a previous post I had described five target outcomes of our research that should help companies "Architect for Value". In the case of bankruptcy (and even in the case of the data acquired from lynda.com by LinkedIn), at least three of these target outcomes directly apply. I have restated them below:
- Make data valuation explicit. Take today’s implicit processes that place an unsystematic value on data (e.g. retention, backup, etc.) and make them explicit.
- Make data value part of your business strategy. Bring in or develop tools for valuation, develop data policies and services, acquire and/or sell data.
- Manage your data value. Assess data risk and evaluate data insurance in the same way as other valuable corporate assets.
In an upcoming post I will focus on another way of valuing data referred to in the industry as data monetization.