Atlantic City: Casinos, gambling and the economy

Atlantic City: Casinos, gambling and the economy

Resorts on Atlantic City's boardwalk

ATLANTIC CITY, July 14, 2014 — In 2006, the casinos in Atlantic City took in more than $5 billion is revenue. In 2014 total revenue will likely be about half of that amount. The results are devastating to the city. What happened?

With the addition of the super hotel casino Revel, there could have been a total of 13 casino hotels in the city. The Claridge closed and was later re-opened as a hotel only. A similar fate came to the Atlantic Club. The Showboat just announced they will close as did Trump Plaza. Both are likely to be sold and re-open as hotels only. And then there is the Revel.

This super hotel casino resort filed for bankruptcy twice and is scheduled to be sold at auction on August 6. Judging from reports that it will probably cost about $150 million to make renovations to correct design flaws, the auction will yield a price less than $100 and maybe as low as $50 to $60 million. Once the new owner completes renovations and re-brands the casino to change the poorly planned marketing that has been done so far, Revel should be able to survive. This model has already happened and is somewhat successful.

Both Resorts and the former Trump Marina were purchased for about 10% of their original value. After the owners renovated the properties and changed marketing strategy, both are surviving. By reducing the capital cost at Revel from $2.2 billion to $200 million, Revel can survive.

Atlantic City’s casino industry began its decline in 2007. At that time increased competition and a poor economy began to reduce revenue. In 1978 when the first AC casino opened, there were only two places, Vegas and AC, for Americans to gamble. But the number of casinos in the US expanded dramatically so that today there are almost 1000 casinos and gambling generates revenue in 41 states.

After the shake-out is complete, Atlantic City will probably have 7 or 8 casinos with annual casino revenue in the $2.5 billion range. However, further damage to the market will occur if casino gambling is expanded to other parts of New Jersey. There is currently a movement to put a referendum on the November 2015 ballet asking New Jersey voters to allow casino gambling in the northern part of the state. Already there is a proposal to build a $4.6 billion mega resort at the Meadowlands racetrack which would include a 90 story hotel and residential tower with the world’s largest Ferris wheel and a race car stadium that would seat 100,000 people.

The timing for this referendum is based on Governor Christie’s 2010 promise to help AC and give the city five years to recover. The five years are up in 2015 and it doesn’t appear that AC will recover by then.

For its part, the city is trying to fight back. They have brought in experts in inner-city development and experts in marketing and re-branding. So far the results have been modest. The newly elected mayor is enthusiastically attempting to restore Atlantic City. He recognized, as do most tourism leaders and other government officials, that AC must re-invent itself as a tourist destination offering many reasons for people to visit AC, rather than just selling AC as a casino town. Although there has been some success, so far this is proving to be difficult.

The city itself is facing difficult financial conditions. Like many cities in the US who depend on property taxes for revenues, declining real estate values have reduced revenue when contracted costs continue to rise. The result is a significant budget shortfall which if not corrected quickly could force a municipal bankruptcy.

The reality is that when markets contract, businesses are forced to close and unfortunately people lose their jobs. In 2011, there were about 33,000 people employed in the casino industry. After the shake-out the number will be about 20,000. This causes the most pain to the community. While local politicians are attempting to pass laws designed to minimize the job loss, the reality is then when the market declines, businesses close and people lose their jobs.

Regarding the future, Atlantic City will have to learn to live with a smaller, but still substantial gaming market. The city will have to figure out how to attract tourists to increase non-gaming revenue and will have to figure out how to balance their municipal budget with about 40% less tax revenue. Local residents hope someone can figure out how to do that.

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