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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  • stevenorton

    New Jersey’s first move to help Atlantic City was to approve Online gaming,
    which was supposed to help the 12 casinos bottom line. But that would only help
    if the Internet gaming was profitable. So far that is doubtful.

    But online play doesn’t bring day trip or overnight visitors back to Atlantic City, it probably reduces the possibility. AC efforts need to concentrate on supporting programs that actually bring customers that spend the night, and give them a reason to do so in our seasonal resort. We need to look at our existing assets, and liabilities, and explore how we modify them
    to keep AC properties open and maximize employee opportunities.
    1) We are a resort community with the ocean and beaches;
    2) We are the second largest casino destination in the US;
    3) We are within driving distance of 50 million American residents;
    4) We have 20,000 quality hotel accommodations in AC, plus another 30,000 in other South
    Jersey beach resorts.
    5) With little business and professional demand for accommodations, AC can offer much more
    attractive room rates mid-week, than Northeastern metropolitan cities.
    1) Casinos are now much closer to our primary markets, taking over 85% of our line run bus
    customers, plus many of our other day trip and overnight visitors;
    2) The beach and ocean primarily drive overnight visitors during the summer months of July
    3) AC’s seasonal weather makes it difficult to attract Theme Parks, like Disney or Universal;
    4) Without tax free status, AC retail
    establishments, like the Walk, cannot bring significant visitorattendance, in competition with outlet mails much closer to primary population centers in the Northeast;
    5) Air service at AC International that primarily takes South Jersey residents to othe Jurisdictions, primarily in Florida; not bringing overnight visitors to our resorts.
    Possible solutions:
    1) Find population demographics that have no casino gaming nearby;
    2) Concentrate on MICE business; corporate meetings, association events, trade shows and
    city wide conventions, that primarily meet mid-week in the Winter, Spring and Fall; where
    Atlantic City resorts have 200 nights annually lacking in sufficient demand.
    3) Promote entertainment and sporting events mid-week during the non-summer months.
    4) Seek State assistance, in the form of subsidizes, to help attract airline service from southern
    cities that have no gaming, and provide air availability so we can better compete of the
    convention/ trade show markets.

    Both of these new markets, casino players from the south and convention attendees will require overnight accommodations, and will need meals and possible entertainment during a 2 to 3 day stay. The convention business will pay rack rates and primarily provide visitors mid-week in the off season periods, where casinos now offer discounted or free accommodations and meals, in the hopes of attracting casino play. New casino markets, will need overnight accommodations, and these new visitors will not be accustomed to the same level of free play, comps or discounts, as our previous customers have learned to expect.

    This new air service support may come at the cost of AC acceding to one or more casinos in North Jersey, but in my view the benefits of opening AC to new markets, outweighs the negative impact from new gaming in North Jersey; that will have a more devastating impact on Eastern PA casinos and slots across the GW Bridge at Yonkers Race Track. At AC, we have to try something new.

  • Anne Droyd

    In 2012, the brain-dead apparatchiks of the Obama regime wasted $96,000 on iPads for kids. In kindergarten.

  • On Guard! Mosin Nagant

    In 2009, the Obama regime wasted $400,000 trying to figure out why homos in Argentina engaged in homosexual sodomy while intoxicated.