North Jersey Casino Rejection, State Takeover Put Atlantic City In Flux

Steve Ruddock November 22, 2016 1653 Reads
Atlantic City in flux

As it continues to spiral towards bankruptcy, Atlantic City is facing a very real crisis. But this isn’t the first crisis AC has faced. The city has proven to be resilient several times over.

The story of Atlantic City is one of periods of boom or bust. The sometimes prosperous resort town in southern New Jersey is currently experiencing a bust period.

The city is trying to avoid bankruptcy by way of an emergency manager who is set to take over the municipality. It puts Atlantic City at a crossroads, and the well the city has gone to so many times in the past, gambling, is now running dry.

More gambling isn’t the answer

At the start of 2014, Atlantic City boasted 12 casinos. less than three years later the number of operational casinos has dropped to seven: Bally’s, Borgata, Caesars, Golden Nugget, Harrah’s, Resorts, and Tropicana.

Many viewed this is as a right-sizing of the market. Analysts felt the city would eventually land at five to eight casinos, depending on a number of market conditions. Contraction certainly hurt in the short term, but for the city’s long-term survival it was a much needed development.

As it stands, it appears New Jersey residents want to prop up the gaming they have. They do not not see more expansion — especially outside of Atlantic City.

New Jersey voters resoundingly rejected a proposal to build two casinos in northern New Jersey. That measure would have sent a significant portion of gaming revenue to Atlantic City. Essentially, New Jerseys voters said, “more gambling is not the answer.”

Still, gambling will always be a major part of Atlantic City, and will likely be a instrumental in the city’s next boom period. But will the city rely on gambling, or has it finally learned the lesson that quality is better than quantity?

Total revenue down…

On one level, it’s hard to wrap your head around Atlantic City’s struggles. The ocean views and beaches are stunning, and its location on the Atlantic Ocean shore provide an ideal summer vacation spot.

On another level, Atlantic City’s current situation isn’t overly surprising. The city put all its eggs in the casino basket, banking that it would always be the east coast Las Vegas. Everything was built around the city’s casinos. When Atlantic City started to falter as a gambling mecca, it took the entire city down with it.

Even before the recession of 2008, Atlantic City was floundering. Following a boom period that saw gambling revenue soar to a record $5.2 billion in 2006, Atlantic City has experienced nine consecutive years of diminishing revenue. Total casino revenue had been more than halved to $2.5 billion by 2015, the city’s lowest tally since 1987.

…but survivors are prospering

That being said, there is a silver lining. The remaining casinos are doing fairly well.

The city may be crumbling and in a state of disrepair. But the remaining casinos, and several reclamation projects — like the city’s piers and shopping and entertainment areas — offer some semblance of hope for the seaside town. It’s a new vision of what Atlantic City could become if gambling is moved out of the spotlight.

This is evidenced by the city’s surviving casinos, which are small islands of hope, something of an artist’s rendition of what Atlantic City could once again become.

The remaining casinos were not only good enough to survive the purge. But with less competition they’re now thriving.

Revenues are up almost across the board. All of the operational casinos posted solid operating profits in 2015, with six of the seven bettering their 2014 operating profits.

Casino 2015 Operating Profit 2014 Operating Profit % change
Bally’s $40 million $23 million 76.6%
Borgata $216 million $158 million 36.3%
Caesars $83 million $60 million 39.4%
Golden Nugget $23 million $4.5 million 396.3%
Harrah’s $123 million $97 million 26%
Resorts $16 million $2.5 million 525%
Tropicana $46 million $60 million (22.4%)

But the individual prosperity hasn’t trickled down to the city. Casino closures spiked unemployment and reduced total visitation to the city. The remaining casinos each have a bigger piece of pie, but the pie is smaller.

There is potential in AC

On a recent trip to Atlantic City I was taken aback at the disparity between the blight of the city and the state of its operational casinos. Once inside you’d have a hard time differentiating an Atlantic City casino property from a typical Las Vegas Strip casino.

The casinos I visited — Harrah’s, Golden Nugget, Borgata, and Resorts — were maintained well by their owners, with plenty of shopping and dining options. They were clean, and my room at Resorts was larger and in better shape than most Las Vegas Strip casinos.

Inside the casinos you can see the potential. At the same time, Atlantic City isn’t without its issues. Many, but not all, are self-inflicted and logistical in nature.

The problem with Atlantic City

One of the bigger issues with Atlantic City is also one of its greatest assets: its location. Atlantic City may be picturesque, but it’s also not the most accessible place in the country.

Access to the town is wanting. The Atlantic City airport offers scant few direct flights, and it’s just far enough from New York City (2+ hours), Baltimore (2+ hours), Philadelphia (1+ hour), and other major cities to make taxi rides or car services too costly.

The  traveling distance to Atlantic City was amplified when alternative casinos in New York, Pennsylvania, Delaware, Maryland, Connecticut and beyond opened their doors. It provided Atlantic City patrons with newer, closer gambling options.

And because the city had put all of its eggs into the gambling basket, once casino gambling proliferated, the reasons to go to Atlantic City shrank. With so many competitors in a shrinking market, reinvestment dollars to entice these lost customers were hard to come by. It was exacerbated by the fact that the city didn’t offer enough non-gambling activities to make it a vacation spot that happened to have gambling.

What will become of the shuttered properties?

Atlantic City must now determine what direction it will take.

Will the city continue to rely on gambling? Or will it mix in gambling and place a renewed emphasis on fun and sun?

The answer will likely depend on what becomes of the shuttered casino properties. Continued reinvestment by the remaining casinos will likely slow if too many casinos reopen.

There are efforts afoot to reopen the Revel and Trump Taj Mahal as gaming properties. But Atlantic Club, Showboat, and Trump Plaza have almost certainly taken their last bet.

Revel

Developer Glenn Straub is trying to secure the necessary permits and licenses so he can reopen Revel. The somewhat eccentric Straub had countless visions for the property, from extreme sports to his infamous Tower of Geniuses. In the end it appears he’ll move forward with TEN (the rebranded Revel) as a hotel and casino.

Trump Taj Mahal

Carl Icahn owns the city’s latest casino casualty, Trump Taj Mahal He will likely reopen it as a casino if he and the city can come to some sort of agreement over union contracts. A month-long strike led to the casino’s closure after Icahn rescued the property from bankruptcy.

Showboat

Showboat went through a game of ownership hot potato. It was sold to Stockton University, Glenn Straub, and finally Bart Blatstein. Showboat is in the process of reopening as a non-gaming hotel. (Blatstein also owns the Playground Pier, near Caesars, and is trying to scoop up other entertainment piers.)

Atlantic Club

The Atlantic Club was in dire straits before it closed. Having been shuttered for nearly three years, it is most likely going to be demolished with new construction taking its place. Since closing, the Atlantic Club has been rumored to turn into everything from apartments to an entertainment complex featuring a water park. The property is still vacant and for sale.

Trump Plaza

Icahn also owns the shuttered Trump Plaza, but unlike The Taj, Trump Plaza is unlikely to open as a casino, thanks to a 10-year deed restriction. The property could be used in a different way, but so far there hasn’t been any interest in acquiring it.

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