Increased competition from other regions and recessionary woes have Atlantic City reeling, but don't count the New Jersey resort town out just yet

Forgive Dennis Gomes if he treats the news of an impending Atlantic City cataclysm in a somewhat skeptical manner. You see, he has spent 20 years in town as a casino operator, observer and consultant; and hearing dire predictions for New Jersey’s seaside gaming enclave is nothing new to him.

“First time I heard Atlantic City was on its way to disaster was back in 1990 when I was considering a position at Trump Taj Mahal,” says Gomes, who is CEO of Margate City, N.J.-based Gomes Gaming, a casino management and consulting firm.

“I talked to some [Wall Street analysts] who told me the project was a white elephant in a moribund market and I should not take the job. But I visited and was hooked - the demographics were great and the tax rate was low. Most importantly, I could not believe how beautiful the area was, especially having been raised in Las Vegas where there was a lot of sandy beach but no ocean. I bought into the whole vision.”

Gomes’ insight was rewarded, and by the time he left the Taj in the mid-’90s it was the top-grossing casino in an Atlantic City that had grown to become a Wall Street darling. Since then, Gomes claims pundits have declared Atlantic City either “dead or wonderful, wonderful or dead,” depending on the perceived threats of the day. Surprisingly to some, the town held its own through a variety of “crises,” becoming the nation’s second-largest casino market, home to 11 properties that generated $5.2 billion in revenue by 2006.

Lately, however, it appears the math in Atlantic City no longer adds up. Indeed, the current economic recession appears to have hit it flush, perhaps worse than any other market. Gaming revenues had dipped to $3.9 billion in 2009, a 13.3 percent decrease from the $4.5 billion the industry generated in 2008. Since 2006, Atlantic City gaming revenues have declined a jaw-dropping 25 percent.

Casino revenue is not the only statistic that has dipped alarmingly since 2006; gaming jobs declined 17 percent from 44,542 to 36,377, according to the American Gaming Association, while annual visits skidded 12 percent from 34.5 million to 30.3 million, according to the South Jersey Transportation Authority.


But the recession is only partially to blame for the city’s woes. Competition in the form of slot parlors and racinos finally came to Atlantic City’s primary feeder markets of Pennsylvania and New York in the last decade. The Keystone State is now home to nine gaming facilities that generated a combined $1.9 billion in revenue in 2009, up 90 percent from 2007. Meanwhile, eight racinos now operate in New York, pulling in $1 billion in revenue last year, 21 percent more than in 2007. Competition for the regional customer is only going to become more intense, with the addition of table games in Pennsylvania, Delaware and West Virginia, casino legalization in Maryland and proposals to add video lottery terminals to New York City racetracks. “I don’t think anyone can paint any of this as positive,” says state Senator and former Atlantic City Mayor James Whelan Israel Posner, executive director of the Lloyd D. Levinson Institute for Gaming, Hospitality and Tourism at The Richard Stockton College of New Jersey and author of “Casino Gaming in Atlantic City: A 30 Year Retrospective,” concurs. “There are some local reasons for the decline, but the big causes are more competition in the region and the fact that discretionary spending from consumers is not what it used to be,” he says. These are not issues that will dissipate any time soon, he says. He’s predicting an 8 percent decrease in casino revenues for 2010. Andrew Zarnett, gaming analyst for Deutsche Bank, anticipates Atlantic City will bottom out at $3.3 billion in annual revenue by 2011, a 36 percent drop from 2006 market highs. The impact on the market has been, in a word, devastating. Two established operators - Trump Entertainment and New Jersey Tropicana Casino & Resort - went into Chapter 11 bankruptcy protection. MGM Mirage, Pinnacle Entertainment and AC Gateway, to name a few, pulled out of planned or proposed resort developments. The one megaresort that did manage to break ground, Revel, had to delay construction when credit markets dried up. Parent company Revel Entertainment Group is still seeking partners and financing. “I think you have to be realistic about how this market will recover,” says Mark Juliano, CEO of Trump Entertainment, which is in the process of emerging from Chapter 11. “Even when a complete turnaround takes place, [consumer gaming spend] is not going to go back to pre-recession levels because of the competition.”


The good news is that the market may be showing signs of recovery. Revenues continue to decline, but their pace appears to be decreasing. After a terrible financial start to the year, the market generated $300 million in revenue for March, down just 5.6 percent from March 2009 and breaking a string of double-digit month-over-month declines. Results were even better for April, a net of $311 million, a mere 0.7 percent decrease from 2009. Harrah’s Entertainment, owners of four properties in Atlantic City, actually reported higher revenue for March and April than the same two months in 2009. The Borgata, Trump Taj Mahal and Caesars Atlantic City also reported April revenue gains.

“I feel pretty darn good. I think we’re turning the corner here,” Don Marrandino, president of the Harrah’s four Atlantic City casinos, told The Press of Atlantic City.

Juliano was similarly pleased with the March performance of Trump Entertainment’s three casinos and expects his properties and the market as a whole to post good results going forward. “We had a positive April, I think the rest of the city did as well, and that should help with our perception on Wall Street.”

But that was before May’s numbers came in. Historically a strong month, with Memorial Day weekend heralding the start of the busy summer season, May 2010 proved disappointing - aggregate gaming revenues were down 9 percent year-over-year to $320 million.

Over time, though, the easing of the recession can only help.

“No doubt competition is growing all around Atlantic City, but that is not the big issue right now - it’s the recession that is causing the most difficulty,” Gomes says. “Once people start having more discretionary income, they will come here to spend it.”

And visitation, although down, may not be as bad as it appears.

“When compared to other destinations our visitation numbers are actually steady with a slight decline,” says Jeff Vasser, president of the Atlantic City Convention & Visitors Authority. “Occupied room nights are actually up in 2009, showing that interest in Atlantic City has remained strong. The combination of visit trip numbers being slightly off, but occupied room nights going up, shows that people are coming to enjoy more than just a quick trip to the casino. They’re spending more time to enjoy the spas, shopping, restaurants, entertainment, attractions and beach.”

And outside money is again targeting city. The first to jump in was billionaire financier Carl Icahn, who purchased the Tropicana and brought it out of Chapter 11. He also attempted to purchase Trump Entertainment but was rebuffed by a federal bankruptcy judge who instead awarded to company to Donald Trump and a group of bondholders.

To regain its health, Atlantic City needs to keep its current customers, bring back some of its old clientele and launch programs to increase tourism. Before any of this can happen, however, the city needs to address some of the issues that led to its recent decline.

First and foremost is looming regional competition.

“Gaming came to Delaware, Connecticut and a lot of other jurisdictions that seemed to have no real impact on Atlantic City,” Whelan says. “But the competition from Pennsylvania is much stronger than anything the city has faced before. Pennsylvania has really impacted Atlantic City very dramatically.”

And competition is about to tighten even more with the pending opening of the SugarHouse slot parlor in Philadelphia, one of two casinos planned for the city. The first phase of SugarHouse, a temporary facility housing 1,700 slots, is scheduled to open later this year.

Fortunately for Atlantic City, the second casino, Foxwoods, appears stuck in financial limbo and could lose its license.

But even if both these projects come to fruition, there are some who believe they will have a greater impact on the southeastern Pennsylvania racinos than on Atlantic City.

“Atlantic City has already taken a hit from the slots at Philadelphia Park and Harrah’s Chester, which cut off the Philadelphia convenience gambler from New Jersey casinos,” says Ernie D’Ambrosio, Atlantic City representative for The Innovation Group, a gaming, leisure and hospitality consultancy. “Slots in Philadelphia will have some impact on Atlantic City, but not as much as, say, adding 6,000 more machines to Philadelphia Park or Chester.”

For the same reasons, expansion in Maryland and Delaware is seen as posing less of a threat. A greater challenge would come from VLTs at Aqueduct and Belmont Park in New York City. An idea of just how successful these facilities could be comes from Yonkers Raceway, which generated $540 million in revenue last year, making it the nation’s highest-grossing racino.

The addition of table games in Pennsylvania, Delaware and West Virginia will be another blow.

In addition to combating competitive threats Atlantic City must also upgrade its image if it hopes to recapture former investors, customers and market share. Indeed, at the moment, Atlantic City’s reputation on Wall Street, deserved or not, is low and likely hindering its pace of recovery.

“Las Vegas got hit as bad or worse the Atlantic City, but all you hear from analysts is not to worry about Las Vegas, it will come back,” says Gomes. “Why aren’t they saying the same thing about Atlantic City? It’s the typical Wall Street bias against Atlantic City, and since they’re down on the market, so is everyone else.”

Revel Entertainment's planned $2.5 billion, 2,000-room, ocean-themed resort


The possibility of changing this may lie with Revel. When the project broke ground in 2007, Revel Entertainment and financial backer Morgan Stanley envisioned the $2.5 billion, 2,000-room, ocean-themed resort would be The Boardwalk equivalent of Borgata, ushering in a new era of development. But the project ran out of money by January 2009 and construction stalled. Morgan Stanley, 90 percent owners of Revel, officially pulled out in late March, writing off its $1.2 billion investment. Since that time, Revel Entertainment CEO Kevin DeSanctis has searched for an equity partner willing to invest $1 billion to finish and open the project.

For the most part, observers believe Revel will eventually open. When that will take place, and who will ultimately profit from it, remains to be seen.

“I think that project will get done,” says Posner. “And somebody will get an incredible piece of potential for a relatively low price compared to what has been invested in it. It will add a whole new level of excitement to the city.”

Correcting the city’s deteriorated physical appearance may be a little harder.

Says Thomas D. Carver, executive director of the Casino Reinvestment Development Authority, “People talk about the Las Vegas ‘bubble,’ that when you get to Vegas and step off the plane at McCarran you’re immediately in the bubble of The Strip, where you feel safe and secure. You never have to see what the rest of Las Vegas looks like. Unfortunately, customers do not have the same experience in Atlantic City getting to the bubble of The Boardwalk.”

Whelan agrees. “If Atlantic City is to become a destination resort they need to clean up the blight. What’s frustrating is that there have been certain neighborhoods in the city that have been rebuilt, but The Boardwalk area still has a lot of vacant ground and substandard properties. Although someone who lives here may be able to make the assertion that statistically Atlantic City is safe, if you have abandoned lots and derelict buildings people are not going to feel safe.”

Carver acknowledges that improving the city’s infrastructure is a “work in progress”. But there has been progress.

“The most significant infrastructure improvement is in transportation,” says Vasser. “New air service to Atlantic City International Airport from Boston, Chicago and Detroit is making Atlantic City a viable option for visitors from much farther out than the traditional 300-mile radius. Similarly, Amtrak’s ACES train service is bringing in visitors from New York who normally wouldn’t visit Atlantic City because of limited transportation options. As we continue to introduce new amenities, interest from those markets will continue to grow.”

Another positive sign is that the operators are working more as a unit. “The industry has become more collegial in my judgment,” says Carver. “There are younger people involved who know that due to the current economic situation the way the city looks and is perceived is integral to the success of all. There is now a great movement afoot to do things that should have been done years ago. It’s late in the game, but the game isn’t over. …We have to opportunity to do some intelligent things.”

Mayor Lorenzo Langford recently launched the Atlantic City Summit, a series of meetings between casino operators, business, government and community groups aimed at providing strategy and solutions in three areas seen as essential for growth - quality of life, government cooperation and marketing and public relations.

Gov. Chris Christie has formed an Advisory Commission on Gaming, Sports and Entertainment in part to develop a blueprint to guide state policy to the benefit of the seaside resort.

The ultimate goal, everyone seems to agree, is to get the city to destination resort status.

“I think there’s a general consensus between the casino industry and the city that they can no longer compete with emerging gaming markets on a strictly slot machine basis,” Carver says. “The city needs to reinvent itself.”

To many, the first step is new gaming product.

Says Posner, “One of the advantages emerging jurisdictions have over Atlantic City is that their properties are new, while most Atlantic City casinos are 25 to 30 years old. In any challenging business environment you only get ahead by building a better mousetrap than your competitor. In this instance, Atlantic City needs new product that appeals to a younger demographic and attracts attention. The Borgata showed what the right kind of facility can do in this market.”

The fact is, more than $1 billion was invested in new product between 2007 and 2008.

“Trump, Harrah’s and Borgata built new [hotel] towers, clubs and other amenities,” D’Ambrosio points out. “All remain market leaders, and some picked up significant business. I don’t know if these enhancements got expected returns, but it did show you can garner additional market share through reinvestment.”

How best to spur development given current economic conditions is open to debate. Whelan, for one, has introduced legislation that would ease the 500-room, 60,000-square-foot casino requirement for new resorts. His proposal calls for the development of four new properties with 200-room hotels and relatively modest 20,000-square-foot gaming floors. The properties have to be on The Boardwalk, built in phases, and in order to receive an additional 30,000 square feet of casino space they must expand to 500 hotel rooms within five years of licensure.

“The primary bar toward Atlantic City casino development is the high cost of entry,” Whelan asserts. “The city has the best gaming tax structure in the U.S., but when you have to build 500-room gaming facilities you’re looking at development costs in the $800 million to $1 billion range. For half that cost you can go into Pennsylvania and be up and running with a casino. The goal of my proposal is to bring down this cost threshold.”

Locally, the response to his proposal has been somewhat mixed. But it appealed to executives at Hard Rock International, which announced a strategic alliance with Och-Ziff Real Estate to explore developing a $300 million Hard Rock Hotel and Casino in Atlantic City.

Some, however, see the proposal causing more harm than good. “I think it lowers standards,” Gomes says. “What we need to become a real resort destination is more rooms and bigger properties.”

Says D’Ambrosio, “I don’t see it as a negative for the market, but who is going to be enticed by these 200-room hotels - Best Western or Ritz Carlton? It’s an interesting concept, but not something that is going to make or break Atlantic City.”

In addition to new casinos, a healthy mix of entertainment would also help, observers say.

“We want to have more major prize fights and large concerts that create business for the industry as a whole and bring people to town who will spend money and stay longer,” Carver says.

Operators see it as a clear competitive edge.

“All you can do right now at a Pennsylvania racino is gamble,” Juliano says. “In Atlantic City there are restaurants, nightclubs, public entertainment on The Boardwalk, lots of things for people to do. We will concentrate on non-gaming activities going forward, and are in the process of putting together an enormous entertainment program for the summer.”

Operators are actively recruiting acts and performers to entice a younger clientele. The Borgata recently hosted comedian Jon Stewart, rap artist Jay-Z and the band Alice in Chains. Trump Taj Mahal inked Alicia Keys. Caesars Atlantic City has featured the rock group Train. Harrah’s has staged Ludacris and Black Eyed Peas and Kim Kardashian.

The Atlantic City Hilton has taken a different approach, launching a speaker series featuring high-profile personalities such as Bill Clinton and Dick Cheney. Celebrity pundits Bill O’Reilly and Glenn Beck will also be recruited to speak.

“As we continue to innovate in Atlantic City we recognized a desire on the part of our customers for a different kind of entertainment,” said Nicholas L. Ribis, CEO of Atlantic City Hilton.

Another vital component is a thriving convention business. This is one area in which Atlantic City is already firmly entrenched.

“A recent benchmark study of convention centers in the U.S. shows we rank very highly,” says Vasser. “We hosted 97 conventions, trade shows and consumer shows in 2009. We’ve attracted several new events, and our future bookings have increased.”

With a vibrant convention business in place, plans to improve the non-gaming product and entice new casino developers into the market and a growing spirit of cooperation among industry, government and community leaders, there is no shortage of hope for the future.

“We will continue to grow as a destination resort,” Vasser says. “Gambling is what helped make Atlantic City a year-round destination resort, but people do come for other reasons, and we’re working to give them plenty of reasons.”

Paul Doocey is a New York-based writer and editor specializing in the gambling and betting industries.