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Atlantic City and the Sad State of the Casino Business

This market portends the future of the state of casino gambling throughout the country. Here’s why it all went wrong.

Friday, July 18, 2014
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If you didn’t think so before, there’s no escaping it now. The glory days of Atlantic City are over. And it’s a shame too. The City by The Shore has a long and storied history, but this last sad chapter shows municipalities two things: Casino gambling is no longer a surefire way to fill up state coffers and those failing to realize this are destined to experience the same eventual failure.

This is the summer of shame for the market as several casinos will be shutting down for good including the just announced closure of Trump Plaza. Also set to shutter is the Caesars operated Showboat, and not surprisingly the oft ridiculed Revel may close if a buyer is not found. Good luck on that one.

But let’s get caught up first. There was a time not long ago when Atlantic City was the country’s gambling darling. The first municipality to legalize casinos outside Nevada in 1976 (dice rolled for the first time in 1978), the move was insanely successful. Gaming added billions in money to New Jersey’s tax rolls. Mostly on the backs of day trippers bussing in to plop coins into slot machines and gorge at the buffet before heading home that same evening.

As a New Yorker I grew up going to the casinos and looked at these palaces with wide eyed wonder. But even as a kid I thought it odd the region had turned from a true resort destination whose heyday can be seen on the HBO series Boardwalk Empire to a series of non-descript buildings whose sole goal was to keep you locked-up inside and extricate money from guest’s pockets.

And that was good for a while. A couple of decades in fact. They had nothing to worry about for a long time, that is, until casino gambling started its slow march across the country. First on Indian reservations in Florida and Connecticut, then in places such as Biloxi and Tunica, Mississippi. For a while it seemed casinos were the definitive magical bullet that could fix any funding gap.

All the money made Atlantic City casino operators flush with cash, obfuscating the reality there is only so much gambling money to go around. And that every new casino opening meant splitting that pie into ever smaller shares.

So most operators in this market did nothing. A couple of notable exceptions are Tropicana, which added many more retail, music and dining options at the end of the 1990s; Borgata, which opened in 2004 as a true Las Vegas destination style casino, and Harrah’s which added an amazing indoor pool mimicking the outdoor Las Vegas mega-pools.

That being said most operators basically kept their buildings as glorified slot parlors allowing them to sink into irrelevancy by not keeping up with trends. Of course Bally’s opened the Wild West casino expansion, but people got tired of highly themed casinos almost as soon at that opened and the novelty of audio animatronic donkeys quickly lost their appeal.

And the cash kept rolling in, making complacency the rule of the day as casino revenues soared to $5.2 billion in 2006. But then nearby Pennsylvania legalized gambling and everything changed, sucking away Atlantic City’s main business driver; the city of Philadelphia.

Last year Pennsylvania locked in about $3.11 billion in gaming revenues. Turns out people craving mindlessly putting money into slot machines would rather do that 15 minutes from home than drive or bus more than an hour away. At the end of last year casino revenues have dropped in Atlantic City by nearly half to $2.8 billion.

The new financial reality is the precipitous revenue fall is taking down the once venerable casinos one by one. In 2006 the Sands was closed and leveled presumably to make way for a new bright and shiny casino that never materialized. Many other proposed projects such as MGM Resort’s City Center East never broke ground and there was also the now forgotten Trump World’s Fair that quietly vanished in 1999.

More recently the former Atlantic City Hilton, which was called Atlantic Club at the end, closed up shop earlier this year. And now the city may be down to nine casinos by the end of the year.

Hopefully, this thinning of the heard will be beneficial to the future condition of this once great gaming market. Though a little too late, the city has made strides in finding other ways to get people into the city; and revenues from special events such as basketball tournaments and concerts is rising rapidly.

The big lesson here for state legislators across the country is the gambling market has become inexorably saturated and is at the point now where revenues will continue to stumble nationwide. This is especially true in the northeast now that New York and Massachusetts are going all in for casinos too in what should be the last gasp of American casino expansion.

Atlantic City portends the future of the entire state of the American casino market. The heyday is officially over as too many Americans are experiencing gaming fatigue from too many properties in too many states. Las Vegas will continue to reign supreme as they have successfully weaned themselves from gambling as the main business driver.

Unfortunately, Atlantic City will not be the only jurisdiction seeing precipitous revenue declines. And states continuing this unhealthy addiction tax income will need to find new ways to fill up their coffers. Marijuana anyone?
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