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January-13-2009,
...And Meet Me Tonight in Atlantic City: The Pathetic State of Jersey Gaming...By Jay Graziani

2008 was far from a banner year for the wanna-be-Vegas of the East Coast. Revenue at Atlantic City casinos plunged a stunning 7.8% from 2007, a year that itself saw a drop from 2006. Last month alone saw revenue plummet nearly 18%, the largest one-month decline in Atlantic City gaming history. The Atlantic City Hilton has caught the worst of the hotels, chalking up a 36% drop in year-over-year revenue through 2008.

The de facto public face of the Jersey Gaming industry, Donald Trump, may want his next batch of Apprentices to first hone their skills in bankruptcy court. Trump Plaza, Trump Marina, and Resorts all saw revenue drop more than 25% this year. Shares of TRMP are down over 90% in the last 12 months as it tries to negotiate past-due interest payments to keep itself solvent.

The current economic troubles couldn't have come at a worse time for Atlantic City. Last year saw the addition of over 2500 rooms to existing casinos. Luckily, other planned expansions have been delayed due to the credit crisis, but there was a glut of supply even before the recession caused wallets to tighten. A number of other factors have contributed to the rapid fall of the Northeast's "premier" gambling destination:

**The Economy. Sure, gambling in general has been hurt by the recession as consumers' discretionary funds dried up. The bubble in summer oil prices also had an impact, as summer travelers had to adjust their plans when their wallets got pinched. But last year's economic woes don't explain the decline in casino revenues in 2007, before the current recession even began. While the broad economic picture has certainly impacted the casino business, it shouldn't shoulder all, or even most, of the blame -- A.C. was in decline before the economic troubles even got started.

**Smoking. While the implementation of a full smoking ban has been delayed, a partial ban allowing smoking on only 20 percent of the casino floor has still hurt profits. Despite claims to the contrary, smoking bans have been shown to have major influence on gambling revenue and, unfortunately, this is one problem that is not going away for Atlantic City. When the full smoking ban inevitably comes into effect, it will drive patrons to nearby Pennsylvania, which seems likely to increase its smoking areas to 50 percent of the casino floor. Casinos there have reported twice as much business in smoking areas versus nonsmoking areas, and they will be only too glad to accept the added business, especially right across the river in Philadelphia Park.

**Competition. The fight for gambling dollars is intensifying throughout the Northeast, and despite the other factors at play, this is the main driver of Atlantic City's current headaches. Pennsylvania and Delaware already have slot parlors up and running; Maryland will soon follow suit. While A.C. still enjoys a virtual monopoly on table games (excluding tribal casinos in nearby Connecticut), expect a push for expanded gambling in all states throughout the region. "Virtual" table games are now accessible in nearby states, and it's only a matter of time until Atlantic City completely loses its stranglehold on that lucrative market.

Granted, the Jersey shore is a seasonal destination, and winter has never been the local economy's strong suit, but desperation has begun to set in during these tough economic times. Comped weekend rooms, once rarer than a hooker-free casino bar, are now being dangled in front of the lowest of low-rollers. The Hilton has been among the most frantic, with weekly telephone calls going out to even mere green-chippers offering free 2-night weekend stays and dinner for two. Rooms must be filled, after all, no matter the cost.

But while comps have been enough of a stimulus to get Atlantic City through tough times in the past, much more drastic measures will be needed this time around. A.C. is broken, and its troubles will only continue unless changes are made to the very core of business in South Jersey.

Sports betting has been considered as a potential boost to A.C.'s ailing casino industry. Unfortunately, that solution requires more of the same that has been keeping Atlantic City afloat since its beginnings: exclusivity. Sports betting will only be a draw to Atlantic City for as long as nearby states refuse to join the party. If anything, Delaware is more keenly positioned to legalize the bookie biz, and seems prepared to jump sooner, rather than later. Delaware's exemption under federal anti-gambling law gives them a much easier path than New Jersey, and with a new governor in place, legislation to legalize sports betting could be voted upon as soon as this year. A previous bill passed the House before stalling in committee, showing that this threat is more than a paper tiger.

The addition of an express Amtrak route from The Big Apple, beginning February 6th, has been heralded as a boost for Atlantic City. But a 2-hour trip costing $50 or more each way will be a hard sell for New Yorkers with plenty of other entertainment options. Never mind that Amtrak's previous venture into a "Gambler's Express" from Manhattan was financially underwater the entire six years that it ran.

What Atlantic City needs is a real solution: a re-imagining of the South Jersey shore. Gone are the days of gambling for gambling's sake, especially in today's tightened economy. The ubiquity of gambling throughout the Northeast has killed its novelty for everyone except the day-tripping, senior citizen nickel slot queens. Atlantic City must transform itself into a hangout for the 20- and 30-something crowds, those consumers with a lot of free time and money to burn.

Atlantic City had a gambling monopoly and wasted it courting blue-haired grannies when it should have been going after the young professionals - you know, the people that have the money. Vegas was forced to reinvent itself in 1978 when it lost its gambling exclusivity (to New Jersey, no less). It transformed itself into a world of mega-resorts, becoming a true international location, a must-do vacation spot, a place larger than itself. It became a destination, something that Atlantic City must transform itself into if it wants to survive. Atlantic City needs an identity, and badly.

This business is just winners and losers and, barring some serious changes, expect Atlantic City to get caught on the wrong side of that line. Everything dies, baby, and that's a fact. But not everything that dies someday comes back. Atlantic City is starting to look like one that won't quite make it back.

01-13-08
Jay Graziani
MajorWager.com
graziani@majorwager.com

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