Atlantic City Recession Continues While Las Vegas Rebounds

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Atlantic City posted another large decline in gaming revenue during April.  Total casino win was down 12.1% for the month.  Table game revenue declined 6%, while slot revenue dropped 14.4%.  The market continues to suffer from the lingering effects of locals that have not yet recovered from Hurricane Sandy and the expansion of gambling in neighboring states, most notably the Aqueduct Casino in New York City.  Pennsylvania, Delaware and Maryland casinos have also contributed to the decline.

Only two of the 12 Atlantic City casinos posted positive year over year results.  The two casinos were the Atlantic Club and Caesars.  Atlantic Club reported a 36.6% gain, though that only amounted to a gain of about $3 million.  All of this gain came from slots due to promotional campaigns aimed at locals.  Caesars posted a 5.9% gain, which equaled about $2 million in gaming win.  Caesars’ entire gain can be attributed to table games, possibly from a handful of high volume blackjack players.

Four casinos posted a revenue loss of at least 20% compared to April 2012.  The biggest loser was Revel, a property that entered into bankruptcy less than one year after it opened as it tries to shave over $1 billion in debt from its balance sheet.  Revel posted a 40.1% loss in revenue over the same period a year ago and ranked 11th out of Atlantic City’s 12 casinos in terms of gaming revenue in April.  Revel opened with a poor player’s club, a no smoking policy, expensive restaurants, no buffet and little in the way of comps for gamblers.  All of these issues have hurt the resort’s ability to attract gamblers. 

The company announced that it will reverse its no smoking policy and will soon allow smoking on 25% of the casino floor.  The biggest issue lies in gambler loyalties to their home casinos.  These players gave Revel one chance and they were let down.  It will be hard for Revel to draw these players back into their doors without major spending on free slot play, promotional chips, free meals and free hotel rooms.

Las Vegas Proves it is not Just the Economy

While Atlantic City has pointed to the lingering effects of the worst recession in two generations holding the resort city back, Las Vegas is proving that marketing and amenities may be the key.  The Las Vegas Strip gaming win was up about 6% year to date as of March, for an increased win of about $90 million over the first quarter of 2012. 

Atlantic City is dependent on gambling dollars, especially compared to Las Vegas.  In 2011, Atlantic City reported a gaming win that totaled 73% of all resort revenue.  Only 27% of Atlantic City revenue came from restaurants, hotel rooms, retail and entertainment.  The exact opposite was true for Las Vegas.  In 2011, 61% of all Las Vegas Strip resort revenue came from nongaming activities.  That number rose to 64% in 2012.  Assuming these same numbers, a $90 million increase in gaming win would have been accompanied by a $250 million increase in nongaming revenue during the first quarter of 2013.  The first quarter increase is more than one month of combined gaming and nongaming revenue in Atlantic City, which was the second largest gaming market in the US until Pennsylvania surpassed it in 2012.

Atlantic City Regional Unemployment Worst Outside Southwest

Another symptom of declining revenue and the effects of Hurricane Sandy is the unemployment in the Atlantic City region.  Ocean City, Vineland and Atlantic City, the three markets that comprise the Metropolitan Statistical Areas (MSA) of the resort area, rank 4th, 11th and 12th, respectively in terms of the worst unemployment in the country out of 372 markets as of May 1, 2013.  The unemployment rates in these communities range between 13.8% and 17%.  Eight of the other nine top 12 worst unemployment MSAs are in California, with the other being Yuma, AZ, which is on the California border. 

By rate of comparison Las Vegas ranks 50th in unemployment.  The 9.8% unemployment exceeds the national average, but is far better than its peak of 14.3%, a number that was previously reported as 15.9% but adjusted lower.  These high unemployment rates coincided with the Las Vegas housing market crash in a city dependent upon construction as its second largest industry behind tourism.

Atlantic City and Las Vegas Housing Markets

The largest key factor of a market’s health is the housing market.  Both Atlantic City and Las Vegas are down about 40% from their 2007 highs.  The difference is that Atlantic City’s housing market has yet to find a bottom in all but the highest priced homes.  On the other hand, the Las Vegas housing market was oversold a year ago and has since rebounded 22.9% since May 2012 according to Zillow.  The Greater Las Vegas Association of Realtors reports the average Las Vegas home appreciated over 30% over the past year with substantial gains month over month in 2013.  Many desirable zip codes are doing even better, selling at over 100% of the asking price.  The Las Vegas housing market shows characteristics of last decade’s boom, while Atlantic City cannot seem to find a bottom.

Online Gambling Will Not Bailout Atlantic City

New Jersey passed online gambling in February 2013.  It may help with gaming revenues, but it will not increase resort revenue as gamblers will not need to enter an Atlantic City property except to deposit and withdraw their funds.  The state’s population is only about three times that of Nevada and the only existing Nevada online poker site is only drawing about 400 players at peak times.  Station Casinos’ bottom line is not substantially affected by their new online poker room.  It is a stretch to think Atlantic City casinos will be able to improve their balance sheets in any noticeable way using this same business plan, although New Jersey allows for casino games, while Nevada only allows online poker.  This may help some but will not replace the more than 10,000 jobs lost since 2007 when Atlantic City started its decline.

Sports Betting May Not Bailout Atlantic City

New Jersey legalized sports betting at Atlantic City casinos and the state’s racetracks.  The Professional and Amateur Sports Protection Act (PASPA) makes it illegal for New Jersey to allow sports betting.  New Jersey lost the first round of their court challenge in March in a case that may go all the way to the Supreme Court.  Delaware lost a similar case in 2009 and that state is mentioned as an exception to PASPA.  Even if New Jersey eventually prevails Atlantic City will be forced to compete with racetracks, once of which is on the border with New York.  In Nevada, sports books account for just 1-2% of all gaming revenue.  It does improve non-gaming revenue during major sporting events.

Atlantic City Out of Excuses

It is obvious that Atlantic City has become a dinosaur in the gaming world.  The market enjoyed a monopoly for nearly three decades, but that time came to an end when Pennsylvania entered the gaming industry in 2007.  The world’s largest slot casino opened at the Aqueduct Racetrack in November 2011, further eroding Atlantic City’s ability to compete.  Tribal casinos in Connecticut have also hurt New Jersey gaming revenue.  Casinos in Delaware and Maryland have not helped either.

It seems certain that the only way Atlantic City can become profitable again is to close a few properties.  Two proposed sales have fallen through in 2013.  The Mereulo Group’s $20 million bid for the Trump Plaza fell through after Carl Icahn, holder of the property’s mortgage, refused to sign off on the deal.  The Atlantic Club entered into a sale agreement with Rational Group, parent company of PokerStars, in December 2012.  This $15 million deal also appears to have fallen through.  Rational Group has announced their intent to fight this termination.  One has to wonder if Atlantic Club’s impressive performance in terms of gaming revenue has created a situation where the company is now asking for more money. 

It is clear that Rational Group was looking for a backdoor into the US online gambling market.  That may increase the value of Atlantic City casinos, but the truth remains that there are too many resorts fighting for gaming revenue that shrinks with each and every month. 

A number of beachfront properties sit vacant in Atlantic City.  The only resort built in the past 10 years filed for bankruptcy before its first birthday.  Arguably, Revel entered the market without the skills to attract gamblers that are a key to any casino’s success.  While Revel may have squandered their opportunity, the truth remains that several of the market’s casinos are on the verge of failing.  If that is the case, the only solution is consolidation.  While this would cost the region even more jobs it is bound to happen as there is simply not enough to demand to sustain 12 casinos.  A few properties closing would help make the remaining properties stronger, a reality most people seem to not want to face. 

Online poker and casino games cannot fix an economy that is the worst in the US outside of a handful of mostly agriculture based California MSAs, nor can it make a city that has seen its revenue drop each of the last six years turnaround the decline.

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