Atlantic City has too many casinos and needs to see the more unprofitable properties in the resort close to remain competitive.
That’s the verdict of casino gaming officials and market analysts speaking on a panel at the East Coast Gaming Congress held recently in the resort.
Panelist Adam Rosenberg, a managing director with Goldman Sachs, said “reducing capacity” is already underway, which he sees as a positive sign for the city.
The Atlantic Club casino closed in January leaving the resort with 11 casinos, but several more are rumored to be close to shutting down as well.
“You are seeing the market right-size, which is a positive,” Srihari Rajagopalan, a debt analyst with UBS said. “There are unprofitable casinos shutting down.”
The Atlantic Club closed after being purchased at bankruptcy auction by a tandem of Caesars Entertainment and the Tropicana Casino Resort in Atlantic City, which split the property’s assets. Caesars owns four Atlantic City casinos.
Gary Loveman, CEO of Caesars said earlier this month that more Atlantic City casinos need to close to adjust the market, but did not say whether he wanted to see a Caesars property close or more moves to takeover and shutdown competitors.
Still, analysts at the conference pointed to one Caesars property—the Showboat casino hotel—as likely to close along with the Trump Plaza casino hotel.
“My advice to someone who’s thinking about taking on one of these properties—that thinks they can build a better mousetrap is don’t do it,” said Joel Simkins, an analyst with Credit Suisse Securities. “It’s very, very difficult.”
Another topic at the conference was the possible sale of the Revel casino hotel in the city, which cost $2.4 billion to build, but has struggled since opening and gone into bankruptcy once. Revel officials have said they are considering a sale of the property or filing for a second bankruptcy.
Analysts expect the casino, if sold, to go for much less than it cost to build and that was buoyed by Hard Rock International officials who said they are considering buying the property, but are weighing the costs.
“We certainly looked at it,” Hard Rock president James Allen said speaking at the conference. “We participated in the process. The question is not whether Revel will be operating. The question is what will you have to put into a property that’s negative.”
Allen said that despite the fact that the casino is only two years old, Hard Rock feels there are issues with the casino’s design—the casino area is on the property’s second floor—that would require “a lot of work.
“If the economics were right, then we would be interested, he said, but did not discuss a suitable price.
Towards that end, other analysts said they expect the casino to sell for a fraction of its construction costs.
Drew Goldman, a managing director with Deutsche Bank, said Revel is losing $50 million to $80 million a year.
“If someone said they were going to shut down three casinos in Atlantic City, Revel’s share would increase. But in lieu of that happening, I think it’s very tough.”
Hard Rock had previously planned to build a “boutique” casino in the city, but backed off those plans as the Atlantic City market continued to slump. Since then, the company has filed preliminary paperwork with the New Jersey Division of Gaming Enforcement seeking clarifications on licensing requirements for the company.
The panel’s analysts also agreed that a planned casino in Orange County, New York, would be another major blow to the struggling resort.
“I think about how close that is to New York City and northern New Jersey, which is a very big source of customers for Atlantic City,” Goldman said. “It is 15 to 20 minutes for people in Bergen County, maybe 30 minutes for people in Essex County.”
The conference also led to another discussion about whether New Jersey should allow for casino expansion outside of the resort, specifically in northern New Jersey to offset New York casinos.
Several politicians spoke for and against the expansion, which has been a simmering debate in the state for several years.
However, Governor Chris Christie gave Atlantic City a five year window—now a little more than half way through—to turn itself around before discussing an expansion and several politicians at the conference reiterated that promise.
“We can fix this place,” New Jersey State Senate President Stephen Sweeney said. “This city took care of this state for a long time. Before we talk about cannibalizing this city, let’s get it on the right track.”
