What’s happening in Atlantic City isn’t a surprise. Declining revenues and non-convenience gambling have been problems for the Boardwalk town, and the worst probably isn’t over.

The probability that four casinos will close in Atlantic City this year, and the possibility that more will follow, is grabbing lots of headlines.

Anyone who follows gaming even casually can’t be surprised.

Atlantic City was built on day-trippers, with regulators hampering development of true destination casinos, and casino operators gladly complying as long as buses filled with low-quality gamblers kept pouring in every day.

When gaming proliferated throughout the Northeast and Middle Atlantic, it took away all of those convenience players and left behind properties that, for the most part, had not developed the allure of true destination resorts.

For awhile, there was hope that Revel would prove AC could be a magnet for affluent visitors, even though the Water Club at Borgata already had tried that experiment with disappointing results.

When Revel opened and basically scorned gamblers, it sealed its own fate making it too late for the series of attempted quick fixes that followed to turn it around.

It was inevitable that marginal casinos, hanging in on the Revel experiment and hoping that Internet gaming would provide pots of gold, would close when those experiments fell flat.

Nor will things get easier for Atlantic City. New casinos in New York will tap North Jersey residents and New Jersey itself might legalize competitors near New York City.

Horseshoe is soon to open in Baltimore, followed by MGM near Washington, D.C., and another casino in Philadelphia—AC’s prime feeder market.

And, while closing casinos grabs headlines, it’s worth noting that capacity left when Caesars scaled back operations at Bally, including selling the Claridge Hotel tower.

Nor is Atlantic City the only market where capacity has been reduced, or where declining revenues threaten viability.

Delaware has suffered the same competitive pressures as Atlantic City. Like Atlantic City, Delaware has a small population and had thrived on outlying cities sending in gamblers.

Given that much of its revenue comes from west of the Chesapeake Bay, Delaware is especially vulnerable to the opening of Horseshoe MGM outside Washington.

One could question whether Harrington, Delaware’s smallest casino and one owned by a non-for-profit state fair board with some members historically not enthusiastic about being in the casino business, can remain viable.

Of course, closing of Atlantic City casinos can also relieve some of the regional competitive pressure.

One way for Delaware casinos to survive is to bring down their tax and expense burden, something that many legislators loathe to do.

Still, a business model of high taxes based on a near monopoly can’t survive when the monopoly disappears. That’s just like Atlantic City, which has a very reasonable tax rate, but suffers from decades of strangling regulation and its reputation as an unattractive destination.

The shake out isn’t confined to Atlantic City and Delaware.

Tunica has lost casinos as the proliferation of gaming means fewer gamblers need to hop on airplanes to that remote location.

Casinos surrounding Ohio have been crimped by the Buckeye State’s entry into gaming. Northwest Louisiana has been hurt by Oklahoma Indian casinos. Indian casinos in Pacific states upset Reno and Lake Tahoe.

Opportunity today is in new markets, such as New York, though even there whatever new casinos open will dampen business elsewhere—Connecticut, Pennsylvania, Atlantic City, and New York’s own racinos.

At some point, the industry will reach equilibrium.

For right now, regional gaming markets are definitely places where stock investors need to consider downside risk—Connecticut, Pennsylvania, Atlantic City, New York’s own racinos.

At some point, the industry will reach equilibrium.

For right now, regional gaming markets are definitely places where stock investors need to consider downside risk.

Articles by Author: Frank Fantini

Frank Fantini is principal at Fantini Advisors, investors and consultants with a focus on gaming.