Nothing spells optimism for a sunny future than pools, RVs and boats.
On January 26, the Pool & Spa Show returns to the Atlantic City Convention Center. A couple weeks later on February 12, the Atlantic City RV and Camping Show comes back, and two weeks after that, the Progressive Atlantic City Boat Show.
All three are annual winter staples on the convention center calendar, and expect to draw more than 60,000 visitors in total. But the cloud of Covid-19 hangs over these and other trade and public shows on the docket. The pandemic wiped out just about all the shows for November and December, and unless the number of cases diminishes, the same fate could await the January and February calendar.
“While we have a few events remaining on the calendar for 2020, we are closely monitoring the guidelines set forth by the governor and the CDC and will pivot accordingly, if necessary,” said Jessica Kasunich, communications manager for Meet AC. “We are still holding onto our first quarter events and remain hopeful that we will continue to see positive signs in the new year.”
Good riddance to 2020; hello to 2021.
The millions of dollars forfeited in 2020 when the New Jersey Education Association and New Jersey State League of Municipalities scuttled their annual conventions in Atlantic City in favor of virtual events, which do nothing for business in or out of the casinos. Meet AC, the resort’s group sales and marketing organization, lost over $182 million in convention economic activity through October 29.
Casino operators fear the limitations imposed by the state will result in a ripple effect on the hospitality industry, according to the Press of Atlantic City. The lack of meetings exacerbates an already exasperating situation, especially this time of year and especially midweek, when conventions fill otherwise vacant hotel rooms.
“The lack of volume midweek has always presented favorable midweek hotel pricing when compared to Philadelphia and New York City. However, it has become a dire need and more meaningful with business being negatively impacted by Covid-19,” Property President, Joe Lupo, Hard Rock Hotel & Casino Atlantic City said.
Without midweek conventions, you have less hotel rooms occupied, less volume in restaurants, less banquet and catering business, less gaming and less business to the local operators of Atlantic City as well, Lupo said. Limiting the number of participants to 25 per meeting has scratched any bookings at Hard Rock. And without an increase in capacity for meetings in hotels and in the convention center, the dominoes fall.
Bottom line: it is the convention business that keeps the city afloat during the offseason. “This will further cripple the industry and may have a very negative long term impact if a casino does not survive this,” said Michael Busler, Ph.D., Professor of Finance at Stockton University.
State lawmakers, city officials, casino executives and labor union leaders have asked Governor Phil Murphy to ease the restrictions on indoor gatherings. But with an increasing number of Covid cases, it’s unlikely he will fully allow conventions to return to Atlantic City. ”Since the virus tends to grow during the colder weather, allowing conventions anytime soon will probably not happen,” Busler said.
The longer restrictions keep conventions away, the more the long term damage.
“We need meetings and conventions, and an increase to 50 percent (for indoor dining). We feel pretty passionate that we can do this, and we can do this well,” said Steve Callender, president of the Casino Association of New Jersey and regional president of Caesars Entertainment Inc., which operates four of the city’s nine casinos.
Because of their massive size, state-approved health and safety protocols, top of the line ventilation systems, and rigorous regulatory oversight, Atlantic City’s casinos believe they are uniquely equipped to resume holding larger indoor gatherings.
“I think that the state is being as cautious as they can,” McDevitt said. “The only thing that we’ve asked is that they be creative in the way that they deal with this situation. … I think, with all the precautions that are already in place, probably one of the safest places to be is in a ballroom of an Atlantic City casino.”
Bob McDevitt, president of UNITE HERE Local 54, the union that represents some 10,000 casino workers said the return of meetings and conventions and the additional business they bring would mean more hours and more money.
“My best guess is that assuming a vaccine is available by the end of the year, sometime in early spring conventions will be allowed,” Busler said.
The impact of the loss of midweek business is felt in the already struggling casinos and the lack of revenue from casinos erodes the contributions to the Casino Reinvestment Development Authority, which erodes its ability to repay interest and debt on bonds secured to finance projects. Bonds become riskier.
So it isn’t any surprise that Fitch Ratings reduced the CRDA rating. $215 million worth of bonds went from BBB+ to BBB, according to CalvinAyre.com.
While the agency still believes the default risk for the bonds is low, a rating of BBB indicates “adverse business or economic conditions are more likely to impair” the risk, Fitch wrote in a report.
The cancellation of conventions, trade shows and other events reduce the likelihood of recovery in revenues to support the luxury tax bonds Fitch rates, said Doug Offerman, senior director at Fitch. In this case the bonds relate to the luxury tax on rooms, alcoholic beverages and entertainment.
“These are many of the things that make Atlantic City a popular destination and generate the luxury tax,” Offerman said. “If the tax falls below historical levels we won’t see recovery right away. This is a signal to bondholders that we are concerned about the risk related to revenue stream.”
Said Busler, “When the credit rating agencies come up with the bond ratings, their primary concern is the bond issuer’s ability to pay the annual interest charges and to re-pay the debt when it matures. As the issuer’s cash flow position weakens, the risk of default increases and so the bond rating falls.”
The downgrade means that CRDA’s borrowing cost will increase, leaving them with less money to pay for the projects that they usually approve, Busler said.
Gross gaming revenues, a percentage of which funds the CRDA dropped 15.1 percent in September to $190.5 million. The online segment the one bright spot, helped limit the losses, but some are concerned that the switch from physical casino gambling to online gambling will become permanent. “This will place further pressure on the CRDA, as well as on brick-and-mortar casinos in Atlantic City,” Fitch said.
But if the restrictions ease up and planned conventions are held, revenues generated for the luxury tax would show up in a few weeks, Offerman said.
“That would help cushion against the risk we have another economic contraction,” he said.
