NJ Regulators Face Backlash Over AC Deed Restrictions

As part of hearings on the Eldorado-Caesars merger, the New Jersey Casino Control Commission ignored a recommendation from the Division of Gaming Enforcement to lift deed restrictions on three properties once owned by Caesars. Owners of two of the properties, including the Claridge (l.), have filed appeals.

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NJ Regulators Face Backlash Over AC Deed Restrictions

The New Jersey Division of Gaming Enforcement (DEG) made 40 recommendations to the state Casino Control Commission before voting to sanction the $17.3 billion merger between Eldorado Resorts and Caesars Entertainment.

The commission approved almost every suggestion, but declined one that would have lifted the deed restrictions on the Claridge, the Atlantic Club and the Showboat, three properties that were once part of the Caesars empire.

The restrictions were aimed at keeping the new owners from competing with Caesars, Bally’s and Harrah’s.

The owners of the Claridge and Atlantic Club aren’t too happy about the commission’s actions and have filed an appeal of the decision. Among other things, they argue that Eldorado did not oppose ending the restrictive covenants.

But Commission Chairman James Plousis said removing the restrictions would “greatly complicate” the Eldorado/Caesars deal and it’s an “academic exercise seeking to remedy perceived ills” unrelated to the merger.

The agency should have followed the DGE recommendations, according to Daniel Heneghan, an industry consultant and former public information officer for the agency. By retaining the restrictions, the commission overstepped its regulatory charge, he said.

The commission seems to accept that one company can own four of the city’s nine casinos, or about 42 percent of the market, and also control three other casino sites to keep out new competition, Heneghan said in an article he wrote for CDC Gaming Reports.

When Caesars imposed the restrictions in the first place, “a lot of people were incensed at the company’s effort to stifle competition,” he said.

By no means is Heneghan advocating for additional casinos at this juncture, but the commission should address the issue if one of the owners of these properties seeks a license. The DGE reached its conclusion after a May report urged lifting the restrictions.

“It’s my opinion that the commission should foster an environment that encourages new entrants and competition,” said Martin J. Perry, of Bates White LLC and author of the report. “This includes taking action to remove existing barriers to entry.”

The owners of the three properties in question all declined to comment on the matter.

“The regulators are not business people,” said Michael Busler, professor of finance at Stockton University and a public policy analyst. “My view is to let the market decide how many casinos should be in Atlantic City.”

Depending on conditions, eliminating the restrictions could lead to the properties either being sold or developed by the current owner. “Either way, it will increase the value of the property,” Busler told GGB News. “It’s difficult to tell how successful this will be, but allowing more options is always a good idea in a market like Atlantic City. In the long run, removing the deed restrictions provides more flexibility for a potential buyer.”

To Heneghan, one reason for the commission’s decision was deference to Ocean Casino Resort and Hard Rock Hotel & Atlantic City, which sit on either side of the Showboat. “The two casinos, which opened two years ago, created intense new competition for the other casinos in Atlantic City, drove up their costs and cut into their market,” he said.

To be sure, Hard Rock has a point in its criticism of lifting the deed restrictions. “The market has simply shown no signs, especially coming out of the pandemic, of the need for more supply,” said Joe Lupo, Hard Rock AC property president. “More supply will simply cause more layoffs of personnel, less revenue, less profitability and less capital reinvestment, which we all know many of the Atlantic City properties desperately need.”

The commission indicated a discussion on the merits of the restrictions—or lack thereof—could be done at a later date.

“But the commission has no authority to convene a hearing on this in the future. This was the commission’s only chance to do it; a licensing hearing to reconsider lifting these restrictions can only be reopened at the request of the DGE. It should have lifted them now and not worried about the complications,” Heneghan said.

If commissioners believe there are enough casinos in Atlantic City, they could address it through the standard licensing process, he said. “The law says anyone who wants to open a new casino has to produce a market impact study which analyzes the adequacy of the patron market and the effect of the proposal on such market and on the existing casino facilities licensed under this act.”

Or the commission could approve regulations capping the number of casinos.

Setting aside the commission’s actions, Heneghan doubts anyone would seek a casino license with the devastating impact of the coronavirus pandemic. “I think it could cripple one of more casinos. In fact, I didn’t think that opening two new casinos two and a half years ago was a good idea,” he said.

The commission has, in effect, endorsed the removal of three large parcels of casino-zoned property from that equation, he said. “If the market comes back strong and there’s a market for new casinos, then the risk to the state of New Jersey from not lifting those restrictions is very real.”

Articles by Author: Bill Sokolic

Bill Sokolic is a veteran journalist who has covered gaming and tourism for more than 25 years as a staff writer and freelancer with various publications and wire services. He's also written stories for news, entertainment, features, and business. He co-authored Atlantic City Revisited, a pictorial history of the resort.