Atlantic City gets no respect.
Gaming revenues are up, and sports betting is breaking records. The resort has a myriad number of amenities, from restaurants to entertainment, from the boardwalk to the beach.
Yet the latest headlines harp on whether there are too many casinos in the city since June 2018, when the Hard Rock and Ocean Casino opened.
A report from Rutgers University’s Edward J. Bloustein School of Planning and Public Policy says new casinos did not grow the market, but took customers away from existing casinos. It suggests the resort cannot sustain itself in such a crowded atmosphere unless the state caps the number of licenses.
Oversaturation also played out more than a decade ago when Pennsylvania first got casinos and took a huge bite out of the profitability of the existing Atlantic City gaming halls. The results culminated in the closure of five properties between 2014 and 2016, including the Taj Mahal and Revel (reborn respectively in 2018 as the Hard Rock and Ocean Resort).
Between 2016 and 2018, the properties that remained enjoyed better results. But what’s really helped Atlantic City was sports wagering. AC was first out of the gate with the new industry after the Supreme Court overturned a widespread ban on sports bets. New Jersey brought the suit that challenged the law, giving the state a head start.
But even revenues from sportsbooks and online gaming cannot overcome the loss of table games and slots, said Joe Lupo, property president for Hard Rock. “Most of that money goes to third party, online providers,” he said. “It takes profitable revenue for capital to be spent and property improvements to be made.”
New Jersey Governor Phil Murphy’s Atlantic City Working Group commissioned the Rutgers study at a time when state policymakers consider a cap on gaming licenses, an idea that has bipartisan support.
The support seems logical. In the four quarters prior to the debuts of Hard Rock and Ocean, average gross gaming revenues for a roughly 2,000-slot Atlantic City casino was $336 million. That figured dipped to $283.6 million after the new properties came online, said Rutgers researchers. Additionally, total revenues per-slot slid from $169,000 to $146,000.
According to figures released November 14 by the state Division of Gaming Enforcement (DGE), total gaming revenues for Atlantic City casinos increased 13.6 percent last month compared to the same period in 2018. Strong gains from online gaming—up 69 percent—and sports betting—up 170.7 percent—pushed total revenues to $266.2 million. Year to date, Atlantic City casinos have reported $2.7 billion in total gaming revenues, putting the $3 billion annual benchmark within reach for the first time since 2012, when 12 casinos operated and there were no online casinos or sportsbooks.
Statewide, sports bettors placed more than $487.9 million in legal wagers, with 85 percent of those bets done either online or via a mobile app.
“New Jersey sportsbooks have surpassed Nevada’s in recent months, and it continues to show significant promise for the gaming industry,” said Steve Callender, president of the Casino Association of New Jersey (CANJ) and senior vice president of operations for the East Region of Tropicana Atlantic City’s parent company, Eldorado Resorts Inc. “We are optimistic as we approach the end of this year that we will finish 2019 out in a strong position.”
Rummy Pandit, executive director of the Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism at Stockton University, told GGB News last month’s reported revenues were the highest for October since 2011. Total gaming revenues in Atlantic City have increased for 17 consecutive months, dating to June 2018, when Hard Rock and Ocean both opened.
Still, Rutgers study says dark clouds hover. Casino win, which is revenue from slot machines and table games, increased by 0.8 percent, accounting for $202.3 million. But Bally’s Atlantic City, Golden Nugget Atlantic City, Resorts Casino Hotel and Tropicana Atlantic City reported less casino win last month than in October 2018. Year to date, casino win is down for all seven of the casinos that were open prior to the arrival of Hard Rock and Ocean.
“The Atlantic City casino industry is vulnerable to challenges from within, and competition from outside the state. The data is really stark,” Jim Johnson, former special counsel for the Atlantic City transition, told a legislative panel.
Lupo agrees that the city has too many casinos.
“The numbers are obvious,” he told GGB News. “Nine properties is too much supply. To ensure enough revenue to see capital and property enhancements, I would guess six is the right number in the Atlantic City market. I don’t see anything changing unless there is less supply.”
To be sure, Lupo’s property has done very well, thank you. “Hard Rock has made an impact with a vibrant, new brand, while adding a great product. Atlantic City is a resort destination and the properties must differentiate themselves from the outer markets with better product and energy, which we have been able to achieve.”
As for the cap, there are multiple sides to any argument, Pandit said. “While curtailing or limiting the number of competitors in a given market can positively impact the profitability of existing operators it can also create stagnation. Unchecked competition can be volatile and a serious economic risk, while also being the catalyst for growth and innovation.”
The Rutgers study created an analysis of the potential revenue impact should a new 2,000-slot machine venue open in Atlantic City, Delaware, New York, or Philadelphia. These concerns come into play next year when Cordish Companies’ Live! Hotel and Casino opens in Philadelphia. The casino in the stadium district could divert $63 million to $150 million in gambling revenue currently being spent in Atlantic City casinos, per the Associated Press.
Eldorado’s recent acquisition of Caesars Entertainment has fueled speculation that the merged company will shutter or sell one of their combined Atlantic City casino inventory, a group of four casinos that includes the Tropicana, Bally’s, Harrah’s and Caesars. Tropicana may be the likeliest to go on the block. Analysts now think Eldorado would sell Bally’s only if New Jersey regulators force the company to do so to allay over-concentration concerns. A new $11 million sportsbook recently opened at the property, and with sports betting soaring, Eldorado may not want to part with Bally’s unless it has to.
“Without knowing their corporate strategy and having intricate knowledge of their operations, it is impossible to say” what Eldorado will do, Pandit said. “Whatever decision they make, we can expect it will demonstrate an overall strategy to create synergy for the merged properties and increase their profitability and stability moving forward while enhancing shareholder value.”
The idea to cap casino licenses received support from some lawmakers. Democratic Assemblyman Ralph Caputo panned a proposal to restore casino operations to the Showboat, which currently operates as a non-gambling hotel. Bart Blatstein, the owner of the Showboat Atlantic City Hotel, has proposed circumventing a deed restriction on the Boardwalk property that prohibits gaming by building a new casino on an adjacent lot.
“That’s just a bad idea,” said Caputo, a former Atlantic City casino executive.
Assemblyman Vince Mazzeo of Atlantic County said in a statement, “There’s no denying that progress has been made, but we need to make Atlantic City truly prosper again before the city is returned to local control.”
