A new year. A new decade. When it comes to Atlantic City’s fortune in the new year and new decade, will the same old song and dance of the past decade prevail?
In the past 14 years, Atlantic City saw Pennsylvania’s entry into the casino business decimate plans for new resorts. The competition across the river also hit existing gaming halls hard, and, coupled with the lingering effects of the recession, caused a steep decline in revenues and the shuttering of five casino properties.
As 2018 dawned, the seven casinos remaining had begun to right themselves. Stability, if not prosperity, was enough.
But two—make that three—elements surfaced in 2018 to set in motion the forces that could determine the future moving forward. In May of that year, the U.S. Supreme Court ruled in favor of New Jersey’s long-fought suit to overturn the ban on sports betting, opening the door for the wagers in New Jersey and the rest of the country. A month later, Hard Rock Hotel & Casino Atlantic City and Ocean Casino Resort opened on the same day, taking over the former Trump Taj Mahal and Revel, respectively.
By fall, New Jersey’s first sports wager was placed, making it the first kid on the block to legalize full sports betting outside Las Vegas. The new revenues, added to what the casinos already brought in and the iGaming take, added significant dollars. In 2019, the resort industry broke the $3 billion mark for the first time since 2012.
Here’s where the new song-and-dance come into play. The addition of two more casinos added much-needed employment opportunities. But did they grow the market? Did they improve profitability citywide?
According to financial reports filed with the state Division of Gaming Enforcement (DE), casino licensees reported third quarter 2019 net revenue of $928.9 million, reflecting a 2.7 percent improvement over the same quarter last year, while gross operating profit increased 12.5 percent to $239.4 million compared to the prior period.
Though net revenue rose 10.8 percent to $2,423.5 million for the first nine months, profits decreased 4.5 percent to $484.6 million.
Of AC’s nine properties, third-quarter results show both Hard Rock and Ocean Resort generating massive profit increases of 195 percent for the former and 1,660 percent for the latter. But for the first nine months of 2019, six of the seven other casinos experienced profit declines. Only Borgata increased its profits.
According to the Associated Press, Hard Rock President Joe Lupo and Tilman Fertitta, the billionaire Texas owner of the Golden Nugget, both predicted Atlantic City will not be able to support nine casinos indefinitely.
“This is a seven-casino market,” Fertitta said in September. “Nobody has the cash flow now that they had when it was a seven-casino market.”
David Schwartz disagrees. “It comes down to the casinos presenting a product that attracts people,” said Schwartz, gaming historian with the University of Nevada Las Vegas. “Las Vegas has dozens of casinos, and more are on the way.”
And truth be told, the revenue numbers are impressive, said Rummy Pandit, executive director of the Lloyd D. Levenson Institute of Gaming, Hospitality & Tourism at New Jersey’s Stockton University. November 2019 marked the 18th consecutive month-over-month total gaming revenue gain. At $288.6 million (excluding racetracks), the nine casinos in November exceeded the same month the year before by 16.5 percent and topped October 2019 by 8.4 percent.
Year-to-date casino industry total gaming revenue of $3.02 billion is 15.7 percent ahead of 2018. “Clearly, these are not signs of any type of slowdown,” Pandit said.
The next song-and-dance deals with sports betting. So far, about a dozen states have implemented such wagering—Pennsylvania among them— with more on the way in 2020. New Jersey still rakes in more than the other jurisdictions, even Las Vegas at times. Yet Pennsylvania has already had an impact on sports betting on New Jersey. When New York adds mobile wagering, the rush to take trains and cars across the Hudson to place a bet will begin to dwindle.
“When states such as New York eventually launch sports betting products there is a chance that New Jersey may lose market share to them solely on basis of convenience for non-New Jersey residents,” Pandit said. “Unlike these new entrants however, New Jersey sportsbooks would have had the opportunity to hone their product and build loyalty with their customers,” he said.
The answer in part lies not in sports betting or blackjack, but in increasing attractions unrelated to gaming, something Las Vegas has learned to do. The city learned it so well that non-gaming revenue eclipses what’s generated by the casinos.
“It’s hard to say if non-gaming can overtake gaming,” Schwartz told GGB News. “It would take an intense investment in non-gaming amenities and finding a market for visitors to support those amenities. For Las Vegas, it didn’t happen overnight. A stronger convention base would be my first step along those lines, since that leads to higher food and beverage and room spending.”
The state of the convention business in Atlantic City is looking positive, said Sandi Harvey, vice president of sales for the tourism group Meet AC. Atlantic City has more than 17,500 guest rooms and 1.8 million square feet of meeting space.
“With the opening of two new casinos and non-gaming properties, we are seeing an increase in convention and meeting business. The positive news coverage has also increased our production,” she said. “We estimate incremental growth of 5 percent increase year over year moving forward.”
Meet AC had a record-breaking year in 2019, with a total of 394,029 hotel room nights booked, which will bring over $400 million back into the local economy for the future.
“Convention business is extremely important to the city of Atlantic City. We expect to book over 375,000 room nights in 2020 with a continued stretch goal of 400,000 room nights,” Harvey said. “Meet AC has expanded its sales and marketing reach geographically. We’re seeing an increase in leads from different markets based on our market segmentations.”
But it’s not just conventions that will lead Atlantic City to new heights. As it continues to diversify its tourism product and economy as a whole, expect non-gaming revenue streams to represent an increasing share of overall revenue for the city. “The transition is likely to be gradual as operators grow existing non-gaming amenities and develop new one,” Pandit said.
There are more non-gaming amenities already in the city than some may realize, he said. These include dining establishments, retail stores, spas, entertainment venues, lodging, beach, boardwalk, amusements, and sports arenas. Recent additions include the bike path to Gardner’s Basin, a data center at the Atlantic City Convention Center and the Wheel at Steel Pier.
“The city’s many and varied community arts and culture organizations, including the public art and murals produced through the Atlantic City Arts Foundation’s 48 Blocks art initiative, are also a too often overlooked asset.”
In other positive news, Wall Street rating agency Moody’s has boosted Atlantic City’s credit rating by two notches—from B2 to Ba3. It’s still fall into junk bond status, according to NJBiz.com, but far better than when the town teetered on the brink of default almost four years ago.
The January 3 rating reflects the city’s “reduced, albeit continued, financial and economic distress,” according to the analysis from Moody’s, which along with Fitch and Standard & Poor’s, make up the big three rating agencies. In November, S&P bumped its rating on the city from BB Minus to B, again still below junk bond status.
Moody’s gave a nod to the Murphy administration’s attempts to diversify the city economy beyond just gaming and hospitality, as a way to institute a buffer for the city should the casino industry or nationwide economy sour. The rating agency credited the oversight, which gives the state the ability to slash city expenses and renegotiate cheaper public worker contracts.
Further budget cuts could bode well for the city’s credit rating, Moody’s said. Recent payment in lieu of property tax laws, which will bar future tax appeals, also helped the credit rating.
“The state’s relationship with Atlantic City is strong and collaboratively we continue to make progress in strengthening the city’s finances, improving city operations and municipal services, and increasing economic opportunities in the city,” Lisa Ryan, a spokesperson for the Department of Community Affairs, which handles the state oversight, said in a statement. “The Moody’s analysis rightly points out that the city must diversify its economy, address its high poverty rate, and protect itself against storms and flooding if it is to truly achieve health and stability.”
