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Atlantic City's Nose Dive

Three more casinos closing, and no end in sight

Atlantic City's Nose Dive

Summer is usually a good time for Atlantic City casinos. It’s the busy time of year when vacationers flock to the Jersey Shore to enjoy the beach and the boardwalks, and a little gambling—too little, apparently, for at least three casinos this summer.

In mid-July, Trump Entertainment confirmed what local politicians were saying, that Trump Plaza, the city’s worst-performing casino, would close in September. The company sent out “WARN” notices to Trump Plaza’s 1,100 employees the following week, giving them 60 days warning that they will lose their jobs.

Trump Plaza joins Caesars Entertainment’s Showboat and the independent Revel casino in sending their employees such letters. The Atlantic Club—formerly the Atlantic City Hilton—closed in January, the first casino to close in Atlantic City as a result of the current financial crisis.

The closing of Trump Plaza was expected. In May, the casino posted a gross gaming win of only $4 million. In the first five months of the year, Trump Plaza has reported GGR of $21 million, by far the lowest in the city and down more than 25 percent from the previous year.

In 2013, Trump Plaza had a sale agreement with Southern California’s Merulo Group, which owns the Grand Sierra in Reno and several smaller hotels in Las Vegas. Merulo had planned to buy Trump Plaza for $20 million and renovate it with an Asian theme to appeal to that lucrative market in the Northeast. But bondholder Carl Icahn objected to the low sale price and forced the deal to be terminated.

Icahn owns the mortgage on Trump Plaza and Trump Taj Mahal, totaling $289 million. Some analysts speculate Icahn will now attempt to take over Trump Entertainment since Trump Plaza will now default on the mortgage.

Another issue that doesn’t figure in the other potential closings is online gaming. Betfair operates an online casino under the Trump Plaza license. No details on what would happen to Betfair’s online casino as a result of the Trump Plaza closing were released, but most expect the license to be transferred to Trump Taj Mahal, where Ultimate Gaming operates an online casino.

Donald Trump has had little to do with the Atlantic City casinos bearing his name for some time. He owns as little as a 5 percent equity stake in Trump Entertainment. He told the Associated Press that the potential casino closings were totally predictable.

“I let them use my name, but I have nothing to do with it,” Trump said. “Atlantic City has suffered for years. Many mistakes were made by government—tremendous mistakes, including no reinvestment in the town. They would take casino revenue and put it in places that had nothing to do with Atlantic City. I got out seven years ago; my timing was tremendous.”

Politicians Showboating

The news came just days after local politicians turned on Caesars Entertainment for its plan to close the Showboat, and casino workers marched to Caesars Atlantic City to protest that closing.

Following those events, Caesars Entertainment said it would consider selling its closing Showboat casino to a company that would still operate it as a casino if it got a good price.

Caesars announced it was shuttering the casino hotel—which is scheduled to close August 31—because it wanted to reduce casino capacity in the resort. That, however, brought quick criticism from local officials incensed that the company would close a still-profitable property.

Caesars, however, has received expressions of interest in the property, and will do its due diligence if it receives a reasonable offer, Caesars Entertainment spokesman Gary Thompson told the Associated Press.

Thompson’s comments, however, seem to contradict the reasons given for closing the property, which was to protect Caesars’ other three casinos in the resort, Caesars Atlantic City, Bally’s and Harrah’s.

Thompson told the AP that in making a decision, concerns over the impact of having another casino in the market would “play somewhat of a role, but I think the largest role would be the amount of money we could receive from the property.”

Thompson said expressions of interest have come from groups interested in operating the property as a hotel-casino or for other uses. Caesars would also have to determine if a potential buyer could receive a state casino license, he said. He also did not disclose any companies interested in the property. Previous rumors had Penn National Gaming and Churchill Downs kicking the Showboat tires. In fact, Churchill has filed suit against former Trump executive Nick Ribis for misleading the company about his ability to operate the casino while Churchill ran an online casino connected to the license.

The Showboat would be the second casino to close in the city this year. The Atlantic Club casino closed in January after Caesars and Tropicana Atlantic City bought the property at a bankruptcy auction with the intent to close it and shrink the Atlantic City market.

Caesars has since sold the property—and also the former Claridge casino, which it also closed more than two years ago—reportedly with deed restrictions saying the properties can’t operate as casinos.

The closing of another casino brought severe criticism from city officials, especially since Showboat is still officially showing a profit.

The Showboat posted a gross operating profit of nearly $2 million for the first quarter of this year, but that was down from nearly $8.5 million in the first quarter of 2013.

State Assemblyman Chris Brown, a Republican who represents Atlantic County, called the shutting of Showboat “unconscionable,” and said he plans to introduce legislation that would encourage casinos to sell to other casino operators if they plan to close. If not, the casinos would have to pay back state-financed economic incentives.

“This is unacceptable, and it’s time to stand up for the working middle class,” he said.

Brown said his bill would also prohibit casinos from placing anti-competitive deed restrictions on sold properties and limit the number of casino licenses a single corporation can own in the state to two.

Earlier in June, Revel delivered WARN letters to its employees, but denied that it will close for certain sometime in August. Some analysts believe the city’s newest casino would be snapped up at a bargain price by another gaming company (possibly Caesars) or an investment group that would prevent it from closing. An auction of the property was slated for August 7.

The closing of all the casinos that sent WARN letters would mean a loss of 7,000 jobs, about a quarter of the workforce in Atlantic City. Bob McDevitt, the head of Local 54, the city’s culinary union, says something must be done.

“While this is a personal tragedy for every family involved, it is also a crisis for the state,” he said. “We expect Trenton to react with more than just sympathetic sound bites; we demand action equal to the magnitude of this pending catastrophe.”

North Jersey Threat

To make matters worse for Atlantic City, news emerged that seemed to indicate the five years Governor Chris Christie had allocated to Atlantic City to turn itself around may be over in four.

As casino revenue continues to decline in the resort and more casinos face closing, even staunch supporters of the city—such as Christie—are acknowledging that it may be time to allow a casino to be built in the northern part of the state.

At the same time, news came of a proposal by a group that includes Reebok founder Paul Fireman to build a $4.6 billion casino complex in Jersey City.

The plan has already been presented to some state legislators, but it could not be built—at least with a casino component—unless state voters approve a referendum to allow casino gambling in the state outside of Atlantic City.

Such a referendum could come as early as November 2015.

In 2011, Christie gave Atlantic City five years to improve its fortunes before he would consider discussing expanding casinos in the state. But as the city’s casino market continues to sink and casinos close, Christie now says he’s ready to start talking about casinos outside of Atlantic City.

Christie was responding to statements by New Jersey Senate President Stephen Sweeney, who said he has been having discussions about a possible referendum on a northern New Jersey casino for several months and said a referendum could be before voters in 2015.

Sweeney has also supported the five-year plan for Atlantic City, but he has said he’s now troubled by casino closings and the loss of jobs in the city, not to mention the declining taxes the state gets from casino revenues.

Sweeney’s remarks came before news of the Jersey City proposal was released. Most advocates of a new casino in northern New Jersey have looked to the Meadowlands sports complex as the likely location.

Sweeney said any plan for a northern New Jersey casino must include protections and benefits for Atlantic City, but he also acknowledged that a northern New Jersey casino could create thousands of jobs.

“I think I read pretty carefully what he said, which is that there’s a lot of stuff that needs to be done and talked about between now and then,” Christie said of Sweeney’s comments at a press event, according to NJ.com. “That’s why I think pushing it out to fall 2015 makes sense. We have to stay committed to Atlantic City, but we also have to remain competitive in the region.

“He wants to start the conversation,” Christie said. “I think that’s a good thing for him to do, and I’m happy to participate in it. We’ll see what happens—November 2015 is a long way off. We’ve got time to go through it.”

Meadowlands Momentum

Support for a Meadowlands casino has been around for years, but has gained new impetus as New York state is now planning to approve four new upstate casinos (see page 64).

The Jersey City proposal reportedly includes plans for a more than 90-story hotel and residential tower, the world’s largest observation wheel and an auto-racing stadium that could seat more than 100,000 fans, state Senator Raymond Lesniak—a major advocate of increasing gambling options in the state—told NJ.com.

“It’s huge,” said Lesniak, who has met with Reebok founder Fireman. “It has the wow factor. It will blow away Macau as a destination place for gaming.”

Assemblyman Ralph Caputo, chairman of the Assembly’s Gaming and Tourism Committee, has been briefed on the plan by a group that includes Fireman, according to published reports.

Fireman, a former chief executive of Reebok, runs Fireman Capital Partners in Boston, and is estimated to be worth $1.1 billion.

Though southern New Jersey politicians and community leaders have long opposed any move to expand gambling outside of Atlantic City, the changing realities of the casino industry—and Atlantic City’s loss of dominance—seems to be making expansion inevitable.

“I’m sure there are a lot of people who will take me to task for daring to even consider casinos outside of Atlantic City,” state Senator James Whelan—a former mayor of Atlantic City—told the Star Ledger. “I’d love to be wrong, but I think that’s the reality of where we are.”

Some southern New Jersey politicians, however, said the state should stick to the full pledge of waiting five years before expanding casino gaming in the state.

“We need to remind everybody there is a five-year bipartisan agreement in effect,” Assemblyman Brown told the Philadelphia Inquirer. “This notion, since gaming revenue is down, that we should abandon the five-year agreement is just plain wrong.

“Of course, gaming revenue is down due to the proliferation of gaming in states surrounding New Jersey,” Brown added. “In fact, due to oversaturation in the market, gaming revenue is also down in Pennsylvania and Delaware. Talking about putting a casino in the Meadowlands before the five-year period is over simply injects uncertainty in the market and makes it harder for Atlantic City to attract development.”

Whelan said he would like any future legislation to expand gambling to require any new North Jersey casino operators to also open a casino in Atlantic City, restrict the gaming expansion only to North Jersey, and to make sure new casino revenue benefits southern New Jersey just as Atlantic City casinos funded projects around the state for years.

Lesniak also said he wants to ensure that any northern New Jersey project benefits Atlantic City.

“There’s a lot invested in Atlantic City,” Lesniak said, “and rather than this proposal leaving it high and dry, it actually is a means for it to be saved.”

If a casino opens in northern New Jersey, it may wish it was in Atlantic City when tax time comes around.

State Senator Paul Sarlo has introduced a bill in the state legislature that would tax a potential future Meadowlands casino at a rate of 66 percent of gross revenues.

Atlantic City casinos are taxed at 9.25 percent—8 percent on gross revenues and a 1.25 percent Casino Reinvestment Development Authority tax that goes to improving Atlantic City.

Sarlo, however, acknowledged that the 66 percent would probably be the highest casino tax rate in the country, and it would need to be lowered.

“I don’t think in its final form it will be that high, but I recognize that it will be perhaps at 50 percent, which will help us generate revenue that we can send back to Atlantic City,” he told the Star Ledger.

Sarlo also said he feels the state could handle a casino at the Meadowlands and the proposed $4.9 billion casino project in Jersey City.

“There’s plenty of capacity in the region to put one in the Meadowlands and one in Jersey City,” Sarlo said. “If you tax both of them at the higher rate, I think it generates enough revenue for the state of New Jersey to help the local economies in the northern part of the state as well as send money back to Atlantic City.”

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