Crowd Control: Has the Mid-Atlantic Reached Critical Mass?

From D.C. to New York to New England, casinos are coping with new competition

In 2006, New Jersey operators dismissed the zany notion that “slot barns” in Pennsylvania could compete with Atlantic City. Bad bet. By 2011, Pennsylvania had 10 casinos, and AC had shed more than 41 percent of its gaming revenues.

Today, the Mid-Atlantic region is more crowded than ever, with ripples that radiate in every direction. Pennsylvania’s mini-casinos and online gaming invariably will affect the now fairly stable industry in New Jersey. Former rivals Foxwoods and Mohegan Sun of Connecticut have joined forces on a multimillion-dollar casino project in Bridgeport, hoping to fend off competition from Wynn Resorts’ splashy Encore, near one of the tribes’ biggest feeder markets, Boston. Upstate New York casinos were hard-hit by the opening of casinos in the New York City metro market and to some extent by Sands Bethlehem, soon to be Wind Creek Bethlehem.

With casinos expected in West Virginia and Virginia and sports books about to crop up everywhere, what’s the latest thinking about how to compete? Is it entertainment? Conventions? A gaming floor that appeals to younger players?

 

Maxed Out

The industry in the Mid-Atlantic has reached “maximum capacity,” says Cory Morowitz, chairman of Morowitz Gaming Advisors. Locals casinos may be especially at risk, relying more on frequent visits by neighborhood players and less on destination-style extras. “You have to make sure your cost structure is right-sized and that you have the ability to manage fixed and variable costs,” says Morowitz. “With more competition, you’re going to lose some share—no amount of investment will protect that.”

For example, when Cordish Gaming’s Live! casino opens in Philadelphia in 2020, it may grow the market overall but will still take a piece out of Harrah’s Philadelphia and SugarHouse. “In these kinds of markets, there are diminishing rates of return,” Morowitz says; the existing properties, which have no hotels, couldn’t expand enough to offset the expected decline. “It’s not like people are going to pass by other casinos to stay in your casino in Chester, Pennsylvania or on Columbus Avenue. They’re just not destinations.”

Not that those operators should throw in the cards. “But you can’t spend a lot of capital for very small returns,” says Morowitz, who advises “surgical,” cost-conscious upgrades in things like F&B.

Retail sports books aren’t big profit-makers, “but they do bring bodies into the property, younger people who like blackjack and roulette and eating in restaurants.” That’s a demographic to cultivate now, as it could grow into a higher-value leisure customer base over time.

Interestingly, Morowitz sees artificial intelligence as a cost-cutter of potential significance, enabling resorts to plug in robots to perform room service and maintenance. “There may be job losses in some lower-value areas like cleaning and security, but I predict it will create an opportunity for higher-rate jobs” along with operational efficiencies.

When it comes to right-sizing, the states should be willing to kick in, too. For example, last year Delaware lawmakers OK’d a tax cut to help its struggling casino industry stay buoyant.

 

The Loyalty Card

So whatever happened to good, old-fashioned customer loyalty? In some industries, loyalty is created “basically by taking prisoners,” says Morowitz; cable giant Comcast, for example, is a monopolistic industry whose customers “essentially have Stockholm syndrome—the company has 98 percent customer loyalty because there are no other providers.”

That may have been true of casinos once, but no more. While big players like Caesars and MGM have created sticky loyalty programs, “millennials like disruptive technologies and are willing to change their relationships very easily,” says Morowitz. Players who have a favorite gaming hall, bartender or dealer are also likely to carry a wallet full of loyalty cards. “It’s

really driven by the how much free play and how many free rooms they get,” says Morowitz.

Michael Soll, president and founding partner of The Innovation Group, urges operators to experiment with their gaming offering and amenities—up to a point. “It’s not changing up the gaming floor just to add eSports or skill games or whatever the buzzword of the day is, but to be flexible, to make room to do things that can be new and fresh.

“One of the unfortunate aspects of that kind of experimentation is that the individuals whose minds and behaviors we want to understand—the next generation of players—have always been on the lower-budget side of the spectrum. We’ve never had great yield from 18-to-25-year-olds at the slot machines.”

A 2016 feature in The Economist referred to an “existential threat” facing the traditional casino industry, which may not appeal to millennials “who grew up playing video and mobile-phone games.”

 

Are We Saturated Yet?

Clearly, it’s important to analyze customer trends and spending behaviors and not rely on data that says consumers become gamblers at, say, age 37 or 42 when they have a little extra money. Operators must learn what motivates emerging players, though they don’t now have big gambling budgets.

“Anyone who tells you they already know where this is going and where it should go knows something the rest of the industry doesn’t,” says Soll. “It’s a work in progress.”

The good news is the acceleration of mobile sports betting and online casinos should mean “marginal cannibalization” of bricks-and-mortar gaming, Soll says. “We actually see (online) as a complement, in some cases an enhancement and even a net revenue generator, particularly because it’s serving a different type of player.”

The bottom line is, with multiple entertainment options, players can pick and choose. “The fact that there are more and more properties in the market and more gaming opportunities means your customer service level, your ‘experience,’ has to be a differentiator,” says Soll. “Properties that are not well-managed, not attractive and don’t make the guests feel good about being there—that’s the biggest vulnerability.”

Not incidentally, he doesn’t believe the market has reached “technical saturation,” simply because the combined population of the Mid-Atlantic states is so vast (more than 53 million, according to a 2008 census). In all, he’s confident that the industry itself—and the noisy, neon-lit casino as we know it—is here to stay. “Bricks-and-mortar properties have always had some ebbs and flows as one has been introduced against the other, but in the long run they’ve survived and grown together. Going out and having a good time is not going away.”

 


Standing Out in the Crowd
Tony Rodio, CEO, Caesars Entertainment

In Atlantic City, Tony Rodio may be best known as the man who revived the Tropicana, lifting the property from near-rock-bottom to renewed prosperity. The former head of Tropicana Entertainment, who then took over as CEO of Affinity Gaming, was tapped for the top job at Caesars in April. GGB asked Rodio how he plans to operate Caesars’ multiple properties on the East Coast, principles which hold true across the whole portfolio.

GGB: How do you compete successfully in a crowded market like the Mid-Atlantic states?

Rodio: The key to success across our enterprise is continuing to diversify the gaming and non-gaming experiences. That means deploying capital, especially focused on un-utilized or underutilized space, on offerings that drive more foot traffic into our properties. A good example is the sports book being completed at Wild Wild West inside Bally’s Atlantic City, which should attract many visitors who might not have given us a look in the past.

How do you draw a new generation of players?

There seems to be a general consensus that younger consumers are unlikely to game exactly like prior generations. They appear to prefer more social environments, so table games like poker and blackjack should continue to be attractive. Skill-based games could also become a draw, but that’s likely to be an evolutionary process as operators and manufacturers develop and market new games to attract these customers. Also, it may be that not all games would involve gambling.

Finally, part of the casino floor environment may further integrate gaming, entertainment, F&B and social interactions. This will be a process that involves some experimentation, capital investment and a lot of customer feedback.

During your tenure at Tropicana in Atlantic City, the property was absolutely transformed. How did you achieve that kind of turnaround?

First, thank you on behalf of the team at Tropicana that executed the transformation. When I joined in 2012, our market share and customer base were shrinking, the property needed significant capital investment and we had low employee morale. We had to prioritize, but over time we addressed all of these areas. As a result, financial, customer service and employee engagement performance all improved dramatically.

I see a similar opportunity here, especially at Caesars Atlantic City, which has a great brand, ideal location on the Boardwalk and underutilized space that could be similarly transformed.

What’s your take on how to strengthen and grow your presence in AC, Philly and Baltimore?

It’s not quite this simple but can be summarized in two words: Caesars Rewards. Our loyalty program is the glue that binds all Caesars properties. By emphasizing the customer’s ability to leverage their rewards points accumulated locally for use at destination properties in markets such as Las Vegas, New Orleans or Lake Tahoe, we have an advantage that none of our competitors can match.

We should also utilize all of our available space to generate profitable growth, and make sure that our marketing spend drives revenue, EBITDA and cash flow growth as the top financial objectives for our operators.

Are there any special challenges in the Mid-Atlantic states compared to other markets?

The Mid-Atlantic region is a crowded space with a lot of gaming capacity between Washington, D.C. and Boston. Especially in highly competitive markets, it’s critical to stand out by leveraging our brand and loyalty program advantages, deploying capital to create even more exciting customer experiences, and enticing customers to spend more of their gaming and non-gaming dollars with us. We should also, as I mentioned above, deploy our marketing spend as effectively as possible.

 


 

Going Live!
Rob Norton,
President, Cordish Gaming Group

In 2020, Cordish Gaming is expected to debut its $700 million Live! Hotel and Casino Philadelphia, entering a market that already has two hometown casinos. GGB asked Cordish Gaming President Rob Norton why he thinks there’s room for one more.

GGB: Can you forecast how Live! Philadelphia will do when it opens? It’s an enviable location, close to the airport and major highways.

Norton: Live! Casino & Hotel Philadelphia will be the only true luxury resort hotel/casino in the broader Philadelphia area. It will elevate the Stadium District to a new level as a place to watch, play and stay. Given the power of the location, access and amenities, we’re certain it will quickly establish itself as the premier revenue-generating casino in the market.

Do you think the casino industry is endangered in any way by new competition, new customers and changing technologies?

We do not. The evidence is overwhelming that millennials are no different than other consumers: they want a first-class experience, exceptional customer service and high-quality amenities and offerings. This is what we aim to deliver—to customers of all ages.

Is skill-based gaming a critical component?

Not at present. We’re excited by the potential of these games, but they appear to be a generation away from being ready for broad deployment.

Sum up your formula for success in gaming and hospitality.

It’s all about giving customers a complete entertainment experience beyond gaming. You have to design and deliver venues that are compelling places to go, regardless of whether you’re a regular gamer. They have to be first-class in their quality and finishes. Then you have to program them constantly with a variety of entertainment. We call it “approachable luxury” that welcomes everyone.

 


 

Conventional Success
Mark Vanderwielen, Vice President of Hotel and Property Operations, Borgata Hotel Casino & Spa

Since it opened in 2003, Borgata Hotel Casino & Spa has been Atlantic City’s consistent market leader. Helping it maintain the top spot is an emphasis on the MICE segment (meetings, incentives, conventions and exhibitions). GGB asked Mark Vanderwilen, vice president of hotel and property operations, to elaborate on the strategy.

GGB: How important is the meetings and convention segment to Borgata’s dominance in Atlantic City?

Vanderwielen: Borgata’s MICE business has been and will continue to be an important part of our market-leading success, especially as it pertains to midweek and off-season volume. The ability to host revenue-generating customers Monday through Thursday by offering a compelling product has been an essential part of our strategy.

For example, less than two years ago, we invested $11 million into an exclusive 18,000-square-foot meeting experience called Central Conference Center, allowing us to accommodate more weddings, special occasions, trade shows and business expos. That venue brought our total event capacity to 106,000 square feet.

How many meetings does Borgata host each year? Are the groups mostly regional?

Borgata hosts several hundred groups per year ranging from 10 to 2,600 attendees. Since Atlantic City is primarily a drive-to destination, the majority of the groups are within a 350-mile radius. A significant amount of our business comes from corporate groups and associations, with additional auxiliary SMERF groups (social, military, educational, religious or fraternal) comprising the remainder.

How likely are those guests to also frequent the casino, F&B outlets, clubs and other facilities at the resort?

Group attendees are very likely to enjoy all that Borgata has to offer—our fine dining, entertainment and nightlife options, spa and fitness experiences and gaming action. The ability for the property to offer everything under one roof is often a differentiator when it comes to booking a meeting or convention in Atlantic City.

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