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Starting From Scratch

5 Steps to Recovery for Atlantic City

Starting From Scratch

When revenues began to slide in Atlantic City three years ago, operators were concerned, but considered it a small blip that would be rectified when the new, huge mega-resorts opened: Revel, Pinnacle, MGM Grand, the Wally Barr/Curtis Bashaw properties and later whatever was developed at Bader Field.

But when the downturn deepened and regular players began to disappear-some for good-the concern became anxiety. And when, one by one, the major projects were either canceled or indefinitely delayed, panic began to take over.

Reality has now set in. Longtime players have severely cut back their visits or disappeared entirely. Companies with properties in Atlantic City have seen their stock prices decline because of their “exposure” to the market. Employees have been laid off and some who remain have sparked a labor war that only harms the market further.  

It appears the “perfect storm” has hit Atlantic City and submerged the business that was for 30 years so dependable.

Competition from surrounding states is stronger than initially anticipated.

“We underestimated the impact of Pennsylvania gaming,” says Trump CEO Mark Juliano. “We didn’t realize that they would be able to comp at almost the same level as we do, so that has become a big problem.”

“Convenience gamblers” have all but disappeared.

“For years, we worked hard to become a destination resort,” says Dan Nita, the Harrah’s executive formerly in charge of the company’s four Atlantic City properties. “Suddenly, we are, but not in the way we wanted.”

The national economy has hit all gaming destinations hard, but none harder than Las Vegas and Atlantic City. While gaming was once thought “recession-proof,” it’s now clear that the economic downturn has impacted the Atlantic City casinos more than any previous recession. And the most troubling thing is that people’s gambling habits are changing, and may never return to the level once enjoyed by Atlantic City casinos.

So what is to be done? With the convenience gambler gone and existing gamblers changing their habits, will Atlantic City ever truly return to the numbers it posted for nearly 30 straight years?

Global Gaming Business met with the movers and shakers in Atlantic City-public officials, regulators, casino executives and other interested parties-to determine if there is any solution to this situation. Most agreed casinos will have to build a new business model that will take years, but surprisingly, all agree on five major points that will start Atlantic City on the road to recovery.

1  Get Revel Open
As the last remaining mega-project still under way, the completion of Revel Entertainment casino resort is crucial.

“There’s no question that the most important thing in beginning to remake Atlantic City is to get Revel finished,” says Joe Kelly, president of the Greater Atlantic City Chamber of Commerce. “When Revel opens, it will return attention to Atlantic City, bring a new level of visitor and demonstrate that Atlantic City is more than just gambling.”

Mac Seelig, president of local slot manufacturer AC Coin & Slot, says the opening of Revel is crucial. 

“When Revel opens up, it’s going to be a very exciting place,” says Seelig. “And once that opens up, that’s going to create a good buzz for Atlantic City. The other operators are all excited about Revel opening. It’s going to have all new equipment, state of the art-that will cause a real big explosion for us here and all around the region.”

The problem with a commitment to getting Revel open is that there is little anyone can do to assist in getting it open, because it all depends on acquiring the remaining finances.

CEO Kevin DeSanctis is doing his best, even if it means defending the Atlantic City market.

“Some of the biggest detractors are people who have never worked here,” he says. “I think Atlantic City has and always has had tremendous potential, but because it’s been unable to achieve that potential, people continually are down on it. But just because we haven’t been able to achieve it doesn’t mean it’s not there. One of the missing links is, I don’t think the industry has ever, one, committed the capital or, two, used the most important natural resource it has-the ocean-to its best advantage. That’s one of the reasons I am so confident that Atlantic City can be successful if the proper projects are built here.”

Harrah’s Nita says the opening of Revel would be a sign that Atlantic City is alive and well.

“We need some wins on the board,” he says. “The opening of Revel would give us a great public relations tool. This would drive visitation from people who might not have thought about it. It gives us a critical mass that starts to make people sit up and take notice.”

Like Revel, the Borgata targeted Atlantic City “rejecters,” those who had never visited or not visited in a long time. Bob Boughner, president of the Borgata, says those people are still out there.

“We expect Revel to generate the same market growth that we brought to Atlantic City,” says Boughner. “But we had the wind beneath our wings-a very strong economy. So it will be more difficult for them.”

Boughner sees some reluctance from investors in sinking money into a project such as Revel, although the project did get some good news on the financing front last month. (See page 6.)

“The jury is still out,” Boughner says. “No one wants to take their money and obtain a yield that is significantly lower than a risk-free investment. You take on an enormous amount of risk with one of these buildings, and that risk is usually mitigated by a good economy and an excellent management team, which they have at Revel in Kevin and his staff. So I’m not sure if the time is right now.”

2  Government Inaction
In New Jersey, it’s very dangerous to get the state government involved in any private industry. For years, unnecessary regulations and an adversarial attitude strangled the growth of the Atlantic City gaming industry, until the election of Governor James Florio in the early ’90s changed that outlook. The industry has been supported by virtually every governor since then.

But the bad news, according to former Atlantic City mayor and now state Senator James Whelan, is the push by the horse-racing and VLT industry to install slots at New Jersey racetracks.

“Their argument is that it’s happening across the river (in Pennsylvania and New York) so why not let it open it up here?” he says. “We’re losing New Jersey customers to other states, so why don’t we just do slots too?

“Well, there are clear arguments against that. We have billions invested here based on the assumption that, at least in New Jersey, that would be it. That’s not fair to people who have invested here or realistic to expect new investment here if that’s not the case. We can’t constantly have this threat hanging over us.”

New Jersey Governor Jon Corzine says he has formed a commission to study the impact of slots at racetracks and has appointed representatives from both sides of the argument. He says he doesn’t want to negatively impact the state economy.

“Without question, South Jersey is a potent economic engine critical to New Jersey’s emergence from the current global recession, with Atlantic City and the gaming industry being the nucleus,” he says.

Corzine would not, however, rule out adding slots to racetracks, which are backed by many powerful members of his own party, including the Senate president and former governor, Richard Codey, who has relatives working in the racing industry.

“It is essential for the gaming industry to work together to find a long-term funding solution that will allow both racing and casino gaming to thrive in New Jersey,” he says.

Trump’s Juliano is serving on the commission studying the impact of slots at racetracks. He believes it’s a crucial moment in the development of Atlantic City.

“You have to look at the investments we’ve all made in creating these facilities,” he says. “One of the great things about us is the way we invested. Now, you’re going to have competition from a racetrack that throws $2 million into a slot facility?

“I don’t think putting slot machines at the racetrack would be good. Horse racing is going to have to find a way to make itself attractive to clients who are interested in horse racing.”

DeSanctis says this is an issue that he discusses with his potential investors, but has no resolution in sight.

“Governor Corzine has been incredibly supportive in working with the industry and assuring the industry that as long as he is the governor of this state, he will not allow that to happen,” he says. “So we have friends. But at the same time, the legislature is facing budgetary problems, so it is a problem we will have for the foreseeable future.”

“It’s frustrating,” says Whelan. “Horse racing is a dying industry. And we’ve done all we can for them. In ’01, the legislature enabled 15 off-track wagering facilities. We have three that opened in the last two years. Where are the other 12, and why has it taken so long for those three to get open? It seems like the tracks want to do nothing to help themselves. They want it to get so bad that the only possible solution is slots.”

While Whelan is not optimistic about defeating VLTs, Juliano says the legal definition of a slot machine vs. a VLT may force a statewide referendum where he hopes VLTs could be defeated.  

“We don’t think it can meet the constitutional challenge we would pose to it,” he says, “because of that discrepancy between VLTs and slot machines being so ambiguous.”

So the best medicine for a healthy Atlantic City, according to most, is government inaction.

3  Clean Up the City
The perception of Atlantic City continues to be a problem, according to everyone interviewed. Although the city is light years ahead of where it was 20 or even 10 years ago, there are still pockets of blight that impact a visitor’s impression of the town.

The first step should concentrate on the Boardwalk blocks in the middle of town, says Whelan.

“There is clearly blight that could be very easily cleaned up,” he says. “That takes will, more than anything else. So continuing to clean up the town and improve the aesthetics is important.”

While the city can start the process by demolishing abandoned buildings and enforcing the existing codes, it may come down to the use of eminent domain to assist a developer who comes to town with a good idea-and money.

“I would be inclined to use eminent domain,” says Mayor Lorenzo Langford, “if necessary. Obviously, we would have to know the specifics and particulars. With respect to the Boardwalk, it’s amazing to me that we are a resort town with a boardwalk, but we don’t have a ferris wheel. We don’t have a roller coaster. You can’t call yourself a resort town with a boardwalk and amusement piers without these items. I think we would do well to bring those kinds of attractions-along with skating rinks, movie theaters, bowling alleys-right in town.”

Juliano agrees that this tool needs to be used.

“I think at the end of the day, eminent domain is the only way to get in there and clean up some of these properties,” he says. “But of course, that requires not only the city being willing to do it, but developers and operators being willing to make the investment that would require it. So, I think the expansion of these footprints, and trying to get the city to push back from the Boardwalk up to Atlantic Avenue, so we can somehow create a pedestrian walkway on Pacific Avenue, is important. It’s not a place where customers feel safe walking now. Even if you felt safe, there’s no reason to walk.”    

4  Tax Breaks and Incentives
For years, Atlantic City has been cut out of state incentive programs that are offered to other municipalities. Tax breaks, the creation of urban enterprise zones and other development incentives have been unavailable to Atlantic City because of the presence of the Casino Reinvestment Development Authority, a state agency funded by a 1.25 percent “reinvestment” credit on gross gaming revenues.

And that fund worked wonders in Atlantic City. The CRDA is responsible for much of the affordable housing in the city. Through the “Gormley tax break”-named for the former state senator who used the lure of million of dollars in tax rebates to encourage casino development-the CRDA credit allowed Atlantic City casinos to add thousands of hotel rooms and entertainment complexes that would never have been built otherwise.

But times have changed. The CRDA is almost a dinosaur. All the money being pumped into the agency is now dedicated to existing projects or future projects. Until Revel opens and creates more revenue, the CRDA can be of no more assistance in the development of Atlantic City.

Some programs are available to Atlantic City already.

“Tax increment financing was used by Revel to build roadways and infrastructure leading up to its property,” says Whelan. “This program takes a certain portion of the property tax and applies it to infrastructure needed for the project. It’s broadly defined and creates ‘new’ money.”

Langford says it might even be time to consider abolishing the CRDA.

“I don’t understand the thinking of state legislators,” Langford says. “Atlantic City is the goose that laid the golden egg. Tourism is the No. 2 industry in the state and Atlantic City is driving that bus. So what’s good for Atlantic City is good for the state. The state would do well to protect the goose.”

Corzine would not commit to adding any tax breaks or other incentives to what he perceives to be entities that help the development of Atlantic City.

“UEZ municipalities are designated through legislation,” he explains. “The program currently has 32 zones in 37 municipalities across the state.  While Atlantic City is not a designated UEZ, the city benefits from a variety of other state resources from such agencies as the New Jersey Economic Development Authority, the Casino Reinvestment Development Authority and South Jersey Transportation Authority.”

One positive step made by the state is the recent stimulus package passed by the New Jersey legislature. Unlike the national bill passed by Congress that specifically prevents the use of those funds by casinos, the New Jersey bill has no such restriction. Experts say the bill could be used by casino companies to do a variety of things that would create jobs and stimulate business.

5  More Marketing Dollars and Cooperation
Last month, the Casino Association of New Jersey suggested that the marketing budget of the Atlantic City Convention & Visitors Authority be boosted to $20 million, double its existing $10 million. The association claims there is a greater need these days to market Atlantic City as a destination, similar to the campaigns that are staged for Las Vegas, including the “What Happens Here, Stays Here” catch phrase. One difference? The Las Vegas Convention and Visitors Authority has $250 million to spend on marketing.

While Atlantic City can’t hope to even come close to that level-it currently ranks about 35th in the nation-it should be able to boost its budget substantially, says Juliano.

“Everybody agrees on it,” he says. “The issue now is how we are going to fund it. A company like ours, or Resorts in particular, cannot reach too far into their operating till to come up with extra money to market the city. But there’s a lot of state money that we probably can take a look at. We definitely have a need for a citywide marketing campaign that markets the city itself.”

Nita agrees that a program is needed, and references a recent “anti-Atlantic City” campaign launched by the two Connecticut tribal casinos.

“If those two casinos, which compete viciously for customers, can come together for the common good, we absolutely need to do that as well,” he says. “Whether it’s through the ACCVA or some funding via the CRDA, it is essential that we are able to redeploy funds to develop a marketing campaign to demonstrate the benefits of Atlantic City.”

DeSanctis says he’s prepared to start working with other casinos to focus on the positive aspects of Atlantic City. 

“We don’t take advantage of the critical mass of amenities that we have in Atlantic City,” he says. “From my perspective, Atlantic City has to start working together as opposed to against each other to attract more people in this market. The industry should be thinking of itself as a unit of properties as opposed to fighting each other. That’s a directional change that should happen.”

Boughner, who served on the Las Vegas Convention and Visitors Authority before coming to Atlantic City, suggests that marketing the destination works.

“Unfortunately, the revenue of the ACCVA doesn’t seem to support this model,” he says. “What we can do is create a greater level of cooperation and understanding so that the advertising dollars that are already being spent-and we would do our fair share-demonstrate certain attributes of the destination promoted more than they are today. That requires having real conversations with the people who have the biggest investments here. We’re not looking for handouts; we’re looking to join hands.”

DeSanctis believes the roots of cooperation must run deeper, and include all members of the community.

“It’s a huge point that nobody ever talks about it, like the big elephant in the room,” he explains. “The industry has never accepted the community, and the community has never accepted the industry. We all have to figure out that nobody is going anywhere, so how do we make this work together? We can coexist, and we will coexist, but we have to open up a dialogue and get that moving.

“It would be huge, and frankly, there’s fault on both sides. I’m guilty, everybody is guilty. Sometimes we don’t take enough time with people. Sometimes we’re so focused on the result of something we’re trying to do that we don’t recognize there is impact to others. I think we have to be more sensitive to that. And on the community side, they have to recognize the industry is a huge competitor for this town, and the reality is they need this industry to be successful if they want to lower their property taxes and if they want the services. We can’t do it apart. We have to do it together.”

Whelan stresses that there is nothing that will solve all the problems.

“Over the years, we’ve looked for the major silver bullet that would solve all the problems,” he says. “There isn’t one. There never was. There’s not a person, a thing or an event that will make all the difference. There’s a series of things that we need to do, but not one is more important than any other.”

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.