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The Fall and Rise of Atlantic City

City shareholders have a vision for Atlantic City, but will it ever come true?

The Fall and Rise of Atlantic City

In truth, the decline in Atlantic City started long before the first decline in annual casino revenues in 2006. After all, the establishment of casinos in Pennsylvania wasn’t a surprise. Delaware had already installed slots at racetracks, which later became full-blown gaming halls. And it certainly was no secret that New York was going down the same path.

So the lack of preparation by New Jersey officials and casino executives can only be attributed to disunity and a gross underestimation of what this increased competition would mean.

Back to the Future

Atlantic City has long been a star-crossed resort. Founded in 1854, the city experienced many cycles of boom and bust as it competed with other nearby and newer resorts and attractions. New York’s Catskills, Pennsylvania’s Poconos, New Jersey’s Cape May and other regions experienced the same trends, and all competed for the same customers.

But it was the advent of airplane travel in the 1950s, which put Florida and California within reach of a growing market, that  was a devastating blow to Atlantic City and all the other regional destinations. Longtime visitors bypassed the fading resort as they traveled in style to more glamorous destinations.

And it introduced the “silver bullet” theory to Atlantic City that one development or event could return the resort to its former glory.

The 1964 Democratic National Convention was one such event. New Jersey officials worked tirelessly to land the plum meeting but didn’t realize that Atlantic City’s hotels and convention facilities were dated and inefficient. What could have been a huge plug for the city instead became a microscope on what was wrong with Atlantic City.

Later, the casino gaming referendum passed in 1976, establishing casinos only in Atlantic City, after failing in ’74 in a bid to establish statewide gaming halls. But because gaming in Atlantic City was the first legal industry outside of Nevada, provisions that are commonplace today—revenue for the host city, using gaming as a tourism draw, etc.—were lessons that had yet to be learned. The media focused on gambling palaces amid the slums, and while visitation annually hit in the mid-30 million range, very few visitors ventured beyond the casinos to benefit other city businesses. 

During the first 30 years of gambling, state administrations were either hostile to or ignored Atlantic City, leaving the casino industry to fend for itself. The election of Chris Christie in 2009, however, reversed that trend.

Christie immediately grasped the importance of the Atlantic City casino industry as a tax generator—New Jersey’s 8 percent casino tax is dedicated to pharmaceutical relief for seniors and the disabled—and a tourism magnet that produces the lion’s share of visits to the state each year.

Christie appeared on the Boardwalk in July 2010 to announce a strategy that would focus attention on Atlantic City by removing the areas that host the casinos—the tourism district—from the control of city government. He based his plan on a report issued by a group led by New Jersey Sports and Exposition Authority Executive Director Jon Hanson. The plan gave increased authority to the Casino Reinvestment Development Authority (CRDA), the agency that reinvests 1.25 percent of gross gaming revenues into projects in Atlantic City and around the state. The CRDA is now responsible for all that happens within the tourism district, from public safety to cleanliness. The CRDA is also incorporating the Atlantic City Convention & Visitors Authority, and will direct the sales efforts for Atlantic City’s 500,000-square-foot convention center and Boardwalk Hall entertainment complex.

More importantly, the Hanson Report rejects expanded gambling in New Jersey for the next five years, giving Atlantic City time to reposition the industry away from the convenience gamblers who were the core of its business for the last 30 years, and who are now frequenting the casinos in Pennsylvania or New York.

Agency Overhaul

The ascendency of the CRDA as a result of Christie’s plan has created a super-agency with unmatched authority. John Palmieri, Christie’s appointment as executive director, was brought in with no previous connections to Atlantic City, unlike all previous leaders of the agency—or to the gaming industry. Palmieri’s experience in urban redevelopment causes in Boston, Hartford, Connecticut, Providence, Rhode Island and Charlotte, North Carolina, among others, bodes well for a downtown core in need of revitalization.

The first order of business, however, was the “clean and safe” program, says Palmieri. “This was a threshold issue. If we didn’t do that, not much else will work.”

Each of these initiatives required cooperation with the city, which provides trash and safety services in the tourism district. And despite some bitter feelings from Atlantic City Mayor Lorenzo Langford after Christie removed the tourism district from his jurisdiction, Palmieri says there has been no lingering opposition.

“I have witnessed nothing but cooperation from the mayor,” he says of Langford, who sits on the board of the CRDA. “He’s shown me that he’s concerned about the city and has put his full support behind what we’re trying to accomplish.”

In addition to an alliance between the state police, the Atlantic City police and the CRDA, the safety issue has been emphasized by hiring dozens of “ambassadors,” a program that was run by another quasi-government agency that was absorbed by the CRDA, the Special Improvement District. The visible ambassadors, dressed in bright yellow shirts and ranger’s caps, are tasked mostly with visitor communications and directions.

Tony Rodio, the chairman of the Casino Association of New Jersey, as well as the president of Tropicana Entertainment, says the ambassadors are an early sign that CRDA’s organization of the tourism district will have an impact.

“They are all over the Boardwalk at all hours of the day,” he says. “Our visitors feel very comfortable when they see them, so it’s really had an immediate impact.”

On the job less than a year, Palmieri and the CRDA can claim some major accomplishments, directing a master plan study, continuing and expanding a “façade” program that upgrades the exterior of Boardwalk stores, and establishing safety programs that are now part of the procedures on the Boardwalk and beyond. In fact, the CRDA is ready to launch an effort to revitalize the Atlantic Avenue corridor, which Palmieri says is Atlantic City’s “Main Street.”


Marketing Bonanza

In addition to the new powers of the CRDA, the casino industry has set up the Atlantic City Alliance, an organization that will strive to market the city, change perceptions and help to organize and fund special events in the city. Funding the alliance is $30 million that the industry had paid to the horse racing industry every year for the last three years in an effort to prevent the introduction of slot machines at the state racetracks.

Liza Cartmell, another executive with no Atlantic City or gaming experience, was brought in to run the agency. A former president of Aramark Sports & Entertainment, Cartmell directed the development of a new ad campaign with the slogan “Do AC,” that promotes the non-gaming elements of Atlantic City, which launched in the spring of 2012.

“Do AC has gotten lots of attention,” she says. “We’re just getting started on evaluating the actual impact of the campaign, but anecdotally, it’s had a big impact.”

The campaign features quick images of pools, restaurants, the beaches, shopping and more. The message is designed to change the perception of Atlantic City.

“In our initial research,” explains Cartmell, “there were very few people who did not know that Atlantic City had casinos. So we don’t need to get that message out. We need to inform potential visitors of what they may not know about—all the non-gaming attractions that the city has to offer.”

Rodio agrees.

“We have more hotel rooms, many more restaurants of all sorts, the pools and spas, the entertainment… That’s what we have to tout and that’s what differentiates us from any other gaming establishment on the East Coast,” he says. “I love the Do AC campaign. It has brought a lot of attention to AC. It’s still early, but it’s off to a very good start.”

The $30 million ACA funding vehicle is still far below other tourism jurisdictions like Orlando and Las Vegas. Still, Cartmell says, it’s a far cry from the amount that Atlantic City previously used.

“There was virtually no budget to market the city,” she says, referring to the budget of the ACCVA, which is being absorbed by CRDA. “And while we could always use more money, we have to learn to spend the money efficiently and effectively.”

Cartmell’s group also decides which events are deserving of promotion.

“We’ve tried to be very consistent in our application of what benefits the resort and is consistent with the mission,” she explains. “Our objective is to spend locally in the areas from which we draw with the goal of increasing visitation. So, when you apply all those criteria—changing perceptions or increasing visitors—we have tended to try to minimize our involvement.”

For example, the ACA spent $300,000 for an event in August that featured a 1,500-foot tightrope walk by Nik Wallenda, who had just walked across Niagara Falls in front of millions of television viewers. The August stunt was on a high wire strung between two cranes on the beach in Atlantic City. Officials claimed that 150,000 showed up to witness the event.

The Do AC campaign was launched in the spring to amplify the normally busy summer season, but Cartmell says the efforts will continue throughout the year.

“We’re working to develop event strategies that will complement the attractions and the destination,” she says. “For example, we’re looking at a program for December that highlights all the great shopping we have in town. Everybody has to shop for the holiday, so why not come to Atlantic City? One of the core strengths of the market is the Tanger Outlets, as well as the stores in the casinos.” Other events are planned seasonally to complement the Atlantic City Airshow, which was held in August and attracted 1 million people to the Boardwalk.

Rating Revel

One of the key points of Governor Christie’s support of Atlantic City was his determination to get Revel completed and opened. The project was put on hold in 2010 with little hope of revival. But Christie’s pledge of tax breaks and his influence with lenders broke the logjam and Revel was re-started in 2011 and completed in 2012.

The soft opening of the property on April 1, followed by the official grand opening on Memorial Day weekend (featuring a concert by Beyoncé attended by the First Lady, Michelle Obama, and her daughters), produced adequate “buzz” but lighter-than-expected gross gaming revenues. While Revel is built for the non-gaming revenue, the money coming through the casino is at least equally as important.

Three months into operations, Kevin DeSanctis, the chairman and CEO of Revel, says that the disappointing gaming results can be fixed, but that the non-gaming revenues have been on track.

“With 90 days behind us, we are encouraged by the significant improvements we have seen across all major business segments—group, leisure and gaming. It is clear our economic model is working, allowing us to generate high-margin non-gaming revenue and operate at a significantly lower cost versus the traditional gaming-dependent model,” he says. “We are excited about what we have delivered from a product and experience perspective and remain confident our strategy will result in significant value creation for our stakeholders.”

Cartmell says the non-gaming elements of Revel were considered a plus at the ACA from the beginning.

“Revel was part of our plans from day one,” she says. “The property is right on our non-gaming attractions campaign and Revel is completely consistent with our message that gaming is an integral part of what we are but not the entire story.”

She says she’s not concerned about the progress of Revel.

“Anyone worried about the gaming revenues is not applying the right litmus test to Revel,” she says. “The property is built very much around out-sourced services, so to rely on gaming revenues is a little bit of a misnomer. The non-gaming revenues are not reported in any Revel document because they are independent businesses, so we need to factor those numbers in when we evaluate the success of Revel. There’s been a little bit of a rush to judgment.”

DeSanctis explains that every deal with a restaurant, spa, store or nightclub was different, but the one consistency was that each business was required to invest something in its business.

“We didn’t just want a celebrity chef to put his name on a restaurant,” he says. “We wanted a true commitment, a real partnership. And that’s why we chose the partners we did. Their passion for the business was equal to ours.”

The opening of Revel was touted by some as a seminal event in Atlantic City—one that could make or break the city. DeSanctis decries that kind of thinking.

“There is no ‘silver bullet’ for Atlantic City,” he says. “It has always been an accumulation of little things that you may not notice at the time they occur but really make a difference over time.

“Those of us who have been here for 20 years or more can see the tremendous strides that we’ve made over that time. The city today looks nothing like it did 20 years ago. And that was all accomplished by making small improvements that have added up to an entirely new experience. If you haven’t been to Atlantic City in the last five years, well, you really have never been here.”


Creative Competition

Mike Frawley’s property is the polar opposite of DeSanctis’ Revel. The Atlantic Club (formerly the Atlantic City Hilton) has teetered on the edge of bankruptcy for the past several years, but never quite went over the edge. Now, a group of investors has taken charge and Frawley has new marketing strategies in place.

“When we changed the name of this place, we realized that we had to find a brand new niche,” he explains. “And given that the competition is so intense—certainly in the surrounding states and even locally—a value-oriented message was going to resonate with our customers.”

In June, the gross gaming revenues at the Atlantic Club showed a dramatic improvement, but Frawley tends to discount that phenomenon.

“We were trying our best to announce our new position in this market,” he says. “And we did very well last month.

“But there’s a cautionary tale here. There was a great deal of promotional spend, which we felt we had to do. We had to reintroduce this property and created a no-risk proposition. You can come in here and try a restaurant at a very reasonable price, comparable to any restaurant in your neighborhood. Free parking and competitive prices are our hallmark now.”

At the Tropicana, Rodio says that the crowds have not diminished, even while gaming revenue continues to slump.

“This place is jammed on the weekends and during the evenings,” he says. “The Quarter (the retail/dining area) is hopping and our bars and lounges do great business. We’ve even taken out slot machines to expand those facilities. So the business is here; we just have to make sure we get our fair share of it.”

At Revel, DeSanctis also says that the place is packed.

“You can’t believe how many people are in this place in the wee hours of the morning,” he says. “The party gets started late at night and goes into early the next morning. Many of our bars and restaurants do their best business between 2 a.m. and 4 a.m.”

At Resorts Atlantic City, executives are taking nothing for granted. In July, owner Morris Bailey announced the development of Margaritaville Atlantic City via a partnership with singer Jimmy Buffett. The project will include two new restaurants built on a pier on the ocean side of the Boardwalk, Margaritaville-themed gaming space and much more. And just two weeks later, Bailey revealed a partnership with Mohegan Gaming Advisors, a division of the Mohegan Tribal Gaming Authority, to manage the property.

Resorts Executive Vice President of Operations Aaron Gomes, whose late father Dennis Gomes was Bailey’s partner, explains the genesis of the Margaritaville deal.

“Soon after we took over, we realized that we didn’t have enough attractions to grow our business substantially,” says Gomes. “So we looked around for brands that would give us that ability, and it quickly became clear that Margaritaville could do that. We’ve been working on this for over a year, so it’s good to see it finally get under way.”

Meanwhile, the Mohegan partnership will allow Resorts to tap a new player pool. As part of the deal, customers of Mohegan Sun in Connecticut and the Mohegan Sun casino in Pennsylvania will be able to use and earn players club points at Resorts as well.

“When we asked our customers if they play in Atlantic City,” explains Mitchell Etess, the chairman of the MTGA, “they told us yes. When we asked if they played at Resorts, they told us no. But when we asked if they would play at Resorts if they could earn Mohegan Sun points at Resorts, they overwhelmingly said yes. So it makes a lot of sense for us.”


Atlantic City of the Future

With gaming revenues continuing to decline—they dropped nearly 10 percent in July, continuing a trend that is now going on five years—Atlantic City has hard choices to make. The support of Christie has been crucial. The five-year window, however, could close more quickly if the results don’t materialize—or if Christie leaves for other political reasons. But Atlantic City executives differ on what they would consider a recovery.

At the Atlantic Club, Frawley says growth in gaming revenue is essential.

 “We need a product that can sustain itself without over-incentivizing the customer,” he explains. “And we’re starting to see that. It’s all about repeat business.”

Gomes agrees.

“We’re profitable now, but we need to see more revenue to really create a viable company,” he says. “And that’s the idea behind Margaritaville and the Mohegan partnership. If that works, we can be very successful for our investors, our customers and our employees.”

Online gaming is a possible avenue for Atlantic City, according to Rodio.

“This would give a great boost to the industry,” he says, “which we could obviously use. There are many different thoughts on what the impact would be. I personally believe it would be a net positive and hope it would be implemented by early next year.”

Rodio also believes sports betting, which New Jersey has legalized, would be a real positive for Atlantic City, but the issue is soon to be mired in the courts, so its benefit to the town is negligible for the foreseeable future.

Palmieri says that the CRDA’s goal is to attract more non-gaming investment to the city. The CRDA helped the redevelopment of the famous Steel Pier get off the ground last year, with a low-interest loan. Famed gaming architect Paul Steelman is one of the investors, and is designing a reborn pier. That could be just the start, says Palmieri.

“We’ve been contacted by interested parties that want to bring amusements to the Boardwalk area, some who want to do mixed-use developments,” he says. “I’m absolutely confident that a year from now, we’ll have several of those projects off the ground.”

DeSanctis is looking forward to next year because Revel will finally have been completed with all the elements that are part of the property’s unique (for Atlantic City) business plan.

“A year from now, we’ll be in a much better place,” he says. “All of our restaurants will be done, the nightclub will be fully developed and we’ll have our beach open all year.”

In the long term, says DeSanctis, Atlantic City, and particularly the South Inlet neighborhood where Revel is located, could become something very special.

“I think this area will mirror other places that have experienced a revitalization,” he says. “You see small businesses, new housing, people walking the streets, bike paths and a fun little neighborhood that will actually draw people to Atlantic City to live or visit because it’s a fun place to hang out.”

At least that’s the vision.