For the first time in 10 years, Atlantic City casinos have seen a year-over-year increase in total gaming win. This break in the city’s decade-long losing streak, attributed to the rapidly growing internet gaming market, is encouraging, but not necessarily the answer to the city’s long-term success.
From 1978 through the early 1990s, New Jersey had a virtual monopoly on East Coast casino gaming. However, as the casino gaming market expanded (Connecticut and Delaware in 1992, New York in 2004, Pennsylvania in 2006, Maryland and Rhode Island in 2010), and competition increased, Atlantic City found itself sharing more and more of the East Coast gaming market.
As a result, gaming revenue has been reduced to less than half of what it was at its height in 2006 ($5.2 billion), reaching its lowest point in 2015 ($2.5 billion). Figure 1 graphically depicts the infusion of casinos into the Northeast since 1995 and the impact on total gaming win for Atlantic City casinos.
Annual double-digit percentage gains in internet gaming win seem to have slowed the decline in gambling revenue and contributed significantly to the modest year-over-year increase in total gaming win (1.55 percent ) in 2016. However, just as Atlantic City’s monopoly on East Coast casino gaming came to an end, so too its monopoly on internet gaming is coming to a close.
At present only Delaware, Nevada and New Jersey have legalized internet gaming. However, California, New York, Pennsylvania and an increasing number of other states are all poised to enter that market. The impact of new competition may not be felt immediately, as internet gaming continues to experience its initial growth, but as the industry matures, Atlantic City may again be sharing only a piece of the market.
In this environment, the role of non-gaming revenue in Atlantic City has become increasingly important. Changes in revenue share between gaming and non-gaming revenue signal a shift in focus for Atlantic City casinos. In 1989, non-gaming revenue represented 21 percent of total casino revenue. As of 2015, it represents 29 percent. For Las Vegas, the shift is even more distinct, from a 60/40 split gaming vs. non-gaming in 1989 to a 35/65 split in 2015.
Figure 2 depicts the shifting relationship between gaming and non-gaming revenues for both Atlantic City and Las Vegas.
The shift in focus toward non-gaming revenue has manifested in a number of ways, among them investments in convention venues and nightclubs to serve both the expanding meetings and conventions business and the growing audience of millennial consumers.
Recent investments in the conventions business—Borgata ($11 million), Harrah’s (Waterfront Conference Center, $125.8 million) and Resorts ($9.4 million)—have already seen a return on investment.
According to the Atlantic City Tourism Sales Barometer, prepared by Atlantic City Convention and Visitors Authority, hotels (including casino-owned properties) saw a 23.2 percent increase in the number of conventions, trade shows and meetings held at their venues in 2016. The total number of shows offered in the city increased by 10.1 percent in 2016, drawing 9 percent more meeting attendees/delegates who used 21.5 percent more rooms.
In addition to these gains in the meeting and convention business, casino properties have pursued opportunities for growth in attractions targeting millennial consumers. Investments in renovations to The Pool at Harrah’s ($3 million), the Premier Nightclub at the Borgata ($14 million) and Ivan Kane’s Kiss Kiss Nightclub at the Tropicana (part of a $40 million renovation) are all examples of this.
Interestingly, as Atlantic City celebrates a streak of good news including the announcement of Hard Rock International’s plan to reopen the shuttered Taj Mahal as a casino hotel, most discussion has focused on what the reopening will mean in non-gaming rather than in gaming revenue terms.
Likewise, conversations regarding the possible reopening of the Atlantic Club focus on what such a project could bring to Atlantic City in terms of non-gaming amenities, rather than gaming space. With both projects the number of rooms, meeting and parking space, as well as the number of local jobs they are likely to create, are all major topics of interest. Whereas the new casino’s impact on the gaming market has received comparatively little attention.
In fact, Colin Mansfield, director of U.S. corporates at Fitch Ratings, told the Press of Atlantic City that he didn’t expect the opening of the Hard Rock Casino to have any significant impact on gaming. “With or without it, Atlantic City is still a $2.4 billion market.”
The way forward for Atlantic City will likely come through embracing what the city has to offer in terms of non-gaming amenities. The gaming market may be fixed (for now) at $2.4 billion, but growth in non-gaming revenue is potentially limitless.