At 40, Are Atlantic City Casinos Healing Or Courting Danger?

AP Photo/Wayne Parry – AC Casinos
This Friday, May 4, 2018 photo shows part of the first sign for the soon-to-open Hard Rock Casino in Atlantic City N.J., being lifted into place on the building.

Having lost five of its 12 casinos over the past four years, Atlantic City will mark its 40th anniversary of casino gambling by reopening two of those shuttered properties, despite concern in some quarters that it might be repeating the same mistakes that got it into trouble in the first place.

The reopening this summer of the former Trump Taj Mahal as a Hard Rock casino, and the former Revel as the Ocean Resort Casino, is being hailed in this seaside gambling resort as a welcome recovery from the trauma of 2014, when four casinos shut down. (The Taj Mahal joined them in 2016.) And the owner of the Showboat hotel is considering reopening a casino there, as well.

The party line in Atlantic City is that the reopened casinos — particularly Hard Rock, with its proven worldwide ability to attract guests with its music-themed resorts — will grow the market and not simply siphon off business from weaker competitors. Of course, that’s exactly what Revel’s managers said — and that casino lasted barely over two years.

“There is a lot of reason to hope that the reintroduction of two or even three casinos to Atlantic City may be a net positive for the resort,” said Rummy Pandit, a gambling and tourism expert at New Jersey’s Stockton University. “That is not to say that Atlantic City won’t experience some growing pains in the process. The pizza analogy is an accurate way of describing the situation facing Atlantic City: No matter how you slice it, if you don’t grow the pie, someone will go hungry.”

Nevada remains the nation’s largest gambling market. Atlantic City, where gambling began on May 26, 1978, was once No. 2 but in recent years fell to third behind Pennsylvania.

Joe Bogdovics, of Roebling, New Jersey, and his wife Debbie were in Atlantic City this week for a billiards tournament usually held at Bally’s. But they’re open to trying out the two new casinos after staying at a Hard Rock in Cancun, Mexico, and loving the music and bustle.

“It would be great if they brought that here,” he said.

Others will be a harder sell. Walt Swanson, of Knoxville, Tennessee, was in Atlantic City on a junket arranged by Harrah’s, where he usually stays.

“They just treat you better than other places,” he said. “These new places will have a ways to go to get me to switch.”

It’s where President Donald Trump got his start in the casino business. As a developer, Trump opened three that were, like many competitors, laden with debt, leading to multiple bankruptcies. After losing control of his casino company in one bankruptcy, Trump cut most ties with the resort in 2009, praising himself for the foresight to abandon a declining market.

Atlantic City’s latest trouble started in 2006, when neighboring Pennsylvania brought competition to its doorstep. Then a worldwide financial crisis and a hurricane kept money tight, and even today, more casinos are being added to the Northeast market.

But many things have changed since 2014. Internet gambling has steadily grown in New Jersey, providing new revenue. The promise of legal sports betting is just a Supreme Court decision away. The threat of in-state competition from northern New Jersey is off the table for now. And there are fewer lone-wolf casinos that are not backed by major chains able to carry them through lean times.

Colorado developer Bruce Deifik bought the former Revel in January for $200 million; it had cost $2.4 billion to build it.

“There’s no doubt that Hard Rock and our project will take some business from other houses,” Deifik said. “That’s just the way the world works. But I believe that over two years, three years, collectively we can raise the level. A rising tide lifts all ships.”

Likewise, Jim Allen, CEO of Hard Rock International, predicts his project will not just redistribute Atlantic City’s money.

“It won’t do us any good to take a $40 or $50 customer from a competitor in order to say we’re busy,” Allen said. “It’s no good for Atlantic City to have one or two superstars, and everybody else struggle.”

Both properties plan to reopen the same day, June 28.

The five casinos that closed since 2014 took about 11,000 jobs with them. Yet there is no denying that the seven surviving casinos have regained their balance and are doing better in a smaller market with less competition. Their gross operating profits increased by 22.5 percent last year, to $723 million.

Wall Street analysts predict the two new additions will cannibalize some existing casinos’ profits. They believe Hard Rock will bring new customers to Atlantic City, while expressing caution about Ocean Resort.

Moody’s Investors Service warned last month that the new competitors could lead to renewed casino closures “in an extreme scenario.”

“I think Hard Rock will be very additive to the market; perhaps (Ocean Resort) will be as well,” said Andrew Zarnett of Deutsche Bank Securities.

Lawrence Klatzkin of Rice, Voelker LLC worries about a renewed arms race in promotional spending.

“If Ocean Resort opens up and has the same difficulty as Revel did last time, do they get desperate and start throwing marketing money at the wall, and make everyone else have to do it, and margins go down, and make it tough for everyone to survive?” he said.

Deifik will open Ocean Resort without the crushing debt that suffocated Revel, and now owns the power plant whose expensive rates for utility service also ate into Revel’s cash. He’s also addressing what he considers flaws in Revel’s business plan, including promises to let patrons smoke, to open a buffet and to reconfigure the meandering casino floor.

And the market is voting with its checkbook. Thomas Reeg, president of Eldorado Resorts, upon buying Tropicana Entertainment last month, said he expects its Atlantic City property to do less business once Hard Rock and Ocean Resort open. And he’s OK with that.

“In Atlantic City,” he said, “we go in with eyes wide open.”