Prolonged Atlantic City Casino Shutdown Will Cost NJ Millions

Barbara Nathan Updated on April 2, 2020
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On March 16, Gov. Phil Murphy ordered all nine Atlantic City casinos to close for as long as the COVID-19 health crisis necessitates. The mandatory Atlantic City casino shutdown is in effect with no end in sight.

Atlantic City casinos not only provide a livelihood for thousands of employees and their families but are the bread and butter for New Jersey’s economy.

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The devastating impact of the mandatory AC casino shutdown is already apparent and will continue to mount each day that the shutdown continues.

Two-month AC casino shutdown: Cost $1.1 billion

According to a March 23 article from the Press of Atlantic City, the American Gaming Association (ADA) projects a $1.1 billion economic loss if the casinos remain closed for two months.

This estimate represents the expected combined loss in gaming, food and beverage revenue, along with the substantial attrition from suppliers, vendors and workers.

AGA President and CEO Bill Miller described the impact on casino employees, their families and communities as “staggering.”

According to the AGA, nearly half of the jobs in the casino industry are not gambling-related. The ripple effect brought on by the indefinite closing of the nine Atlantic City casinos extends to other businesses.

For example,  wholesale suppliers, restaurants, vendors and retail shops all will be affected.

“Gaming is an economic engine, employing millions of local residents, generating community investment through vital tax revenue and supporting small businesses in communities all across the country,” Miller said.

Casino-related taxes and fees vital to NJ economy, funding of special programs

The state of New Jersey relies heavily on the taxes and fees it collects from the nine Atlantic City casino-hotels.

This money comes from gaming and such sources as hotel room occupancy, parking fees, food and beverage services. The state uses this money for a variety of vital purposes, including providing funding for special programs for seniors and the disabled and Casino Reinvestment Development Authority (CRDA) obligations.

According to experts, New Jersey cannot afford to have this funding source cut off indefinitely. As stated in the Press of Atlantic City’s March 28 article, the Division of Gaming Enforcement estimates that more than $700,000 a day in casino-related taxes and fees have already been lost.

These figures were derived from a review of the revenue — excluding online casino and sports wagering and state sales taxes — generated by the Atlantic City casinos in March 2019.

However, the summer months are the Atlantic City casino industry’s peak season, which raises even more concern if the city’s nine casinos remain closed in June and beyond. Experts project close to $1 million in lost taxes and fees daily.

State Treasurer Elizabeth Muoio, explicitly referring to the reduction in casino-related taxes due to ongoing mandatory Atlantic City casino shutdown, issued the following statement:

“The impact of COVID-19 on the state, its economy and budget and finances is unpredictable and rapidly changing, but the state believes that events surrounding COVID-19 will negatively impact the state’s economy and financial condition.”

Mayor says Atlantic City could have been better prepared

Atlantic City Mayor Marty Small Sr. stated that the continued reduction in casino-related taxes and fees should be a “wake-up call.” However, Small voiced his concerns long before the coronavirus pandemic necessitated the current Atlantic City casino shutdown.

He was outspoken about the need for casino-related taxes and fees to go directly to Atlantic City. Now Small says if Atlantic City had been collecting even a small percentage of that revenue that “life would be very different.”

Small is concerned about the future of the Atlantic City casinos, other businesses and the residents who are struggling to make ends meet. Necessities, like food and rent, will consume laid-off workers’ available funds and they won’t be able to afford their taxes.

However, the mayor’s hands are tied because reallocating casino-related taxes and fees requires action by the state legislature.

“If they really care about Atlantic City, they would really do something to revisit all prior legislation regarding fees and taxes in Atlantic City,” Small said.

AC casino shutdown isn’t the only problem

As Rummy Pandit, executive director of the Lloyd D. Levenson Institute of Gaming, Hospitality & Tourism, pointed out, when the casinos finally reopen, the state’s revenue won’t immediately return to normal.

In addition to layoffs, some will have medical expenses that could drain household budgets. Many people who would otherwise come to Atlantic City to gamble and/or enjoy the entertainment and other casino amenities won’t have the disposable income to spend on these activities.

Therefore, the revenue that AC casinos generate for the state could continue to fall short of the projections made at the start of the year.

Massive layoffs at all nine Atlantic City casinos

The casinos have laid off thousands of workers. According to a March 27 article from the Press of Atlantic City, pursuant to the March 16 casino closings, approximately 16,000 Atlantic City casino workers are temporarily laid off.

The decision to impose layoffs of this magnitude was presumably predicated on the fact that the affected workers could then file for unemployment benefits. At the same time, the casinos would reduce their operating expenses.

All nine casinos have offered furloughed workers two weeks of compensation and extended health benefits coverage.

The casinos have also advised the affected workers that the layoff is only temporary and that they would be rehired when business resumes. However, there is no guarantee that every casino will rehire every employee who is now out of work.

Even after the current global health crisis subsides and Gov. Murphy gives Atlantic City casinos the go-ahead to reopen, economic conditions may compel some of them to reduce their workforce.

Is AC’s hot streak in serious jeopardy?

We see it happen over and over again at the craps and blackjack tables. A player goes on an incredible winning steak and then, boom! All the player’s winnings disappear in a flash.

But now we’re no longer talking about the fate of a single individual but that of Atlantic City and the whole state of New Jersey. In June 2018, two new casinos, Hard Rock Hotel & Casino and Ocean Casino Resort, opened and the Atlantic City gaming industry has been on a roll ever since.

In fact, up through the end of February, the industry has reported 21 consecutive months of gaming revenue increases from February 2019. Is that winning streak about to come to a crashing halt?

Rummy Pandit describes the ongoing Atlantic City casino shutdown as “a huge challenge for the industry” but “something that’s necessary for the well-being of all of us in our community. … It’s just one of those situations that is really unfortunate, but there is no other alternative.”

The silver lining: NJ online casinos remain open

At this point, no one knows how much longer the Atlantic City casinos and retail sportsbooks will be closed. It could be months before they receive permission to reopen.

But the good news is that the casino gambling industry has not come to a complete standstill. Gov. Murphy has allowed NJ online casinos to continue to operate as usual. And online gambling is taxed at a rate of 15% as compared with the 8% tax rate at brick-and-mortar casinos.

Furthermore, during the first two months of 2020, before the Atlantic City casinos closed, online gambling accounted for nearly 33% of all gaming taxes.

But according to local analyst Tony Marino, as the Atlantic City casino shutdown continues and online gambling remains the only viable alternative, the amount that the state receives in internet gaming taxes could double or triple. Several NJ online casinos have already reported a significant increase in the number of new sign-ups.

Online gambling is “not going to save the casino industry over the next month or six weeks or however long this lasts, but it’s a nice source of revenue,” said Marino.

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