Can Atlantic City Pull Itself Up By its Bootstraps?

Steve Ruddock Updated on February 13, 2015

As the city continues to struggle with unemployment, debt, and a faltering gaming industry, Atlantic City may now be in the unenviable position of dealing with an Emergency Manager. In late January New Jersey Governor Chris Christie issued an executive order installing Kevin Lavan as Emergency Manager of Atlantic City, and Kevyn Orr (Orr spearheaded Detroit’s bankruptcy in 2013) as a consultant.

The executive order has generated political blowback, considering some, like Senate President Steve Sweeney, see the move as a first step towards a Detroit-style Chapter 9 bankruptcy for AC.

Sweeney sees the appointment of an Emergency Manager as unnecessary in Atlantic City, feeling the bulk of the city’s issues could be solved with legislative fixes, such as the four bills he sponsored in December of 2014 (S2573S2574,S2575, and S2576) addressing Atlantic City’s fiscal problems.

The cost cutting of an emergency manager, and the subsidies and aid proposed by Sweeney are good short term fixes, but if AC is going to thrive long term it will need to reinvent itself.

The online poker industry is currently facing a similar problem, having reached its summit and now trying to halt or reverse its descent. Interestingly, both industries, AC’s casinos and online poker, peaked at around the same time.

AC’s Apex

In 2006 the Atlantic City casino industry pulled in $5.1 billion in total revenue, thebest year in the city’s history. The problem with a successful industry is you invite competition, and this is exactly what happened to Atlantic City. Trying to emulate AC’s success, surrounding states (Pennsylvania and Maryland) expanded brick & mortar gaming.

Another reason Atlantic City was booming in 2006 was the economy. The economy was, for lack of a better term, great in 2006. But all good things eventually come to an end, and so it was for the economy, which crashed in 2008.

Online poker’s apex

In 2006 the relatively new industry (online poker sprang into being in 1998 and didn’t really catch on until 2003) was essentially self-regulated and available across the globe. Furthermore, poker had achieved a new place in American pop culture thanks to the World Series of Poker, Chris Moneymaker, and the rising awareness of online poker.

But just like Atlantic City and competition, when governments see an unregulated industry generating billions of dollars they tend to want their piece of the pie, otherwise they will try to shut it down.

In late 2006 the U.S. government passed UIGEA, and by the time the DOJ put the final nail in the unregulated online industry’s coffin on April 15, 2011 (Black Friday) the industry had already been splintered, and was virtually unrecognizable from the glory days of 2006, as several European countries regulated and ring-fenced the industry.

By the time Black Friday, the glory days of untaxed and unregulated global online poker were effectively dead and buried.

2006 was the right place at the right time

A good economy and little competition allowed Atlantic City to thrive in 2006. But this period was the outlier; the brief window where all the stars lined up. The same is true for online poker. The industry was unregulated and still novel in 2006, which just so happened to be during the peak of poker’s popularity, which coincided with a strong economy.

These environments cannot be recreated anymore than the dotcom era or the personal computer era can be recreated. Unfortunately, if you weren’t in the right place at the right time you missed it.

Many people are now trying to recapture these moments of glory (so far unsuccessfully), calling anything that doesn’t meet these lofty standards a failure or disappointment, instead of taking the pragmatic approach and making the most out of the current situation and adjusting to the current circumstances.

The right-sizing of AC

AC went “all-in” on casinos and now they are realizing this was a losing bet.

The closure of four casinos over the course of 2014 (Atlantic Club, Showboat, Revel, and Trump Plaza) took a heavy toll on the city, particularly the city’s employment rolls, as the city lost roughly 8,000 jobs. The alternative was a worse option: Subsidizing these properties and allowing them to fall deeper into debt and disrepair, while at the same time siphoning off patrons from the city’s successful casinos.

At least now the remaining casinos have a fighting chance.

One example of the city right-sizing itself can be found in the revenue numbers. Even though overall casino revenue is down, the casinos that survived the purge have (with one exception) posted significant year-over-year profits individually, as they scoop up the wayward patrons from the now closed casinos:

Casino September 2013 September 2014 Increase/Decrease
Borgata $51.7 million $58.5 million +13%
Harrah’s AC $29.5 million $31.3 million +6%
Caesars AC $23.8 million $26.1 million +10%
Tropicana $20.2 million $23.4 million +16%
Bally’s AC $20 million 19.6 million -2%
Trump Taj Mahal $22.6 million $17.5 million -23%
Golden Nugget $10.7 million $16.3 million +52%
Resorts $11.6 million $11.6 million No Change

 

Casino October 2013 October 2014 Increase/Decrease
Borgata $47.6 million $52.1 million +9%
Harrah’s AC $27.6 million $32.3 million +17%
Caesars AC $26.8 million $30.2 million +13%
Tropicana $13.8 million $21.7 million +57%
Bally’s AC $17.2 million $17.5 million +1%
Trump Taj Mahal $20.3 million $16.7 million -17%
Golden Nugget $9.5 million $15 million +57%
Resorts $10.7 million $12.2 million +15%

 

Casino November 2013 November 2014 Increase/Decrease
Borgata $47.6 million $55.8 million +15%
Harrah’s AC $27.6 million $31 million +11%
Caesars AC $26.8 million $25 million -7%
Tropicana $13.8 million $20.9 million +34%
Bally’s AC $17.2 million $17.3 million +1%
Trump Taj Mahal $20.3 million $14.7 million -28%
Golden Nugget $9.5 million $16.3 million +42%
Resorts $10.7 million $12 million +11%

 

Casino December 2013 December 2014 Increase/Decrease
Borgata $44 million $49.9 million +12%
Harrah’s AC $26.9 million $29.8 million +10%
Caesars AC $29.3 million $27.6 million -6%
Tropicana $16.3 million $20.2 million +19%
Bally’s AC $16.3 million $17.2 million +5%
Trump Taj Mahal $16.6 million $10.8 million -35%
Golden Nugget $9.3 million $13.6 million +32%
Resorts $8.8 million $10.6 million +17%

 

These YOY gains will likely lead to continued on-property investment, the hiring of additional workers, and the investment capital to continue to bolster their online products and perhaps move into other verticals such as DFS, sports betting, and social gaming.

If the surviving AC casinos prosper they could act as a clarion call for other businesses, some of which have already started to eye AC with interest, as the shuttered Showboat Casino is being turned into a college campus, and there are plans for the empty Atlantic Club property to become higher-end housing.

Atlantic City’s future cannot rely solely on gaming, but gaming needs to be the driver of the city’s revitalization efforts.

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