An experienced gaming executive (who I once worked for at the Trump Taj Mahal) has acquired Resorts Atlantic City, and a former Resorts exec has some advice. From the AC Press:

One of the executives who oversaw Resorts Atlantic City during its 1970s heyday said the money-losing casino should transform itself into a convention haven as part of its turnaround strategy under new ownership.Steve Norton, who now serves as a private gaming consultant, said more conventions would fill the hotel rooms with lucrative customers and offset the typically slow midweek business cycles that plague Resorts and other casinos in town.

via pressofAtlanticCity.com: • Atlantic City, Pleasantville & Brigantine – Breaking News plus Local, Business, Sports, Entertainment & Video News for Southern New Jersey.

I’d like to think that everyone in the industry is aware of the “load balancing” that conventions provide–Vegas casinos have been doing this since the 1950s. But if people need to be reminded of that, so much the better that they hear it. But I would assume that any big casino’s going to be doing some kind of yield management with their rooms to maximize their revenues from business travelers, FITs, and casino guests. But looking at the performance of a lot of the Atlantic City casinos lately, maybe not.

The bigger question is: how do you position the city’s oldest casino in a business where being the newest usually has a premium? I know of only two casinos that actively trade on their history, or pedigree, and those are the Golden Gate and (more and more) the El Cortez in Downtown Las Vegas. In both cases, it’s a smart way to use an asset that your neighbors don’t have or (in the Nugget’s case) don’t want to use.

The property isn’t going to compete with Borgata, Caesars, the Taj, or Harrah’s in flashiness, but that’s OK. There are plenty of people who want a less-frenetic time “down the shore,” and Resorts might be able to capture this crowd–the people who feel underserved because they don’t want to go to bottle service nightclubs or listen to booming bass while they play quarter slots. They’re good casino customers, and there’s a lot of them: the key is making sure they drive to Atlantic City.

I’ll trot out a few of my suggestions for getting people in the door:
1. Free parking and free slot play in the amount of tolls/EZpass receipts for out-of state customers. I laid this out a few months ago, and I still think it’s a good idea. If they’re in your database, you’ve got their zipcode. It shouldn’t be hard to figure out how much they pay in tolls, so you wouldn’t even have to make them show receipts to you. We’re talking $30 or so in slot freeplay here, not really anything that’s going to break the bank, particularly when you consider that no one’s going to drive down, play $30, and leave right away. Sure, you might get some scammers who pack 6 to a car and take advantage, but this isn’t necessarily the worst thing: you’ve got people in your casino who think they’re playing with house money. If you’ve got a half-way decent casino, you should be able to keep them there.

2. Play up a more sedate, more sophisticated image. Sure, in the casino world this is subjective, but with the right packaging an anti-”Jersey Shore” campaign could go a long way.

3. A vintage slot section, with favorite games from way back. Others have done this, and it draws a crowd

Those are just three ideas, off the top of my head, without having been on the Resorts floor in a year or so and without any inside knowledge of what their customer database looks like.

In other words, I think there’s a lot Gomes & company can do with this property. I wish them luck.

I’ve got a pretty interesting Atlantic City History article this month–it’s about the original Atlantic City Airshow, circa 1910. From Casino Connection:

The Atlantic City Airshow, “Thunder Over the Boardwalk,” has become a city tradition. Since 2003, the spectacle of U.S. Air Force Thunderbirds and scores of other military aircraft buzzing over the Atlantic Ocean has drawn hundreds of thousands of spectators to the city each year. Fittingly, this summer’s edition is the biggest yet. It’s the 100th anniversary of the extravaganza that put Atlantic City on the aeronautical map.

via High-Flying History | High-Flying History | Casino Connection Atlantic City.

I always learn something when I write these columns.

Just to show you the kind of week I’m having, it’s Thursday and I’m just now getting around to posting a link to my bi-weekly LVBP column, which I should have done on Monday or Tuesday. I just got the beta version of the Macau gaming summary up, and I’ve jumped into a study of Nevada casino employment that’s getting more and more interesting. I’m tracking trends in payroll and productivity from 1990 to 2009, and everything I find opens up new questions.

Which is actually similar to what happened with an Atlantic City slot study that I did a few weeks ago. With the dramatic decline in the number of slots, win per slot has actually remained fairly robust. Here’s my column explaining it in the LVBP:

Atlantic City has had a rough few years. A partial smoking ban has hurt business and the debut of several competitors, particularly Pennsylvania slot machines, has reduced the city’s already-modest horizons. With the recent introduction of table games, it’;s a good time to look at how Atlantic City’s core business, slot machines, has fared over the years.

via Las Vegas Business Press :: David G. Schwartz : Slots keep Atlantic City’s hopes for future afloat.

Looking at this data got me thinking that the future might be a smaller industry, which is bad news for Atlantic City, but not such bad news for operators who can run a good casino.

There’s some goofy stuff going on with the formatting (a paragraph is repeated at the end), but hopefully that doesn’t detract too much from the column’s main point.

New Jersey governor Chris Christie’s Advisory Committee on New Jersey Gaming, Sports, and Entertainment has issued its report, which calls for a partial state takeover of Atlantic City. From the AC Press:

But Atlantic city and state officials have naturally focused most on the governor’s plan to create a state-run portion of Atlantic City, in a plan already described as a city within a city. Christie said he could no longer watch the “teetering”; of Atlantic City’s institutions.

He said he gave “fair warning” to Atlantic City’s government to fix problems pointed out in a recent state audit or face state takeover.

He said he wanted to see the state run a clean and safe tourism district there within a year.

“Delay leads to demise,” he said.

Gaming enforcement would be streamlined, he said. He described the current system as an “antique car.”

via Christie unveils state takeover plan for Atlantic City gaming district – pressofAtlanticCity.com.

You can look at the report itself here. The Atlantic City section starts on page 13.

According to the report, Atlantic City’s gaming industry is in decline–no argument there. They attribute the decline to nine chief factors:

• The perception of the City as unclean and unsafe, and the failure of City government to effectively address such concerns (including blight and the overall image of the City) at any level or to work effectively with the industry to create a tourist-friendly environment.
• The City’s fiscal mismanagement of the large tax base provided by the industry (as much as $175 million/year in property taxes alone). Atlantic City spends almost four times as much per capita than comparable New Jersey Cities, such as Edison, Long Branch, and New Brunswick.
• 2003 audit results, which reveal that staffing in Atlantic City per 1,000 residents was twice the level of benchmark cities like Orlando and Norfolk.
• The absence of a visible police presence or effective law enforcement on the Boardwalk.
• The absence of evidence of a Master Plan that addresses the primary tourist area or the large swaths of urban blight surrounding the tourist area.
• Underinvestment by the casino industry in development of non-gaming amenities, attractions and surrounding areas appropriate for a “destination resort.”
• An outdated regulatory process marked by both high costs and the inability to attract development activity by other world-class ownership to the New Jersey market.
• Lack of coordination in positioning and marketing Atlantic City as a competitive tourist resort.
• Failure to effectively attract meeting and convention business to Atlantic City and to integrate such business with the existing destination resort hotels.

I think in general these are true, but point 5, underinvestment, isn’t across the board: you can’t look at the Borgata, or Harrah’s Resort, or the Pier at Caesars and say that these aren’t filled with good non-gaming amenities. Some companies have consistently put more into capital expenditures and expansion than others, and they’ve been rewarded with a bigger share of the market. You can’t legislate that you have to run your casino intelligently. It its recommendations, the committee acknowledged this. Here’s a crucial section:
Research provided to the

Commission by McKinsey & Co. indicates that the Atlantic City “brand” still has value with customers, and if the reality met customers’ expectations, there would be sufficient latent demand to more than double Atlantic City’s revenues in the medium term. The Commission is also encouraged by the economic success enjoyed by properties where proper investment has been made, including the Borgata, the Walk, Harrah’s and Taj Mahal, all of which are generating encouraging results. It appears that in Atlantic City, customers will come to quality offerings.

However, the status quo is not workable. In simple terms, almost every potential Atlantic City customer has a closer, more convenient place to gamble. If Atlantic City cannot provide reasons for customers to make the trip, its decline will continue. Atlantic City has no choice but to try to reestablish itself as a true “destination resort” against its new convenience gaming competitors in surrounding states. Meeting this challenge will require aggressive actions by both the public and private sectors.
(emphasis mine)

That’s exactly what the city has to do, but unfortunately that’s what the city’s had to do for the last twenty years.

To get the city back on track, the committee recommended seven goals:

• Creating a “Clean and Safe” Tourism District with State oversight, with the goal of making Atlantic City clean and safe by July 1, 2011.
• Creating a Master Plan for the new Tourism District, focused on enticing new entrants to build both gaming and non􀍲gaming attractions that will increase demand in the City. The Plan should be delivered to the Governor no later than July 1, 2011.
• Improving the financial stability of Atlantic City by attracting other world class operators to ownership of the eleven existing facilities as well as any new ones. These operators should be committed to supporting both their properties and the District.
• Increasing the meeting and convention business in the Atlantic City market by at least 30% per year for the next five years.
• Bringing the New Jersey regulatory structure into the 21st century by reducing costs and redundancies and by supporting the attraction of operators while maintaining strict integrity.
• Increasing visitation and spending through joint marketing efforts on par with other national destination resorts.
• Improving intermodal transport to Atlantic City, including increasing air, rail and ferry options.

Great plan, but the devil’s always in the details. As far as attraction more investment, look at the country’s biggest gaming companies: one of them already owns 40% of the market (Harrah’s), one of them’s just been given its walking papers (MGM), one of them operates the city’s top casino (Boyd), one’s shown no interest at all in the city (Las Vegas Sands), one’s declared a “death spiral” (Penn National), one can’t build a casino on the land it owns (Pinnacle), and one left the city 25 years ago but might be tempted back (Wynn). So the options there are limited, unless you’re going to go the private equity route or open it up to international companies like Genting.

The changes we’ll see are:

1. Creation of an Atlantic City Tourism District
Following models established in other parts of the State, the Administration should support legislative enactment of an Atlantic City Tourism District (the “ACT District”) with representatives from State, City, County and Industry. The ACT District will assume full and complete control of certain governmental activities and operations within a defined Tourism District covering the casino areas and Boardwalk, as well as jurisdiction over related amenities and infrastructure.

This is the most controversial part of the plan. Basically it means getting the city government out of running much of the city.

2. Public􀍲Private Partnership (the “Partnership”)
The government should establish a structure for a Public􀍲Private Partnership with state and local government, the casino industry, and the greater Atlantic City community all represented. The new ACT District Commission would assume the role of the public component. The Commission recommends that the private component be represented by the Atlantic City Partnership (“ACP”) – a local consortium of businesses modeled after the Johnson and Johnson􀍲led structure that has proven successful in the revitalization of the City of New Brunswick.

This group will develop the master plan and try to get more purveyors from other New Jersey boardwalks in AC. Hey, anything that brings Mack and Manco pizza or Johnson’s popcorn to Atlantic City is fine by me. If they want to re-launch Mr. Peanut, I’m available for consultations. They’re also going to oversee more effective use of Marina facilities, which I hope means reopening the marina at Harrah’s.

3. Coordinating Marketing, Boardwalk Hall and Convention Business Between ACCVA and ACP
Efforts should be made to encourage marketing “Atlantic City” as a brand. Theseefforts should include more joint industry efforts throughout the City, including efforts to increase use of Boardwalk Hall and efforts to capture a larger share of convention business.

Basically, doing what the LVCVA’s been doing in Las Vegas for the past 50 years.

4. Legislative Enactment of Regulatory Reform
Costs of New Jersey regulation are almost ten times those in Nevada and other mature gaming jurisdictions with strong, effective regulation. In 1978, 24/7 inspectors and built in regulatory redundancies made sense, but with the increased sophistication of camera surveillance, information technology, and audit abilities, they are unnecessary now.
Furthermore, these outmoded concepts and a licensing procedure that is unnecessarily adversarial have made the market less attractive to many respected world class operators.

To me, this is the most interesting idea. Is this an olive branch to MGM and Wynn? Maybe. It’s encouraging that they want to realign regulation with the technological realities of 2010.

5. Establishment of a Joint Atlantic City Marketing Fund
Once the ACT has gained traction on the initiatives above, it should work with the ACP to establish a fund dedicated to marketing the City, as compared to current marketing efforts with a limited $4 million spending limit.

Basically, market the city better–no argument there.

6. Transport
To contribute to the goal of making Atlantic City a destination resort, the Atlantic City International Airport needs to be expanded in terms of service – e.g., more airlines and additional intermodal connections – and in terms of its physical plant through capital improvements.

Make it easier to get to the city, and visitation will go up. If I ran a casino marketing department, I might go even further to try to attract Pennsylvania gamblers: show me your toll receipts, and I’ll give you double that in free play. It’s not that much money, but psychologically it makes a big difference, since the casino is now “paying for” your tolls. It should be much easier to get to the casinos from ACY or PHL for the casual visitor.

7. Related Issues
The Commission also considered whether the State should entertain gaming outside of Atlantic City at this point in time. Given the importance of the industry to the State, as well as the need for meaningful reform to foster sustainability and, hopefully, growth, this issue is best considered in the future when either: 1) the transformation of Atlantic City to a more destination􀍲oriented model has meaningful enough traction to compete with in􀍲state rivals; 2) Atlantic City stakeholders support additional outlets; or 3) the new model is deemed to have failed.

In a nutshell, this means: no more subsidy for the racetracks; no slots at racetracks; no interstate Internet gambling; no sports betting.

It’s a major plan that will require several breaks from the past. Even if I knew all of the details, I couldn’t say definitively whether it will or won’t work, since there’s many moving parts here that are impossible to predict. But at least someone’s interested in reviving the city.

This is getting predictable. In May, casino revenues in Atlantic City declined 9% from May 2009. Year to date, revenues are down 7.9%, and it doesn’t look to get much better. I don’t think that table games in Delaware and Pennsylvania are going to help.

It was an across-the-board decline. Every casino posted lower revenues that the year before. Here is the ranked list, with monthly revenues and the overall gaming win change from the year before:

You can get a sense of the (relative) winners and losers here. Borgata’s clearly the top of the market, while Harrah’s is weathering the storm fairly well: three of their four properties declined less than the industry average. Trump, whose Plaza did surprisingly un-bad, is in the next tier, along with the Tropicana, followed the present and former Colony Capital properties at the bottom. Resorts, in a complete shock, actually increased its table game revenues, but since they were already pretty anemic (2nd-lowest in the market), it’s hard to say whether this was because of volatility or a real increase in demand. Judging from the slot performance (nearly a 20% decline), it’s the former, but it’s impossible to say for sure.

No bones about it, this was another bad month for Atlantic City. There’s something of a silver lining for Borgata and the Harrah’s properties (though Caesars should be doing better), but not much solace for anyone else.

Year to date, Harrah’s, Caesars, and Showboat are doing the best (Harrah’s revenues are actually up .5%), followed by Borgata, then the Trop and Bally’s–these casinos are all seeing their revenues drop less than the industry average (7.9%). Below that line, you’ve got the Trump casinos in a solid blocks (YTD declines of 10-15%), followed by Resorts (16%), with the Hilton in freefall (more than 20% decline in revenues).

Two things are going to happen: either the market will miraculously turn around, or someone’s going to close. Those casinos at the bottom can’t continue to see revenue declines like this and keep their doors open.

The Trump Taj Mahal’s bad beat jackpot has finally paid off, in record fashion. Thanks to 84 year-old John Bazela’s four sevens getting beaten by by four aces, everyone at the table is quite a bit wealthier this morning. From the AC Press:

Tom Gitto, the casino’s director of poker, said the jackpot usually hits every 92,000 hands. Sunday’s bad beat came after more than 670,000 hands. For each hand, a dollar is added to the pot.

Bazela took home 50 percent of the pot Sunday, or $336,057. The actual winning hand takes home $168,028, or 25 percent. The remaining seven players at the Texas Hold ;Em table take home the rest, each collecting about $24,000.

News of the much-anticipated win attracted dozens of players and passers-by to get in on the commotion. Taj officials soon summoned two video cameras to film the aftermath of the jackpot, served the winners (or losers) Champagne and wheeled out a large cake congratulating the winner of “the largest bad-beat jackpot ever.”

Bazela said his hefty share will go to his 55-year-old daughter.

“What am I going to do with it?” he asked. “I just come down here to break up the monotony.”

via Trump Taj Mahal awards $336,000 to bad-beat poker winner for “losing” hand – pressofAtlanticCity.com.

I love that quote there–guys who live, breathe, and sleep poker and never see anything close to this money must be steaming.

This is exactly the kind of stuff that AC casinos should be doing. If you had a choice between driving to Foxwoods or AC to play poker, and you knew you could get $24,000 just for sitting at the table when someone else gets a bad beat, would that help tip the scales?

Casting around the Internet for stories to comment on, I saw a promising headline: Newsweek would tell me exactly why Garden State casinos were having such a hard time. Here’s the first paragraph, but you should click through and read the whole thing, just for fun:

The Great Recession has brought more bad luck. According to a recent report by the American Gaming Association, casinos—a supposedly recession-proof sin business—shed revenue in 2008 and ’09. That’s the first two-year decline since the industry went national in 1978, and it hit the traditional gambling hubs hardest. Nevada suffered the steepest plunge in state history (more than 10 percent last year), while New Jersey slid about 13 percent, as more than a third of Atlantic City’s casinos declared bankruptcy.

via Gambling and the Great Recession in New Jersey – Newsweek.

It’s amazingly content-free. That article gives Seinfeld a run for its money in being about nothing. Seriously, besides recapitulating a few stats, there’s nothing there–no effort to explain why. Talk about bait and switch.

It’s not the proudest moment in Atlantic City history, but it’s an important one nonetheless. This month in Casino Connection, I take a look at ABSCAM:

There aren’t any commemorative parties, but this year marks the 30th anniversary of a major Atlantic City news story-the Abscam investigation.

The investigation—in which FBI agents posed as the henchman of a fictitious Arab sheik, Kambir Abdul Rahman, to uncover a corrupt congressman—took its name from Abdul Enterprises, the sheik’s alleged company. Though Atlantic City wasn’t a primary target of the sting, repercussions here led to big changes in the way New Jersey regulates casinos.

News of the investigation broke like a thunderbolt on February 2, 1980. The FBI announced it had snared numerous public officials, including New Jersey Senator Harrison Williams and seven members of Congress, in a two-year undercover investigation. The probe also included a member of the Casino Control Commission.

via The Sting | The Sting | Casino Connection Atlantic City.

Interesting story that forced some changes in the regulatory structure.

Harrah’s is undertaking a massive renovation of one of the city’s historic gambling halls. From the AC Press:

Acknowledging that the cowboy concept has gone stale, Bally’s Wild Wild West Casino is preparing for a $1.5 million facelift to reinvigorate the aging casino just in time for the bustling summer crowds.
…

Bally's spent $110 million to build the Wild Wild West annex in 1997. The extravagant re-creation of the Wild West gave Atlantic City its first themed casino. Its whimsical surroundings were a welcome diversion from the drab casino floors prevalent in those days.

However, over the years, the casino has become woefully outdated. The robot-like, animatronic characters at Bally's Wild Wild West Casino have broken down, and there is no one around with the expertise to bring them back to life.So the grizzled prospector and his trusty old pack mule have stopped panning for gold. The talking vulture perched on a cactus has gone mute. The gunslingers no longer fire their six-shooters and Winchesters.The rest of the Old West-themed gaming hall seems a bit dead, too.

“It's a little old-fashioned,” Harry Gordon, a gambling customer from Toms River, said while gazing out at the landscape of faux canyons, fake waterfalls and pseudo frontier-town stores. “I would like to see improvements.”

Bally's parent company Harrah's Entertainment Inc. has toyed with the idea of getting rid of the Wild Wild West to make way for a new hotel tower and other attractions.For now, the western decor will stay. Customers are supposed to be captivated by a fake 1880s frontier mining town blended with high-tech lighting, sound and entertainment effects.Popular attractions included the animatronic people and animals that once came to life – talking, singing and gunslinging. As his pack mule brayed, the prospector would speak to customers while he panned for gold at the base of a mountain waterfall. A robotic vulture bobbed his head and talked from his cactus perch. At Lillie Mae's Social Club bordello, two animatronic call girls beckoned customers from a balcony overlooking the casino floor.

Now those characters are still. Domenico said that most of the robots simply wore out over the years and have stopped working. The company that installed them in 1997 has since gone out of business and there is no one available to make repairs, he said.

via pressofAtlanticCity.com: Bally’s Wild Wild West getting $1.5 million makeover – including a mechanical bull.

Technically I guess everything is aging, but only in the casino industry would you describe something built barely 13 years ago as “aging.”

The thing about the animatronic robots breaking and being able to be repaired isn’t just a Harrah’s thing. It happened to Kamelion, a robotic Doctor Who companion of the 1980s, which was cutting edge technology at the time. Unfortunately, it’s inventor/operator died suddenly without letting anyone else know how to operate the complicated machine.

There’s really not much excuse for letting the vultures, etc fall into disrepair these days, though, since there is probably some engineer who will repair them–for a price. Sam’s Town doesn’t have any problem keeping its animatronic animals up and running.

As far as the bigger picture goes, outside of the mechanical bull and the stage, I’m not sure how much $1.5 million is going to buy for a makeover. And I’d love to see the proposal to tear down a $110 million building after 13 years to build another hotel tower at a time when visitation is dropping steadily.

The live music, though, is undeniably a good thing. It sounds like they’re on the right track.

I somehow missed celebrating one of the biggest milestones in Atlantic City gaming history earlier this month: on April 2, the Trump Taj Mahal celebrated its 20th anniversary. But I did write a little about the road to opening in this month’s Casino Connection:

Even before Atlantic City’s first casino, Resorts International, opened in 1978, its owners planned to build a second, 1,000-room building on the site of the old Chalfonte Hotel. They even built a bridge to the site—a bridge that still goes nowhere.

In 1980, Harrah’s bought the Chalfonte land. Resorts President James Crosby then turned his sights to Pennsylvania and Virginia avenues, envisioning a 38-story hotel atop a massive convention complex. A sky bridge would link it to a renovated Steel Pier, whose attractions would bring back the glory days of Atlantic City.

The enormous resort—more than twice the size of the average casino—needed a theme. A Venetian theme was considered, as was a Byzantine look. Architect Francis X. Dumont finally decided to model it after a marble mausoleum built in India in the 17th century. The Taj Mahal was a curious inspiration for a casino, but its onion domes and minarets became Dumont’s design signature.

via The Crown Jewel | The Crown Jewel | Casino Connection Atlantic City.

As I’ve probably said before, I used to work at the Taj, so this was a fun one to write. As usual, there was way too much to include for the article space, so a few things have been cut between my last draft and the published article.

I guess it’s appropriate to remember the opening at a time when Trump appears to be ready to rebuild his casino empire, yet again.

Interesting article in today’s AC Press about local casinos’ new focus on…locals:

The sluggish economy and fierce competition from Pennsylvania’s slot parlors for out-of-state customers have forced Atlantic City casinos to fine-tune their marketing strategies to focus more on the local area. In doing so, they have discovered there is a lucrative market right in their back yard. The four women, all from Atlantic or Cape May counties, like catching up on their gossip, but they are also drawn to the casino by food and drink specials aimed at local customers on what is typically a slow weeknight.

“You can have the same thing here Monday night at a special low price as you could on a Saturday night for a higher price. That makes it great for the locals,” said Essick, 46, who lives in Upper Township, Cape May County, and works as a saleswoman for a radio station.

“We have some affluent customers locally. Obviously, all customers have value to us,” said Dave Coskey, vice president of marketing at Borgata.

via Atlantic City casinos look closer to home for new customers – pressofAtlanticCity.com.

It’s a definite sign of the times, but if Atlantic City casinos are going to rely on the 300,000 adults that live locally for a significant chunk of their customer base, it’s hard to see how the industry can sustain itself at its current level. Marketing more to locals to fill otherwise-slow periods is a smart idea, though. Unfortunately, those slow periods are getting longer and longer.

Finding a reason other than gambling for people to visit Atlantic City is imperative.

This isn’t the popular thing to say right now, but I’ve got real doubts about the AC mini-casino proposal. Here are my thoughts from the LV Business Press:

Both Atlantic City and Las Vegas have had a difficult recession of course, by definition no recession is easy. Atlantic City, however, has suffered much more due to increasing regional competition and that's triggered a not-so-profound re-evaluation of that city's casino industry.Atlantic City's casinos find themselves in a tough spot. Their regional monopoly, which once extended to the Mississippi River, now barely touches the Delaware. Pennsylvania will soon add table games and New York and Delaware are both considering expanding their casino industries. Gamblers, it would seem, are driving past more and more casinos on their way “down the shore.”

But in increasing numbers, they're not, which is the problem. The city's gaming revenues have fallen to 1997 numbers. Las Vegas, by comparison, has retreated only to 2004

via Las Vegas Business Press :: David G. Schwartz : Smaller casinos won’t fix what ails Atlantic City.

It’s worth saying that the most successful casinos in Atlantic City right now are the biggest ones (Borgata, Harrah’s). I’m just not seeing the ROI for something one-tenth of their size.

The article’s punch line makes it clear just how unrealistic I think the mini-casino=revival talk is.

More news from Atlantic City, none of it good. From NJ.com:

Resorts Atlantic City, the nation's first casino outside Nevada, says it may not survive; another Atlantic City casino hasn't made a loan payment since last summer; and three others are in bankruptcy court.

Atlantic City's 11 casinos have been struggling for more than three years. Financial documents filed with the state this week show just how bad things have gotten.

The news was worst for the two casinos believed to be the most endangered: Resorts Atlantic City, which was taken over by its lenders in December, and the Atlantic City Hilton Casino Resort, which defaulted on its mortgage in July and could be headed for the same fate.

Resorts, formerly owned by hedge fund Colony Capital, based in Los Angeles, told New Jersey officials in a quarterly tax return that its financial challenges “raise substantial doubt about the company's ability to continue as a going concern.” It said three major storms this winter made even its projections from November look too optimistic, and “the company will be subject to severe cash shortages.”

via Atlantic City casinos struggle against tough economy | – NJ.com.

As the 2009 numbers come out, it’s clear that things are, in fact, going very badly for the city’s casinos. Casino profits fell by more than a fifth in 2009.

We’re getting close to the point where nothing will turn the ship around, so to speak, in the near future. I’ve said it before, and I’m saying it now: somebody in the city had better find a way to get more people to visit and spend money. The Borgata’s doing well, all things considered–they actually boosted their profits by cutting expenses. But there’s a very real possibility that three casinos could close outright.

I’m working on a report about historical AC slot machine performance today, and have found some interesting trends. When the casinos opened, the machines were outrageously tight–14.4% hold for mostly quarters and dollars. The hold has come down a great deal, though, and since 1990 has actually fallen by nearly 2 points, while Nevada’s has increased by about a point. Nevada slots are still looser, though.

Yesterday I wrote a bit about the numbers behind the proposed mini-casinos considered for Atlantic City. Now, with news that Hard Rock is talking about spending $300 million to build a mini-casino, I thought I’d do a little number-crunching and learn if you’d be better off using that money to buy an existing property or build a mini-casino.

Trump Marina’s been for sale; that’s no secret. There’s a $75 million offer on the table for it. Financial analyst William Hardie now values the property at $24 million. We can argue about whether that’s a fair assessment–Trump certainly would–but let’s say we’ve got a choice between buying Trump Marina for even $80 million or building a mini-casinos for $300 million. Which should we take?

In 2008, Trump Marina had 72 table games and 1,983 slots, with a 78,535 square-foot casino.

The mini-casino would be restricted by law to 20,000 square feet, which I say pencils out to roughly 24 table games and 512 slot machines.

Right off the bat, something should be obvious: for nearly four times the cost of entry, you get one-quarter the slot machines. In theory.

In theory, I guesstimated that these mini-casinos would earn, all things being equal, about $68 million a year.

Back in the real world, Trump Marina earned $203.6 million in 2008, after a long decline (in 2002, it made $283 million in gaming revenue). It is obviously under-performing, and has the potential to do much better business. It’s near two of the biggest and best-performing properties in the city (Borgata and Harrah’s), much better neighbors than the Atlantic City Hilton near Albany Avenue. It has an existing customer and marketing database and needs no additional infrastructure. At the very least, it’s a turnkey business. Of course, you’d have to invest heavily to bring it up to its potential, but how much would it cost to remodel? It took $150 million to transform the Aladdin into Planet Hollywood. P-Ho is about 2.5 times the size of the Marina.

So instead of starting from scratch and investing $300 million in a new facility with one-quarter of the revenue potential, why not just buy Trump Marina and renovate it–really renovate, almost beyond recognition? Even if you put $100 million into it, you’re still saving money, and you’ve got a much bigger, better-situated Hard Rock casino with way more potential upside.

BTW, in the late 1990s Trump’s Castle was almost re-themed as a Hard Rock casino, but for a few reasons that didn’t happen and we got Trump Marina instead. Maybe that’s why I wanted to run the numbers on this one.

Am I missing something, or when you look at it like this does $300 million for a mini-casino seem like a bad deal to you, too?

Here are more details about the proposed regulatory changes in Atlantic City, which seem to make the tax process even more byzantine. Ah, I just wanted an excuse to use “byzantine” in a sentence. It’s one of those words that I don’t get to use enough. From Business Week:

The new casinos would have to pay a tax rate of more than 14 percent to compensate for the lesser amount they would have to spend, compared to existing, larger casinos, which pay just over 9 percent.

The bill has incentives to entice casino owners to add hotel rooms. Those who build 200-room hotels would be permitted 20,000 square-feet of casino space. If they expand to 500 rooms within five years, they would get 30,000 square feet of gambling, and would get back the extra 5 percent in taxes they paid to enter the market.

Conversely, if the owners of a 200-room hotel kept it that size after five years, the money they paid would be used for other casinos' expansion or infrastructure projects in Atlantic City.

Owners could opt for slot machines alone — which account for two-thirds of Atlantic City's casino revenue — or offer table games as well, which cost more to staff.

via Atlantic City eyes adding 4 small casinos – BusinessWeek.

This isn’t easing the regulatory burden: it’s adding another layer to it. Capping the number of “mini-casinos” at 4 seems like an unnecessary intrusion into the market. There’s no statutory cap on casinos now, and the market’s done a good job of limiting itself.

I don’t know exactly how you can justify using taxes paid by these new casinos to fund “other casinos’ expansion.” That seems like it’s subsidizing poor operators. Why should the Chelsea (for example), have to pay taxes that the Hilton uses to expand? Is that where this is going, or did I read it wrong?

As far as the cap on casino size at 20,000 square feet, that’s tiny. The average casino size in 2008 was 121,388 square feet, with seven casinos well over 100,000 square feet. The statistical average number of hotel rooms is 1,325. But it works out almost perfectly, at least mathematically: a 20,000 square foot casinos is 16.5% the size of the industry average, and 200 rooms is 15% of the industry average. So at least it’s scaled correctly.

Just how much money would a 20,000 square-foot casino make in Atlantic City? I’m going to do some really rough calculations. First, I’ll assume that with 15% of the floor space, the casino will have 16.5% of the gaming equipment. It would have about 24 table games and 512 slot machines.

Using 2008 revenue numbers as a guide* gives us a total approximate table win of $21.1 million, and a total slot win of about $46.9 million. That’s about $68 million in win a year, if the win is truly scalable.

With four total, that’s $272 million in total revenue; taxed at at 14%, that’s an extra $38 million in tax revenue for the state.

Keep in mind that if I’d have had 2009 numbers to work with, the win totals would be about 14% lower, so the total win per mini-casino drops to about $59 million. Considering the amount of money and effort that will be invested in starting up the casino and regulatory compliance, as well as staffing and promotional costs, there doesn’t seem to be much room for a good return on investment. If you’ve got 16.5% of the floor space, you’ll have a far smaller selection of games, which means that you’re going to have to work harder to attract customers.

Talk about “Monte Carlo-type” casinos is about 30 years out of date. Sure, some of the big Nevada casinos are doing well at baccarat, but is a $25,000/hand player really going pass up Wynn or Aria (or, for that matter, Borgata) to play at the Chelsea? If you can’t get that level of player, you’ve got to make your profit on volume, and that’s going to be very hard to do in this case.

It’s great that people are thinking about ways to attract investment, but I don’t think this is going to lead to the rebirth of the city. Bottom line, you need to look at what works for other destinations, and see how it can be adapted or improved. Lowering regulatory costs would be another great incentive, and this doesn’t seem to do that.

______________________________
*I did these calculations by using the historic win statistics to find average win per casino, then multiplied it by 16.5%. A crude method, but an effective one with the info that’s available.
Average numbers of table games (2008): 148
Average number of slots (2008): 3,102
Average table win:$128.4 million
Average slot win:$284.7 million

In case you were wondering, the former Sands site in Atlantic City continues to deteriorate. From the AC Press:

The barren site overlooking the Boardwalk consists of little more than mounds of dirt and scruffy tufts of grass peeking through the soil. Intruders are kept out by a padlocked chain-link fence bearing a “No Trespassing” sign.

This is where the Sands Casino Hotel once stood – before the Las Vegas-based Pinnacle Entertainment Inc. imploded the old gaming hall to make room for a $1.5 billion megaresort that it once planned to build but has since abandoned.

Pinnacle announced last month it is selling the vacant property, but city officials are hoping the company will dress it up with new paving, landscaping and side

via Once a symbol of future, barren Sands casino lot now just frustrates Atlantic City officials – pressofAtlanticCity.com.

Landscaping would be nice PR, but that’s about it. It should be abundantly clear that there are major structural problems with the Atlantic City casino industry. Even if someone could theoretically borrow the money to buy the Pinnacle land, the return on investment just isn’t there at this point. The catch-22 is that you need someone to build something so incredible that people come to Atlantic City to see it and spend money there, but until someone builds something like that there’s no way to say that it will be successful.

Of course you could say the same thing about several Las Vegas developments, but apparently people have a higher tolerance for risk in Las Vegas. Traditionally Atlantic City casinos have been very conservatively built–look at how long it took to build a hotel with more than the statutory minimum 500 rooms. In retrospect, it looks like a self-fulfilling prophecy.

My Atlantic City history column in March’s Casino Connection has nothing to do with gambling. Instead, I look briefly at the career of an artist who was born in Atlantic City, Jacob Lawrence:

Dozens of notable figures have played a part in Atlantic City’s history, from Thomas Edison and Diamond Jim Brady to Jay-Z and Donald Trump. Yet few people know that one of the most respected American artists of the 20th century was born here.Jacob Armistead Lawrence’s family was part of the “Great Migration” during and after World War I, in which thousands of black Southerners moved North in search of better lives, far from Jim Crow. The Lawrence family came to Atlantic City, where Jacob was born on September 7, 1917.

via Jacob’s Ladder | Casino Connection Atlantic City.

I enjoy the chance to write about non-gaming/hospitality topics, particular for the Atlantic City column, and have a few more planned in the near future. Of course, next month I’m tackling a little Trump Taj Mahal history in honor of the 20th anniversary of its opening. It’s hard to believe it’s been that long. I remember when the New Delhi Deli was the hot new restaurant in town–it was replaced by the Hard Rock a long time ago.

Lawrence was an interesting subject because he didn’t live in the city for long, but was clearly the kind of artist who picked up a great deal from his surroundings, so his early influences might have had an important role in shaping his work.

This has been up for a while, but I haven’t linked it yet and, with the news that Donald Trump and Carl Icahn are dueling over Trump casino empire, it’s relatively timely: my piece on the early history of Trump Plaza in Casino Connection:

Trump was leery of the Casino Control Commission. It had forced Caesars World’s founders Clifford and Stuart Perlman to step down before giving Caesars Boardwalk Regency a license. It had denied a license to Hilton after the company had already built its casino. And it caused so many problems for Hugh Hefner that the Playboy founder torpedoed the Atlantis casino.

Trump refused to turn so much as a shovel of dirt until commissioners voted yea or nay on his license. In March 1982, he got his wish—and his license—in hearings that lasted two hours (by contrast, hearings for the Atlantis dragged out for two months).

via Plaza Suite: History of Trump Plaza | Plaza Suite: History of Trump Plaza | Casino Connection Atlantic City.

I quoted that bit because it seems relevant, with MGM Mirage leaving AC over regulatory issues.

My piece in the Las Vegas Business Press about the beginning of the end in Atlantic City is out:

Historians have taken the date 476 A.D. and the deposition of Romulus Augustus, the last Roman emperor, as the “official” date of the fall of the Roman Empire, even though at the time most Western Europeans were too preoccupied with daily survival to take much notice of events in the far-off capital.

When historians look back at the history of casino gaming in Atlantic City, they may decide that 2010 marks the beginning of the end of that city's reign as one of the country's leading gaming destinations, and they might focus on a single event: The decision by MGM Mirage to abandon its holdings in the city after the New Jersey Division of Gaming Enforcement found Pansy Ho, the company's partner in its MGM Grand Macau casino, “unsuitable.”

via Las Vegas Business Press :: David G. Schwartz : The beginning of the end for Atlantic City?.

I don’t think this is hyperbole. The revenue trends are showing a decline that started slightly before the recession that is more due to competition than the economic slowdown, although the recession hasn’t helped. There are real problems in Atlantic City.

Are there solutions? Yes, and they go beyond making Pacific Avenue a one-way street. As I see it, the city has to be reinvented to appeal to two groups: investors, who will buy or build new casinos and attractions, and visitors, who will fill them. These groups aren’t mutually exclusive, but they require different approaches. The average gambler doesn’t really care about how many levels of scrutiny casino vendors go through before they are licensed, but this sort of thing makes a difference behind the scenes.

It’s not impossible. The city’s been through worse, and the right forward-thinking people can help get it on the right track. The time for action, however, is now. If AC just continues to coast for a few years, it may be too late, at least for this generation.

Checking the headlines in the AC Press as of 2PM Pacific time, I couldn’t find a word about the seemingly-momentous decision of MGM Mirage to sell its stake in Borgata. This is curious, since you would think that having one of the biggest casino companies in the world, which at one point had billions of dollars in the development pipeline in AC, officially announce it’s selling out would be at least DEFCON 2-level news.

But there is this separate yet equally compelling story about an imminent state monitoring of the city:

State intervention in Atlantic City government could become a reality if the city doesn’t “get its act together” within two to three months, a state senator said Monday.State Sen. Kevin O’Toole, R-Bergen, Passaic, Essex, said he would be willing to push for a state monitor with veto power over City Council minutes if the local government doesnt return to the Senate State Government, Wagering, Tourism & Historic Preservation Committee with a good-faith response to a recent state audit report.State Comptroller Matthew Boxer answered questions and described some of the findings in his offices report on Atlantic City’s fiscal management, which outlined more than $23 million in waste and inefficiency .

via Atlantic City warned to “get its act together” or face state intervention – pressofAtlanticCity.com : Latest News.

This isn’t directly linked to the Division of Gaming Enforcement’s decision re: Pansy Ho, but it shows the heavy hand that state government has in the city itself, not just its biggest industry. And with $23 million in tax money apparently being flushed down the toilet, it’s hard to say that there’s no justification there.

The irony is that, if Pansy Ho had been suitable, MGM Mirage might have found itself doing business in two “Special Administrative Regions.”

I’d guess that, on the strength of the $60 million a year MGM Mirage gets from the Borgata and the value of the real estate the company controls (which I assume would be part of the sale), the company might fetch something $200-$500 million. I haven’t run any numbers to confirm this; that’s just my first impression based on about 6X EBITDA, which is right in the middle of those numbers, with some degree of flexibility for the value of the real estate (on the high side) and the depressed state of the general market (on the low side).

The problem, of course, is finding someone willing to pay big bucks for an asset (albeit the top-performing one) in a regressing market, particularly when the seller is very publicly identified as “motivated.”

Most people are assuming that Boyd will be the suitor, which makes sense, though this wouldn’t necessarily be a bad buy for an equity firm if they went into it with realistic expectations.

It likely wouldn’t be anyone else already in the market, since Harrah’s is already far too exposed in AC, Trump has its hands full with its existing casinos (though 1/2 of Borgata would actually be better than 100% of the Marina right now), Colony Capital has lost one casino to its lenders already, and Carl Icahn’s plate is presumably full with turning around Tropicana Entertainment and the Fontainebleau.

Anyone not in the market would have to do some serious soul-searching about their licensing, since the state has made it clear that they consider no company too big to show the door to. Even if Borgata can retain its market share (which might be difficult when Revel opens), it’s still piece, though a big one, of a nonetheless shrinking pie.