Atlantic City’s Trials and Tribulations

Atlantic City’s trials and tribulations slash across the front pages of daily newspapers as state, city and industry leaders begin an unprecedented journey to overcome the challenges facing the city. Operators are adjusting their goals, introducing new forms of entertainment and cutting down on the number of slot machines on their floors. Lawmakers are meeting to discuss a set of proposals from the governor. And CEM is talking with industry leaders in Atlantic City to find out what the future may hold for this struggling market.

Looking at the 12 months leading up to June 2010, Atlantic City revenues were at $3.79 billion, down from the city’s revenue peak in 2006 at $5.2 billion. Joseph Weinert, senior vice president at Spectrum Gaming Group, points out that the numbers show “over a quarter of Atlantic City’s revenue has evaporated, and most of that money is not going to come back.”
There are fewer slot machines in the city as well. Weinert says at its peak there were 38,333 slot machines in Atlantic City. In June, that number was 30,397.

The same goes for visitors. According to Union Gaming Group, slightly more than 30.3 million people visited Atlantic City in 2009. That’s down 13 percent when compared to the peak visitation of 34.9 million in 2005. Some of the largest visitation segment declines have been seen in the charter bus segment.

And believe it or not, Weinert says Atlantic City has not bottomed out just yet, because of the introduction of live table games this summer in Pennsylvania and Delaware. Plus, Maryland will be opening its first casino this fall, and at some point a gaming expansion is expected in New York City with a license issued at Aqueduct.

This regional competition, combined with the recession, is what Weinert calls the “one-two punch” that’s hitting Atlantic City. “The regional competition was a kick in the stomach and the recession was a slap in the face,” he elaborates, adding that the recession hit just as Atlantic City was in the threshold of becoming the regional destination people had long dreamed of. But it was not there just yet.

Weinert explains, “Essentially Atlantic City did not have, the operators did not have, the level of capital investment into their properties that they should have to make themselves competition-proof.”

Then the one-two punch hit hard, and it stopped capital investment dead in its tracks. “Now with the credit market tight, and revenues declining, getting capital is that much harder,” Weinert adds.

He believes smoking restrictions also impacted revenues negatively at some level, although this is not nearly as quantifiable as the other factors. To make matters even worse, the city has also been fighting the perception that it is unclean and unsafe for visitors.

The grim numbers, however, are not stopping Atlantic City and New Jersey leaders from forming a new vision for the future. In fact, they are working together in ways never seen before. Mark Juliano, president of the Casino Association of New Jersey (CANJ) and CEO of Trump Entertainment Resorts, says this is what is most encouraging: “For the first time in a long time, you’ve seen all of the people whose future is important to Atlantic City come together to get this thing done. And I think that that’s pretty exciting.”

Juliano says CANJ is trying to focus on a more positive marketing campaign to promote a tourist destination that is clean, safe and exciting. Weinert adds, “It requires marketing to a segment of the eastern population that, for whatever reason, is not now coming to Atlantic City.”

The CANJ is also focusing on building the availability of non-gaming options. Juliano says, “Non-gaming options will help us reconstruct our business model so that we can offer people more things to do than just gaming.”

Michael Frawley, COO of the Atlantic City Hilton, agrees. “Gambling revenue as a primary revenue stream, those days are over for Atlantic City,” he says. “We were kind of guaranteed gaming revenue because of our exclusivity. Gambling is no longer exclusive, so you continually have to evolve.”

Newspaper reports have questioned the image of a new Atlantic City, criticizing plans to turn it into a family destination, but Juliano says this concept has been widely confused by the media. “I don’t know that it was the intention of the governor’s report or is it the intention of the city and industry to try to turn this into another Disney World,” he explains. “It is a form of adult entertainment, but there should be something for everyone, including families, to do when they come here.”

Atlantic City operators are now introducing new, non-gaming amenities to reach that goal. Frawley says, “In order to survive in this market, you need to understand who your customer is and what kind of product that person wants.”

The operators we spoke with still believe slot machines hold an important and special role, but they are decreasing their numbers on the floor at this point. For example, the Atlantic City Hilton removed 400 games this year that Frawley says were older or that the property simply felt it could do without. Frawley says it also changed out more than 400 machines, adding games that were the best product for their customers. “With what’s happening with competition, you might not need the number of games that you had before; you certainly need the performance of games that you had before,” he says. “If we were selling hamburgers, which we do by the way, we try to have the best hamburger. If we’re selling a gaming product, part of being successful is having the best product.”

Juliano expects operators to reach out to suppliers and seek partnership in getting the best new games on the floors. He expects suppliers to be anxious to help. “We are going to continue to buy machines and replace old equipment with new equipment … but they’ll really benefit if we start to add inventory.”

It appears, though, that the focus will be on non-gaming in the near future. Juliano says Trump Entertainment Resorts has dedicated a lot of resources to attracting convention business and developing mid-week cash business. Trump added a new restaurant last year and may be adding another in 2010, while continuing to focus on entertainment choices that appeal to a younger and hipper crowd.

The Atlantic City Hilton is definitely trying new things as well. For example, its summer speaker series featured political stars. It started with Bill Clinton and will feature former Vice President Dick Cheney in September. The series has also created its share of media buzz. As one Philadelphia reporter put it, the names stick out “like a punk rock band at an Amish barn-raising.” It’s obviously a very different way, Frawley says, of looking at entertainment. “We thought of social awareness as entertainment, we thought of current events as entertainment, instead of what you would traditionally think of what the entertainment in Atlantic City or even Las Vegas would offer,” he notes.

So far, Frawley says the speaker series is a hit, noting that he’s “very happy with response from non-gaming community, as well as the gaming community.” He won’t give details on any similar offerings in the future, only saying, “When we look at public figures, I don’t think it’s necessarily limited to politics, that’s all I can say now. There will be more unique entertainment opportunities to look forward to.”

Weinert points out that Harrah’s has also been on the front line in pushing Atlantic City in a different direction. He says the company has realized there is tremendous potential growth in conventions, entertainment, rooms and nightlife, and it is putting a lot of study, analysis and spending into pulling people into Atlantic City again. “If they just want to go gamble for an hour or two, people can do that closer to home,” he explains.

Weinert says one project, which is currently being worked on slowly, will be an important one to watch. That is Revel, a $2.5 billion casino currently under construction that Spectrum Gaming Group has worked with. The project, however, still needs a billion dollars of funding to reach completion. “It’s been tough sledding to convince someone to invest that kind of money in a market where the revenues are declining,” Weinert says. “We believe that Revel’s completion could be a turning point for Atlantic City to start boosting its revenues again.”
According to the state, the project’s size of more than 6 million square feet will make it the largest single property in New Jersey. Once completed, Revel will provide more than 5,500 jobs.

This desire to create a new and different Atlantic City is clearly seen in Gov. Chris Christie’s recent announcements of support for recommendations made by the New Jersey Gaming, Sports and Entertainment Advisory Commission. It calls for many things, including making Atlantic City clean and safe, as well as the creation of a master plan for a new tourism district focused on enticing new entrants to the market to build both gaming and non-gaming attractions—both by July 1, 2011.

Juliano says, “This is the economic energy to drive growth in south Jersey, and until it gets healthy again, people who are suppliers, or all of our vendors, their businesses aren’t going to grow in this area without us growing.”

The proposal has been criticized for being too vague, too late and for calling for a takeover of the city by the state government. But Juliano says the critics are off base and incorrect. He finds it hard to pinpoint any negative aspects of the governor’s proposal and is very pleased with what he’s heard so far “because you’ve got the chief executive of the state who has taken an active role and is making a commitment to make sure Atlantic City succeeds.” Juliano especially likes the governor’s stance against allowing gaming anywhere outside of Atlantic City.

Frawley agrees, noting that the governor has taken suggestions from the industry and the tourism side and put them to use. “I hope that all of it comes about. I think it will be good for the state, good for Atlantic City,” he says.

Frawley also points out that the governor’s plans would be great for the number of Atlantic City jobs, which the state says are down to 38,000 from 50,000.

The American Gaming Association (AGA) also supports the governor’s proposal. Frank Fahrenkopf Jr., president of the AGA, says the industry has always been and will continue to be committed to Atlantic City: “We applaud the governor’s efforts to boost tourism and visitation to all of the area’s attractions, including our casinos. We will be watching closely as the state legislature addresses Gov. Christie’s proposals in the weeks and months ahead.”

The specifics of the governor’s plans are missing, and appropriately so, says Juliano. “You can’t unveil a plan that is anything more than conceptual at the beginning,” he explains. “Now the challenge will be to get everyone to buy off on it, and then after that you go into the implementation.”

Weinert says the devil is in the details: “If this is executed as envisioned, it could be a watershed action that propels Atlantic City forward again.”

CANJ will participate in summits, hearings and more as the process continues. Juliano looks forward to the gaming industry having a constant seat at the table as plans are put together. Many are waiting to see how the entire proposal will evolve. Weinert explains, “This being Atlantic City and this being New Jersey, nothing is easy and, you know, the product as envisioned now is highly unlikely to be the end product.”

As far as media reports calling the governor’s plans a state “takeover” of Atlantic City, Juliano and Weinert say they are just plain wrong. Juliano believes the proposal calls for a true partnership in which the gaming industry will be involved in ways including managing marketing plans, helping the convention center and assisting in planning for infrastructure projects. “Everyone is trying to avoid the word ‘takeover,’” he says. “We really see it as a partnership between state, city and the industry. I think the city has embraced it and welcomed helped from the state and we certainly have in the industry.”

Weinert says the state will obviously have a heavy hand in certain aspects of the city, but this is by no means the state kicking out city government or coming in and taking over the city.

The governor’s proposal also calls for downsizing racing in order to save it. The state’s report dismisses the concept of having video lottery terminals at racetracks and calls for horse racing to support itself. The president of the Standardbred Breeders & Owners Association of New Jersey (SBOANJ) says, on the group’s website, “We have a battle to fight, and both the Thoroughbred horsemen and the Standardbred horsemen are united in this battle.”

The SBOANJ is organizing buses to get people to hearings on the proposal.

So, is it too late for the state to step in and help Atlantic City? According to Juliano, “It’s never too late for anything.”

Weinert adds, “That’s nonsense. Atlantic City is not going to be what it was, but that doesn’t mean it can’t be better, and that’s not saying it can’t be different. There’s going to be a different Atlantic City going forward.”

Weinert does not expect Atlantic City to reach its peak revenue in the foreseeable future. However, he believes, “If Atlantic City can grow its gaming revenue even modestly, but grow its non-gaming to the same proportion of the Las Vegas Strip, this town is going to be rocking and rolling.”

Frawley adds, “There’s a lot at stake here, and it’s very obvious that we can’t continue the way we have been without being aggressive.”

So, watch for more to come from Atlantic City. Politicians will undoubtedly be discussing the governor’s proposals, and the industry will have a seat at the table. As Juliano puts it, “There are a lot of us who have been around for a long time, and we’ve got a lot of sweat equity invested in Atlantic City. We’re just not going to let it fail.”

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