RPT-Fitch: NJ online gaming positive for some, but AC needs more

Tue Nov 26, 2013 3:49pm EST

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NEW YORK, November 26 (Fitch) On Tuesday Nov. 26, New Jersey became the most 
significant state to commence online gambling operations due to its sizable 
population and broader suite of available games compared to Nevada and Delaware.
Fitch Ratings believes this will be positive for market participants, but will 
not single-handedly turn around the Atlantic City casino market as its 
supply-demand imbalance remains. 

Initial revenue estimates by industry observers vary widely. We believe initial 
revenues will be hampered by the refusal of some credit card companies to 
process online gambling transactions.

Fitch forecasts roughly $200-$300 million in NJ online gambling revenues next 
year that may ramp up to $500-$750 million within several years, well below 
Governor Christie's public forecast of $1.2 billion.  

We believe notable winners will include the largest Atlantic City (AC) casino 
operators with the best brands and databases (Borgata and Caesars), European 
online gaming companies (bwin.party and 888), and U.S. gaming content and 
platform suppliers (IGT and Bally).  

Losers are likely to be those participants that are slower to market, have 
limited ability to invest or engage in promotional activity, have limited 
customer databases, and/or have weak land-based assets. These include Revel, 
Resorts and Atlantic Club, which recently filed for bankruptcy.  Prospects for 
mid tier participants such as Tropicana, Trump, and Golden Nugget are more 
variable and will ultimately be determined by the size of the market and 
execution.

The degree to which participants benefit will vary and is contingent upon a 
number of factors.  These factors include the various commercial agreements in 
place, the size and quality of customer databases, ownership structure of the 
relevant entities, the popularity and profitability of each website, and any 
cannibalization of land-based casino revenue.

Ultimately, there is the potential for up to 60 websites, with each of the 12 AC
casinos granted up to five websites each. There are 13 approved sites with full 
play options and another two approved for limited play options. We do not think 
the market will support 60 websites, so speed to market, branding initiatives, 
and promotional dollars will determine which ones become profitable. This will 
likely be determined over the next 1-2 years.  

Although some market participants will benefit, New Jersey online gambling is 
not going to be the savior of the AC casino market. In some ways, it will be 
detrimental because it has kept brick and mortar supply in the market when the 
level of demand dictates that some supply should be removed. Annual AC gaming 
revenues have declined from more than $5.0 billion in 2006 to roughly $2.8 
billion currently due largely to the development of neighboring markets, yet the
number of casinos has remained flat as Revel replaced Sands.

The prospect of online gaming has contributed to the supply-demand imbalance in 
AC as it maintained interest in online gaming licenses more so than physical 
casino assets. We think it is unlikely online gaming profits will be used to 
meaningfully reinvest in AC's land-based assets and that  some supply will shake
out over time.

We maintain an issuer default rating (IDR) of 'B-' with a Positive Rating 
Outlook on Marina District Finance Co. , which is the entity that owns Borgata 
and is a 50/50 joint venture of Boyd Gaming (IDR of 'B' with a Stable Rating 
Outlook) and MGM Resorts Intl (IDR of 'B' with a Positive Rating Outlook). We 
also maintain IDRs of 'CCC' with a Negative Rating Outlooks on both Caesars 
Entertainment Corp. and Caesars Entertainment Operating Co.   

Structural considerations will limit Borgata's credit benefits because its 
online gaming profits will be split among venture participants including MGM, 
Boyd Gaming, and bwin.party while Caesars' online gaming assets are held outside
of CEOC.

Contact: 

Michael Paladino CFA

Senior Director

Corporates

Fitch Ratings

+1 212 908-9113 

33 Whitehall Street

New York, NY

Kellie Geressy-Nilsen

Senior Director

Fitch Wire

+1 212 908-9123 

One State Street Plaza 

New York, NY 

Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: 
brian.bertsch@fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market 
commentary page. The original article, which may include hyperlinks to companies
and current ratings, can be accessed at www.fitchratings.com. All opinions 
expressed are those of Fitch Ratings.

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