By Deepa Seetharaman - Analysis
NEW YORK (Reuters) - More than three decades after the opening of the first casino saved Atlantic City’s boardwalks, the seaside town once again finds itself in need of redemption.
But the odds are long a rebound will happen any time soon.
Two of the city’s 11 casinos — Trump Entertainment Resorts Inc TRMPQ.PK and Tropicana Entertainment LLC TRPET.UL — are in bankruptcy, while other highly touted construction projects have been shelved.
All the while, competing locations loaded with much-desired slot machines have cropped up in nearby states, sapping the wellspring of the city’s profits. Encroaching competition, coupled with weak consumer spending, has sent gaming revenues spiraling downward for the past three years. In the first five months of this year, revenue was off about 16 percent from a year ago.
“Atlantic City has had a perfect storm,” said Mark Giannantonio, president and chief operating officer of the Tropicana. “We enjoyed a monopoly that we no longer enjoy. The competition, if anything, is going to get more intense.”
Wall Street analysts have little enthusiasm for the overall casino industry and few believe Atlantic City can stage a comeback without a dramatic reinvention. Casino executives, many of whom have worked in the town’s casinos for decades, argue the city’s external offerings and locale are attractive, but also acknowledge that business is shaky.
“I think the problem we’re having now is that it’s difficult to convince companies already here to invest here,” said Mark Juliano, Trump Entertainment’s chief executive. “It takes a leap of faith that the town can make that transformation.”
Most experts say one solution is to add more rooms to draw convention and corporate business. But this requires a significant influx of capital to allow casinos to prepare for the eventual rebound in business travel — an expensive proposition in a credit-starved economy.
In a report released on Tuesday, Moody’s Investors Services expressed doubt an overhaul could even happen, saying the current strain on company finances could prevent the development of new projects to lure gamblers away from regional slot parlors.
All eyes are now on one partially built hotel on the boardwalk initiated by Revel Entertainment Group LLC. The project was meant to open in 2010, but financial troubles have delayed it indefinitely.
“Atlantic City is on the verge of a landscape change,” said Kim Townsend, who heads up Pinnacle Entertainment Inc’s PNK.N efforts to build a resort there, which stalled last year.
“Between now and then, other places are going to close.”
The opening of the Resorts Casino Hotel in 1978 revived interest in Atlantic City, a beach resort that had faded from its past glory after World War Two. Within two years, there were six casinos dotting the city and its famed boardwalk.
Gaming revenue grew steadily — until 2007. But regional competition has hurt that revenue, now in its third straight year of decline, according to the New Jersey Casino Control Commission.
Among the biggest threats is Las Vegas Sands Corp’s (LVS.N) latest venture in Bethlehem, Pennsylvania, which opened in May.
Many of these new attractions are slot parlors, a crucial source of revenue for Atlantic City. Year-to-date, Atlantic City’s slot machine revenues constitutes nearly 70 percent of total gaming revenue.
Giannantonio said prospects could improve by beefing up the boardwalk to include more high-end shops, restaurants and entertainment. Juliano added that a restaurant week in Atlantic City could trigger more demand.
“Nobody’s coming because of a T-shirt shop,” said Giannantonio. “That’s not attracting free business for Atlantic City.”
Analysts say the city’s casinos will benefit from the opening of new properties that will re-energize interest in the city, much like the 2003 opening of the Borgata did. The Borgata, a joint venture between Boyd Gaming Corp (BYD.N) and MGM Mirage (MGM.N), was the only casino to see an uptick in gaming revenue in May from a year ago.
Revel Entertainment’s project could be the next Borgata, but its delays have some concerned it could go the way of MGM Mirage or Pinnacle’s scrapped projects.
“We’re going to have to watch what we see from Revel,” said Nelson Johnson, a superior court judge in Atlantic City and author of “Boardwalk Empire,” a book that charts the city’s history.
“If they don’t get all their funding, it will be terribly embarrassing and terribly damaging to the town’s image.”
Reporting by Deepa Seetharaman; editing by Andre Grenon