February 26, 2010 / 6:01 PM / 9 years ago

Overhaul crucial to Atlantic City survival

NEW YORK (Reuters) - Just four years ago, Atlantic City was on top. It had record revenue, a packed boardwalk and was the undisputed gaming capital of the Eastern Seaboard.

Harrah's Entertainment CEO, Gary Loveman, speaks during the 2010 Reuters Travel and Leisure Summit in New York February 22, 2010. REUTERS/Lucas Jackson

But since then, the city has been dealt a bad hand by the economy and the growing number slot parlors popping up in places like Pennsylvania and Connecticut. Crowds are thinner and the casino floor buzz has waned. The city’s casinos pulled in $3.2 billion in revenue last year, a 25 percent drop since 2006.

Now Atlantic City’s survival hinges on a complete overhaul of the seaside city’s offerings, two casino executives said during the Reuters Travel and Leisure Summit this week.

“If we don’t do something to make it better, then it is going to continue to get more painful,” Harrah’s Entertainment Inc HAMLEH.UL Chief Executive Gary Loveman said. “There is no reason why we should sit by and let that happen.”

The latest threat is a planned partnership involving casino magnate Steve Wynn to open a three-story casino in Philadelphia — a market from which Atlantic City has traditionally drawn lots of business.

“That’s the last death blow in Atlantic City,” said Michael Leven, chief operating officer of Las Vegas Sands Corp (LVS.N), referring to Wynn’s latest move. “I have no idea what they’re going to do.”

Sands sold its Atlantic City casino to Pinnacle Entertainment PNK.N in 2006. Sands has since opened a casino in Bethlehem, Pennsylvania, which competes directly with Atlantic City casinos.

But Atlantic City could rebound with more marketing dollars, better entertainment and an overhaul of the city’s safety systems and infrastructure, said Loveman.

“The city of Las Vegas through the Convention & Visitors Bureau spends $300 million or more annually telling you what a great place Las Vegas is,” Loveman said. “The comparable Atlantic City number is about $8 million a year.”

Harrah’s has four casinos in Atlantic City — the most of any other casino operator — including Caesars and Bally’s. In January, two Harrah’s casinos saw an uptick in gaming revenue, while the boardwalk overall saw an 8.5 percent decline.

“We can collectively make the business much more attractive, but we have got a long way to go,” Loveman said.

SOME CASINOS COULD CLOSE -ANALYST

Slot machines are Atlantic City’s mainstay. Two-thirds of the city’s gaming revenue came from slots in January, according to the New Jersey Casino Control Commission.

This source of cash has ebbed in the past few years as casinos in Connecticut, Pennsylvania and New York crop up with their own slot machines that are often just a few minutes’ drive from Atlantic City’s core customers — Northeast suburbanites.

If Wynn Resorts Ltd (WYNN.O) builds a Philadelphia casino, it could lure even more tourists away from the city, Leven said. Another source of concern: the legalization of table games in Pennsylvania.

“Why would anybody drive down that highway?” Leven asked. “It’s an ugly highway anyway. Why would they drive down there?”

Loveman said he did not believe any of the hotel-casinos would close, but said some could change hands or “limp along.”

But other analysts and Atlantic City executives have said some of the weakest casinos could go belly-up as the market weakens. Four of the 11 hotel-casinos there are in some state of distress, according to Real Capital Analytics, which does not account for halted projects or those in construction.

“I’m not sure all of these casinos will find homes,” said CreditSights analyst Chris Snow. “I wouldn’t be surprised if two of the 11 don’t make it at all.”

Snow said the weakest hotel-casinos there were the AC Hilton, Resorts and the Trump Marina, which bankrupt casino operator Trump Entertainment Resorts TRMPQ.PK had tried to sell last year.

RUMBLE IN ATLANTIC CITY

Besides Harrah’s, the next-largest owner of casinos on the boardwalk is Trump Entertainment, which owns three casinos and is in its third bout in bankruptcy court.

Trump Entertainment is at the center of a testy battle between Donald Trump, the founder of the company, and billionaire investor Carl Icahn, who bought another Atlantic City property last year, Tropicana Entertainment.

Icahn’s involvement is a signal that he sees a rebound ahead for the city and a chance to make money, CreditSights’ Snow said. He added that the market could stabilize in two years.

“We have a new governor who has been very supportive of revitalization of AC,” Loveman said. “We need to make the boardwalk a very appealing leisure destination. We need to secure safety and cleanliness issues.”

“So there’s a lot to do there,” he said.

(For summit blog: blogs.reuters.com/summits/)

Reporting by Deepa Seetharaman, editing by Matthew Lewis

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