When a state's major industry has fared so poorly over a long stretch, there's bound to be calls in the capitol for some kind of regulatory overhaul.  Atlantic City gaming is no exception - and the industry has been stagnant or in decline now for over three years: before the 'Great Recession' began.  New and increased competition from Pennsylvania and New York (possibly Delaware & West Virginia too) is the most obvious source of AC's industry troubles, beyond the impact of the recession.  But are there structural problems endemic to New Jersey's regulatory system (i.e. the NJ Casino Control Commission's functions) also to blame for gaming industry problems in AC?

That's a question now posed by New Jersey's Senate President, Steve Sweeney (D-near Philly), according to yesterday's Press of Atlantic City article. Specifically, Sweeney's concerned that the CCC hasn't done adequate due diligence in overseeing the finances of the gaming industry, most notably the bankruptcy sale of the Tropicana to the Carl Icahn-led investor group:

"You have $1 billion casinos that are being sold for hundreds of millions," Sweeney said, an apparent reference to the much-delayed sale of the Tropicana Casino and Resort. A group of buyers led by billionaire investor Carl C. Icahn, who holds Tropicana's $1.4 billion mortgage, have agreed to buy the casino for $200 million.

According to the Press, Sweeney has two pressing issues: 1-a review of regulations involving license restriction in place to prevent over-consolidation, and 2-over-leveraged casinos.  Of course, both these issues have a long history in Atlantic City, dating back to the 1980s, when Donald Trump's moves led to lots of concern over one individual or entity having too much control within the town. 

Here's Sweeney on the first point:

"The first is the proportion of the Atlantic City gaming market controlled by individual casino licensees," he says. "Given the dynamic of competition from gaming in other states, and the resultant impact on all of New Jersey's casinos, it seems prudent to take a fresh look at the concentration of ownership within Atlantic City."

He continues, "The Casino Control Commission's authority to limit potentially undue economic concentration should be re-examined to ensure the public and stakeholders are properly protected."

What?  Is he concerned about too much "concentration of ownership" or too little?  This is very cryptic.  Since the Bally's-Caesar's merger (@1999) and Harrah's-Park Place transaction (@2005), Atlantic City gaming has been all about concentration, but its (arguably) best  property since 2003  -- Borgata- is a lone wolf in town.  Aside from problems highlighted above, Harrah's consolidated operations - @40-45% of the AC gaming industry - have done well via cross-marketing and efficiencies gained in administration.  So, I really don't get where Sweeney is coming from on this point.  From my perspective, market consolidation and market individuality both provide models with some success: Atlantic City's gaming industry problems are clearly elsewhere.

That gets us to Sweeney's second big concern: leveraged casinos.  The history here dates back 20+ years when some of AC's biggest players were significantly over-leveraged in the late 1980s and consequently caught up in the high interest junk bond mess that beset the capital markets of the day: the sub-prime, credit-default-swap scandal of that era.  Here, I think Sweeney's points are more relevant,  mainly for his larger concern that financial maneuvers and have a broad community impact:

"We all recognize the utilization of debt is critical for capital construction," he states. "However, the use of borrowing for leveraged buyouts, shareholder payouts and the like creates a significant financial benefit for individuals involved in the transactions but also creates additional risk - not just financial risk for the involved casinos, but also risk for casino employees, Atlantic City residents and state programs supported by casino revenues."

This is a more coherent statement: reckless over-leveraged gaming development can lead to major problems and a drive to reduce debt from shareholders and bondholders that can override all other concerns.  Sweeney's concern also reflects a long-standing mentality in Atlantic City that gaming is a community project: it isn't all about the bottom line for the companies involved. Makes sense that this mentality is still in place, given the origins of Atlantic City gaming in the 1970s with its enduring justification: "urban revitalization."  But is it unrealistic to maintain this concept in the touch, ultra-competitive mid-Atlantic gaming marketplace of the 2010s?  Maybe so.  If so, what does that mean for the city and surrounding 'burbs: so dependent on a single industry? 

*note: Apparently, incoming Gov. Christie is about to convene some kind of commission or group to thoroughly investigate various New Jersey entertainment and sports-based industries, including gaming - from a radio report heard on WHYY-Philadelphia (3 Feb 2010).

 Update 1: Christie did, in fact, announce the commission,  saying that that the Meadowlands complex is significantly underused.  The commission will meet until June 30, and will likely deal with a heated debate between the casinos and racetracks over placing VLTs at the tracks.  Nobody from the casino industry is on the seven person commission, but three sports people are, including former major league pitcher Al Leiter.

Indeed - Revel Entertainment has formed a tri-company partnership with Tishman (New York), and the China State Construction Engineering Corp (CSCEC) to finish building the above casino.   Delayed at least a year due to the loss of its financing, Revel has been scrambling to finish the project & this is welcome news for Atlantic City: needing some juice to sustain its primary only industry and significant employer.

The project still requires approximately  $1.7 billion in financing and there's still a lack of clarity on exactly where this capital will come from.  CSCEC will have a 51% stake in the new "general contracting consortium" and it apparently has a strong track record with major development projects in China, including Beijing's National Aquatics Center (Olympics venue, I believe) & the Shanghai Financial Center. 

Good news that there's an apparently solid global developer behind Revel now, though some ambiguity as to where the money will still come from, and what the 51% stake means, once construction is finished and Revel opens in 2011.  Coincidentally (or not?), CSCEC just raised $7.3 billion in a July IPO.  CSCEC is also state-owned, raising a legitimate question as to its independence: to what extent will the Chinese government actually control this project?

I love this quote from CSCEC's website, according to the Press of Atlantic City's article on this:

Under the guidance of the reform and opening-up policy of the Party and government, with correct leadership of higher authority and warm assistance of all sectors of society, and through hard work of the leaders and staff for decades, CSCEC has become the largest construction enterprise and the largest international contractor in China.

Gaming is global, not American and increasingly the biggest American gaming resorts find themselves dependent on Asia: Macau revenues, capital, etc.  Its the investment that's important here  -- not the politics -- that's what Atlantic City needs right now. 

There were no Atlantic City officials implicated in yesterday's big corruption bust.  Wow -- a big, state-level political corruption crackdown and it doesn't include anyone in Atlantic City -- cause for some Friday celebration...

Atlantic City is a union town in a union-friendly state.  For the gaming industry, that means a long history of close collaboration and intermittent conflict with organized labor, especially the powerful service union, UNITE HERE Local 54.  The two most notable break-downs of this collaboration took place in 1986 & 2004- both Local 54 strikes that disrupted Atlantic City gaming.  However, they were vastly different in tone: the short 1986 strike was characterized by mob violence and chaos.  The longer 2004 strike is known for peaceful, orderly protest and labor expression, but also a big victory for the industry in preventing contract collaboration between Local 54 and Las Vegas' culinary union, Local 226.

So here we are in 2009 and once again, there is significant labor-management conflict in Atlantic City.  This time, we have organized dealers and slot technicians (via the UAW) at four casinos threatening to strike and casino management taking a relatively hard line on contract negotiations.  Today's Press of Atlantic City has an editorial basically calling for everybody to get along for the sake of the community, hammered hard by the 'Great Recession' & regional competition.  It reads like a plea for survival.  From the editorial:

No one - no one - benefits from this labor dispute. Not casino workers. Not casinos. Not anyone who has a stake in the economy of the Atlantic City area. If a strike occurred, it could be devastating to a region that has already been battered by the recession and gambling competition. We urge both sides to weigh seriously the impact of this battle, to come together to resolve their differences and head off a job action. And we understand that will not be easy. The two sides seem very far apart, as they have for the past two years......Still, both sides in Atlantic City have a vested interest in seeing a resolution before this conflict escalates further. Those on the sidelines - which is just about everyone else in the greater Atlantic City region - are just hoping that resolution is reached soon.

There's a lot of logic to the editorial: of course both sides need to bridge their differences for the universal good: isn't that always the case in labor-management disputes of this magnitude?   But, in Atlantic City, the casino industry is more than an industry - it is also a trust, something of a partnership between business and the public.  It's always been such; that was the basis for the 1976 legalization referendum and the extensive regulatory and revenue system enacted in 1977 via the Casino Control Act.

Of course times change and over the years, the industry naturally migrated in the direction of business and and profit-making (never detached from the casino industry).  By the mid-2000s, the notion of the industry as public entity had a nostalgic ring to it, as I wrote about in Gambling on the American Dream.  As long as times were good and the jobs kept coming, then it was fine.  But then the good times ended dramatically in the late-2000s.  

So, what's the point?  The point is that the current labor-management conflict does have the potential to be even more disruptive, given the severe nature of today's Atlantic City economy and the Press is certainly right to ensure that everybody get past their differences for the sake of the resort's overall well-being.  But, how can this occur with both sides so squarely against each other and the battles already in court?  Here's where public leadership can really matter.  The situation presents an opportunity for public officials to step in to reach a solution, if possible, and sooner than later. 

This is kind of funny, from the Baltimore Sun:

Atlantic City's attractions are being rediscovered like delicate seashells emerging from the surf because tides are changing in the seaside resort. Thirty one years after Atlantic City was reborn as the East Coast's answer to Las Vegas, visitors no longer have to head for the Jersey shore town to gamble. They can do it closer to home, now that Pennsylvania and other nearby states also have legalized casino gambling. Operators of family-style attractions say they sense a growing spirit of cooperation from the big guys lining the Boardwalk's Casino Row and at the Marina. The emphasis has shifted from keeping visitors "captive" at slot machines and gaming tables to touting all kinds of activities and attractions to help keep them streaming into the city.

With all due respect to reporter Diane Stoneback, Atlantic City's other attractions -- as nifty as they are- won't do much to shift the resort's pull as the headline reads and the article suggests.  Atlantic City is an adult haven with some stuff for the kids, but nothing close to the myriad family beach resorts on the Jersey shore, in Delaware & Maryland.  And, the "shift in focus" is invisible to me from the city whose tourist bureau is still using the slogan "always turned on." 

Atlantic City's future prospects rely on reviving its downtrodden gaming industry  -- not in some make-believe shift from "slots to tots" as the headline reads.  Maybe the key to this is tying it to the beach (which no PA casino can do), but shifting focus to children is a real stretch.

Back in February, the Trumps (Donald and daughter Ivanka) both resigned from the board of Trump Entertainment Resorts, Inc. (TER) over a dispute with bondholders.  The company subsequently filed for bankruptcy again, though that probably would have happened regardless.  Then, he indicated that he would likely try to have his name removed from the company. 

However, I predicted at the time on GA that Trump's statement left open the possibility of his return in Atlantic City and now that's what appears to be happening.  In my view, Trump wasn't quite ready to stay away from the town so identified with him and which made him a star-casino mogul back in the 1980s.  Or, one could argue--he made the town - raising its casino profile considerably with his star power.  For a while in the late 1980s, Trump and then-wife Ivana were both major players in AC's casino industry and very good at elevating the Trump casino group's public profile via their own images.  Donald ran the whole thing & Ivana briefly managed Trump Castle (later Trump Marina).  

According to Bloomberg.com, Trump has now proposed a re-structuring plan  that would "return him as an owner" of the company.  The bankruptcy order gave exclusivity to Trump Entertainment's current management until August 3 for any debt restructuring.  Presumably, that means the bondholders can't come in with their own plan before then.  So, Trump may have the last word -- we'll see.  

In Atlantic City, the Trump casinos continue sliding -- but with Trump Taj Mahal a major bright spot.  The investment in the Chairman's Tower really appears to be paying off their, with the Taj running well above average this year in casino 'win', along with Harrah's and Borgata.  However, the company also took a big hit when the Margaritaville group pulled out of the deal to buy Trump Marina just a few weeks ago.

The details of Trump's plan to buy back TER will be interesting to see: a major question is what will become of Trump Marina?  I think there's still potential for the property given its location in the hottest area of AC right now: that can be leveraged to another buyer or by the company itself via investment and competition.  At any rate, Trump's potential return to Atlantic City is not surprising in the least.

This battle is really picking up, according to the Associated Press via the New York Times:

For months, some Atlantic City casinos sat silently while the United Auto Workers battered them with print, billboard and radio ads claiming the gambling houses are refusing to negotiate contracts with dealers and other workers. Now, the four casinos owned by Harrah's Entertainment Inc. are fighting back with a campaign of their own, using the woes of the automakers to hit the union where it hurts. Their message: ''Don't let the UAW turn Atlantic City into the next Detroit!''

That's an interesting message in the showdown that has beeing unfolding for two years now, since casino dealers first voted to unionize in Atlantic City.  We'll see if the change in presidential administrations may spur the NLRB into action on this.

Anyone watching Atlantic City's gaming decline over the past two years can't be too surprised by a new report out this morning on the potential impact of the Revel casino.  From the Press of Atlantic City's stellar Donald Wittkowski:  

Revel Entertainment Group's $2 billion megaresort may be the coup de grace for two or three of Atlantic City's weaker casinos if they aren't killed off even sooner by the recession, a new research report ominously predicts.

The report, authored by gaming analyst Joel H. Simkins, of Macquarie Securities, concludes that it may not be an entirely bad thing to lose smaller casinos that are stealing business from the healthier, major resort hotels.

"(The) closure of two or more facilities in Atlantic City would be positive by eliminating the low-end as well as the more parasitic casinos that force other operators to drive down their margins," Simkins wrote.

Hard to argue with these conclusions-- many have been predicting the shaking out of the AC market for a while now.  A few casinos have been barely hanging on, with double-digit revenue drops occurring regularly on a month-to-month basis and minimal upgrades. 

I agree with Simkins that losing some of the lower-end joints won't necessarily be bad for the long run for Atlantic City.  As well, the opening of a big, splashy new casino has historically forced both operators and regulators to invest and think creatively to maintain the local industry and keep it competitive.  This happened when Trump Taj Mahal opened in 1990, and even before Borgata opened in 2003. 

The meaner, leaner AC could already be taking shape now with Tropicana's bankruptcy steal to the Icahn group for $200 million and the persistent success of Borgata's, Trump Taj Mahal & Harrah's Atlantic City.  They've dropped revenue at much lesser rates this year and are poised via revenue stability -- with reputation, customer loyalty and niche marketing -- to take off when the economy really improves.  Unfortunately, the recent spike in gas prices is very bad news for AC -- before the Fall crash, the gas price spike of 2008 hurt business: hopefully that won't happen again this year.

Resorts Atlantic City is having a tough year, like most of the Atlantic City casinos.  Its casino "win" from January to April 2009 was down 25.3% from the same span in 2008 -- hit hard like most of the Atlantic City casinos by the 'Great Recession.'    So, the casino is trying something different.  Resorts has launched a casino version of Facebook or MySpace called myresortscasino.com, according to the Press of Atlantic City.

What makes this new website different from the existing casino websites?  From the article:

Rather than just going on a static Web page, customers at Resorts will be able to participate in forums and live chats, create online groups, post blogs and upload video. Kathleen McSweeney, senior vice president of marketing at Resorts, said this will allow guests to "virtually visit" the casino before they actually arrive in person.

"Myresortscasino.com is a site for sharing your experiences at Resorts, and for learning about other people's experiences," she said. "And there's no stronger way of advertising than true testimonial, word-of-mouth messaging. That's exactly what this site provides."

This has potential and I applaud Resorts' innovation, regardless of the outcome.  Resorts' needs to confront Borgata and Harrah's -- the emergent casino kings of Atlantic City-- by peeling off younger patrons who are attracted to those casinos' offerings like Harrah's new pool area and Borgata's chic rep.  There's also great potential for gaming researchers & commentators to utilize the material to capture gaming culture in America, @2009. The project also ties into Resorts' significant community ethos with regard to its employee-based operations, that I've previously posted about on GA.  Now that could extend to its customers in a more direct way.

Maybe this helps the grand old dame of Atlantic City gaming make it into the next phase of Atlantic City's casino era.  I also think it will be important for Resorts' management to have thick skins on this venture.  They should not impulsively censor and/or shut it down if there's lots of criticism on the site, unless that negativity becomes overwhelming and bleats out other discussion. GA will be tracking this development in coming months.

Last week, the Tropicana in Atlantic City finally found an owner: a group of investors led by Carl Icahn that had been the stalking horse bidder in its long-delayed bankruptcy auction.  The Icahn group acquired the Trop for $200 million in loan forgiveness- money owed the group by the casino.  This was a basement price for the property, which had been valued at $1 billion or so a year ago, and was almost acquired by Cordish for $575-700 million just last Fall.   There were no other bidders for the property.

What does this mean?  First, it means some resolution to the few thousand Trop employees who have been gamely keeping on with the business of running the casino through this ownership crisis.  Second, it means a small measure of stability returns to the Atlantic City gaming marketplace & economy, where the  Tropicana anchors the entire western end of the Boardwalk.  Third, the lack of interest -- even at such a low price - indicates continued problems for Atlantic City.  The fact that not one competitive bidder stepped up for a property that had fallen roughly 60-80% in value from a year ago demonstrates strong investor unwillingness to invest in Atlantic City gaming.

From a personal perspective, I'm glad to see the Trop situation resolved: for a year and a half its been troubling to have such an important property in AC subsist in financial limbo.  I also trust the Icahn group to run the property well.  Icahn didn't succeed at rescuing the Sands from its lengthy slide into casino oblivion on the Boardwalk between 1999 and 2006, but he did invest in the property and creatively pioneered various promotions (such as free parking & the Swingers Lounge)  before giving up and selling out to Pinnacle -- which was a savvy financial move.  

So, this news is kind of like finding out that your house finally sold and you can move on, even if you haven't made any money (or even lost) on the transaction.  At least its done & time for a new beginning at the Tropicana.  With its cool, faux old Havana hangout known as  'the Quarter' and prime Boardwalk spot, there's lots of potential there when the AC market picks up.  There's also a chance that parts of the Trop complex (3 hotel towers, a retail/restaurant mall & a 140,000 sq. foot casino floor) may be worth more than the sum of its various sections, and money could be made selling them off.