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.

In my first post in this series, I noted that the two Pocono resorts were not dramatically impacted by the opening of Sands Bethlehem. In fact both Mohegan Sun and Mt. Airy were doing relatively well in the down economy of 2009 compared to 2008.  Today, I'm focusing on the two Philadelphia properties proximate to the Sands: Philadelphia Park and Harrah's Chester.

Both the Philadelphia area casinos are very lucrative, and neither has been too hardly in the Depression 2.0.  In fact, Philadelphia Park actually increased its gross revenue from FY 2008 to FY 2009, from $325.2 million to $356.3 million - a 9.6% jump.  Harrah's Chester saw a reduction in gross revenue from FY 2008 to FY 2009, from $332.8 million to $319.6 million - a 4% drop.  (Note: I'm using fiscal year for this analysis because that's how the revenue is tallied by the Pennsylvania Gaming Control Board.)

The June numbers (2008 & 2009) for these two casinos showed a similar trend: Philadelphia Park made more money in June 2009 than it did in June 2008.  In contrast, Harrah's Chester made less -- approximately the same decline that it registered for the entire fiscal year.  The following table shows the June-to-June comparison:

In all likelihood, both Philadelphia-area casinos were slightly impacted by the Sands Bethlehem opening, given that both under-performed in June 2009 compared to the overall FY 2009 performance. There's also a possibility that Harrah's business was impacted more by the Bethlehem Sands opening than Philadelphia Park.  But, why would that be, especially since Philadelphia Park is closer to the Sands?  One possibility is that more serious players likely to frequent Harrah's Chester with Harrah's fabled customer loyalty program were drawn to Sands Bethlehem on name recognition alone.  

However, the more universal explanation is that Sands Bethlehem's opening had a relatively minor impact on eastern PA gaming because it pulled entirely new players into the eastern PA gaming market from greater New York City.  Therefore, the data from the Philly-area casinos corroborates the data from the Pocono operators in making this case.  Taken together, the June-to-June analysis showed that their was still room to grow for eastern PA gaming -- that market saturation wasn't yet a factor.  It also shows how smart a choice it was to situate a casino in the Lehigh Valley: allowing Pennsylvania access to the lucrative New York gaming market.  

Lately, I've been reading a lot about table games in the mid-Atlantic, been asked about them by reporters, and otherwise been thinking about them.  So, today's posting is a brief run-down on current developments in some mid-Atlantic states and some commentary.  Here goes: 

• Delaware: a legislative committee has apparently reccommended them, pending a study result and there's a strong possibility that they could be up and running by January 2010.  The Delaware racinos already offer electronic table games.  
• Pennsylvania: There's strong momentum building for table games.  The Pennsylvania House's Gaming Oversight Committee is currently holding hearings on the prospect and the House's Democratic whip has introduced a legalization bill.  Republican leadership has also indicated support. A recent poll showed that Pennsylvanians support table games by a significant margin:  60% for them, 35% against them.  Pennsylvania casinos already offer electronic table games.
• West Virginia: Three racinos in West Virginia already have table games, but they do not include the successful Charles Town Races and Slots in Jefferson County (eastern panhandle).  However, that may change as local legislators are looking into a local referendum that may allow them, as approved in a West Virginia special session.  A legislator from Jefferson County also works at Charles Town Races and Slots, which probably helps her appreciate the coming competitive threat posed by Maryland slots.
• New York: New York's State Senate recently passed a bill allowing electronic table games at the state's eight racinos (presumably before the Senate's partisan squabble for control).  However, the House did not pass the bill before the Assembly adjourned on Monday.  But it probably doesn't matter, as there appear to be no legal obstacles to them regardless of legislation.  This means that operators can install electronic table games without formal legislative approval.
• Maryland: There's no official investigation, study, proposal, etc. that I'm aware of -- though there's been some discussion about them, as Delaware and Pennsylvania move forward.  Mainly, the governor wants to see the current process for establishing the VLT-only casinos unfold according to statute.  There's some ambiguity as to whether the Maryland gaming law would allow electronic table games. 

Everybody's responding to everybody else right now with regards to table games, with the notable exception of Maryland -- brand new to the mid-Atlantic gaming club.  Interstate competition and budget cuts are clearly driving the debate.  I generally don't like gaming arguments based on plugging a budget gap because of its variability.  I think it much better to envision additional revenue for programs instead & promote gaming as an economic engine and entertainment option.   

Lawmakers and industry people are certainly right to focus on table games as way to stay competitive in an increasingly competitive environment, assuming they have local support.  Atlantic City have been increasing their revenues from table games in recent years, with Borgata's success and impact on the town.   Data from the New Jersey Casino Control Commission showed that in May 2009, table games accounted for approximately 30% of casino "win" compared to 20% of casino "win" in May 2004. 

Whether or not the renewed popularity of table games will hold in time for the various mid-Atlantic states to benefit is, of course, not guaranteed.  However, I do think it is telling that both Harrah's & Borgata-- two casinos doing relatively well in the 'Great Recession'- have both employed a table games strategy for success (Borgata started earlier).  

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.

Not much of a surprise-- Atlantic City's profits & revenues were way down for the 1st quarter: a 16% overall drop in revenues, and whopping 38% profit decline.  All together, the Atlantic City casinos nearly tripled their 1st quarter operating loss from 2008, with net losses totaling @$95 million for the period.  The Great Recession continues to take its savage toll on the town. 

Some lowlights from the New Jersey Casino Control Commission's data:

• Tropicana -- still in ownership limbo - had a net income loss of $37 million
• the average room occupancy rate was a low 75.3%, with Resorts at barely 6i.3%
• Caesar's gross operating profit was practically cut in half -- a 49% drop from 2008
• Trump Marina's net loss increased from $4.7 million in the 1st quarter of 2008 to $16 million in the 1st quarter of 2009

On the upside, some casinos managed to stay above the fray  -- holding their own as leaders, even in this bleak environment. 

• Borgata's gross operating profit dropped just 16.6% to $47 million -- a healthy figure way above its close competitor (Harrah's Marina)
• Harrah's net revenue only declined 6.8% -- much lower than average (Borgata decline = 7%)
• Trump Taj Mahal managed a revenue drop of only 5%, though its profit decline was 18.7% --- still much less than the average
• Bally's net revenue declined a lot - 17.3%, but its profits were only down 14.3% -- suggesting improved efficiency

Superficially, the trends I identified in December seem to have held in early 2009.  Right now, there's tough head-to-head competition between Harrah's and Borgata as the go-to casino in Atlantic City, but both have managed to maintain relative prosperity in this depressed economy.  Soon, I'll be doing a more in-depth analysis of casino "win" figures to determine how things might be changing or staying the same in AC gaming. 

Today's Baltimore Sun has an interesting editorial cautioning Marylanders from making too much of Delaware's recent moves to expand gaming.  Basically, the paper says to relax --- to not make too much of it.  From the editorial:

Sports betting and table games are not the same thing as slot machines. Table games, in particular, cost more to play and appeal to a different, generally more affluent and educated clientele. In retrospect, it's peculiar that lawmakers in Annapolis never gave them serious thought during the slots debate. So what does Delaware's expansion mean for the future of Maryland slots? Here's the likely answer: not much.

Delaware has already proven that. The presence of Atlantic City casinos didn't keep Delaware's slots parlors from prospering over the years, and the distance from Arundel Mills to Delaware Park is roughly the same as Delaware Park to Atlantic City.

Slots players will play slots, and they'll no doubt prefer to stay close to home, whether that's Delaware or Maryland. Those who prefer table games or sports betting may eventually be headed to Delaware, but there isn't necessarily much overlap with the slots customers.

Where to start?  Generally, I agree-- Delaware's gamning expansion will certainly not kill Maryland slots.  I also agree that it was "peculiar" for the legislature not to consider table games & I actually encouraged the legislature to at least, think about adding them in a Sun op ed in 2008, and tried to make the point publicly in 2007 as well.  At the time, not many people were going there in Maryland: I think the legislature, media, etc. simply focused on slots and there wasn't much critical mass for full casinos.  However, Maryland residents have never actually had a chance to vote on them -- a significant point.  And, I'm not sure the question has been polled like the slots question , but it should be.

However, I also take issue with this editorial for the following reasons:

1-I do believe that expanded, full-scale casinos in Delaware with sports betting may very well attract some people otherwise headed to Maryland casinos-- especially the Cecil and Worcester slots-only, restricted properties close to Delaware.  Casino patrons often show up for the entire atmosphere, beyond simply gambling/  And the expansion and increased revenues will allow Delaware to create more attractive properties, install better restaurants, pubs, better shows, etc.  However, nothing beats convenience and closeness, so maybe these added amenities would not cut much into Maryland gaming business.

Recently, Atlantic City's Borgata has shifted towards more slots play after focusing so much on table games for a few years and yet, appears to be holding its upscale clientele.  Likewise, Atlantic City Harrah's has done the same thing in reverse: from slots to table games.  This demonstrates that yes, there can be crossover between slots and table games.  In fact, many gamblers will play both even if most people prefer one or the other.  Besides, a common gaming scenario is for couples to split up with one playing table games and the other slots: full-scale casinos obviously will appeal more to these couples.

2-If the legislature was "peculiar" in not considering table games in Maryland before, then why not do it now?  There's some logical inconsistency here.  But the point is that the legislature could minimally investigate the possibility.   I don't really know for sure whether it would be wise for Maryland to move in this direction, but some analysis and inquiry certainly makes sense.  As the Sun points out, table games players tend to be more affluent and educated.  Shouldn't Maryland go after these gamblers? I really do appreciate the argument that Maryland has a process in place and it is playing out.  However, I really don't think there's much substantive reason to at least look into the table games in the future --even if it would be a few years out.

Ultimately, this gets back to the point I make a lot: what's good for the nascent Maryland gaming industry will be good for the state.  The state has a strong interest in maximizing gaming revenue, and so will the gaming operators.  Therefore, everyone involve should do everything possible to allow Maryland casinos to compete in an increasingly competitive mid-Atlantic gaming environment.