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.

According to thestreet.com, the Trumps (Donald and Ivana) have reached a deal with Trump Entertainment Resorts bondholders to halt their efforts to take over the company and drop litigation against the bondholders.  The Trumps will end up with a 10% stake in the company, with bondholders somehow coming up with $225 million to purchase the company outright.  That will make two deals to transfer ownership of Atlantic City casinos (four in total) within the week, with Resorts' mortgage holder just receiving clearance from the New Jersey Casino Control Commission to by Resorts a few days ago.

I hope this deal passes the due diligence of the NJCCC for the sake of stability for TER, its employees, and Atlantic City's entire gaming industry.  Though the Trump casinos are hurting along with everybody else in AC, like Borgata and Harrah's, Trump Taj Mahal hasn't been doing so horribly (probably from the upscale injection provided by the Chairman's Tower, completed Aug. 2008).  The big question is: do the bondholders really have the capital?  How much of it will be leveraged and what is the basis for that leverage?  Depending on the answers, the deal could raise red flags with commissioners, who should be very skeptical at this point  of highly-leveraged proposals.

Finally- - as I wrote in this earlier this year-  never count Donald Trump out entirely in Atlantic City gaming.  He's come back multiple times when appearing to be down and out in AC gaming: going back to 1984, when Harrah's pulled out of the development that eventually became Trump Plaza.  As I reflected here in February, there's a long, interesting, complex relationship between Trump and the Atlantic City community: personal, financial, professional and emotional.  Given the right financial climate, personal circumstances, deal, etc. -- easy for me to see a major Trump AC play in the future. 

Via the New York Times, AP is reporting that Donald Trump is buying back all three Trump Entertainment casinos in Atlantic City for $100 million cash.  In effect, he's buying back the company he gradually left following the 2005 bankruptcy and pulled out altogether earlier this year.  And he's doing so for quite a bargain price -- a very good deal.

But will there be enough money to invest to really compete against the big boys down the block in the marina district: Borgata & Harrah's?  Trump Taj Mahal has been over-achieving in gaming revenue since the Chairman's Tower opened up last year, but can it keep holding on?  Or, will  the famous deal-maker swing another deal & sell the properties to an investor with different ideas?  (probably with a good profit)  If nothing else, this brings a little much-needed excitement to Atlantic City gaming perhaps some hope to the Trump gaming folks, downtrodden for so long. 

Update 1: From the Press of Atlantic City's stellar Donald Wittkowski, this is far from a done deal.  The bondholders are going to battle it out in bankruptcy court and ultimately, the judge will decide after a legal process that could take months.  In the meantime, Trump is declaring that he will bring in much-needed capital to revive the Trump casinos and generally lead the town's comeback. 

This is none too surprising -- as I've written before, with Trump and Atlantic City, there's a personal connection that's deep, and somewhat intangible.  Even when he stepped out in February, I thought his AC obit was probably premature, as I wrote then.  This is certainly an interesting chapter in AC's turbulent gaming story.

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.

Now it's official according to the Press of Atlantic City, Trump Enterainment Repsorts has filed for bankruptcy, for the third time. This included the divorce of Trump himself from the company that currently bears his name.  Now, the bondholders will hope to recoup some of the money due them via bankruptcy court. 

According to the filing, the company has $1.74 billion in debt, compared to $2.06 in assets-- a balance sheet better than I actually expected.  I wonder how much of the assets are in physical property: real estate, developments, etc. & could this mean a major fire sale of everything Trump in AC in the near future?   We'll see.   Another big question is the name itself and the ultimate fate of "Trump" as the name of the company and on the three AC casinos.  

I don't know all the details yet, but this appears to be very different from the 2005 "pre-packaged" filing, in which a negotation took place ahead of time in large part to satisfy the NJ Casino Control Commission's concerns about the company's financial viability and plans for future competitiveness within the industry.   Of course, 2009 is far different from 2005 for Alantic City's gaming industry and its prospects. 

This should lead the NJCCC to act soon about the Trump license, though I think the commission will mainly take its lead from the bankruptcy court at this point to mimize disruption to the industry.  The commission has to be concerned about TER's employees and the potential downside for shuttering one or more of the casinos to the industry as a whole, and to the city and region.  This is different from the Tropicana's situation, where the commission yanked the license and then the company filed for bankruptcy.  I'm also curious as to how this may impact the suit filed by Trump in Pennsylvania to halt the development of the Philly casinos.   

This will likely impact the sale of Trump Marina for the purposes of developing a 'Margaritaville' casino there.  On the positive side, Trump Taj Mahal has been out-performing since the opening of the 'Chairman' tower last September and therefore represents an attractive prospect for a potential buyer, though the gaming floor needs updating, for sure. 

This Valentine's weekend brings news of a major casino divorce.  Donald Trump has resigned from the Trump Entertainment Resorts' (TER) board of directors, according to BusinessWeek.  He issued a lengthy press release explaining his decision that took some hard shots at TER's bondholders and current management, explained the disconnect between his global real estate development firm (Trump Organization) and TER, noted the overall decline in AC, and reported that his daughter Ivanka is also resigning from the board.

Could this be the end of the Trump story in Atlantic City?  What about the use of his name (i.e. Trump Taj Mahal, Trump Plaza, Trump Marina)?  Trump noted that the company still has the current rights to "use the name Trump for limited purposes" but left it at that.  I suspect that may change soon.  He also told a reporter that he's taking action to change this & that “I don’t like that my name is still going to be on it.”

The last part of Trump's statement leaves open the possibility that he may jump back into the industry at some point -- I think displaying his attachment to a place where he truly made a mark and has been identified with him for 25 years: 

These are very tough times in Atlantic City. Almost every company is in serious financial trouble. Despite this, I will be watching closely and at some point in the future, I hope to return. I have many friends in Atlantic City and have great respect for the Casino Control Commission and other representatives of the State of New Jersey. Even though I am relinquishing my position on the Board of Directors, I remain very concerned about Trump Entertainment Resorts. I will give strong consideration to saving what was once a great casino hotel operation that bore my name. But unfortunately it is clear that I will have to work from the outside — the existing bondholder control will not permit a brighter future.”

 For those following the ongoing discussions involving TER and its bondholders over the delinquent interest payment, this isn't too much of a shock: the bondholders have been pressing to have him removed for a while.  Sounds like he just took the action himself in a pro-active move that gives him control over the situation. That's understandable. But this is bigger than a financial decision for everyone involved, including long-time Trump employees in AC, and the community itself.  As I wrote about in Gambling on the American Dream, Trump has always had a colorful, brash, controversial, yet dedicated relationship to the city and its casino industry.   The potential ending of this relationship is a notable point in the history of the region's casino years.  

In another way, there's also a certain symbolism to it -- 2008 felt like the ending of something in Atlantic City and this news about Trump affirms that perception.  I'm not talking about the ending of the casino industry there-- that's definitely not happening, despite the decline -- but the ending of a certain aura surrounding the industry and the forced recognition that times have changed dramatically for the seaside casino resort. Significant shifts are necessary just to survive and compete in the new competitive circumstances.  So Borgata and Harrah's both shifted gaming strategy (to positive effect as I blogged here & here), while others are still figuring out how to adapt or are just treading water, barely hanging on (see Resorts, etc.). 

But just as Steve Wynn never seems to be able to completely disconnect from Atlantic City, Trump's statement indicates that he, too, isn't closing the door forever.   As well, this story is certainly not without precedent in business history.   For example --  see the Ted Turner divorce from CNN.  As a historian and scholar of Atlantic City for 8 years now, I've discovered this interesting quality about the place: people just have a hard time disconnecting from it, no matter how bad the experience.  It has a certain ramshackle-chic, paradoxical nature that is both heartbreaking and alluring. 

Businesses are run by people.   They reflect human culture with all its optimism, turbulence, opportunity and loss.  So, more than a business story - the news of Trump's separation from the casino venture he began is a human story, and not just for the principals: it is a human story that reflects, affects and illustrates a community's dreams, desires, achievements and failures. 

A few days ago, SugarHouse filed a court motion to force the city of Philadelphia to deal with its permit requests, claiming that Philly officials have "egregiously refused to process applications and issue permits required for the timely development of the SugarHouse casino."  The casino had a year from the PA Gaming Board beginning Jan. 11, 2008 to have 1,500 slot machines up and running, but had to file an extension.  According to the Inquirer, Bluhm and Nutter then had a brief telephone exchange over the matter.  Later, Nutter told the Inquirer that the suit represented "a complete affront to any level of a decent business relationship,"

The relationship between the current admininstration and SugarHouse got off to a rocky start in January 2008 when the Nutter administration revoked SugarHouse's previously-gained rights to develop on the Delaware river.    The PA Supreme Court reversed that reversal later in the year and things looked sweet for SugarH for a while leading up to this latest chapter in Philly's never-ending casino saga.  According to the Inquirer piece, Nutter was especially mad because Gov. Ed Rendell was about to have a sit-down involving himself, the mayor, legislators, SugarHouse principals, and investors.  Not complicated enough?  Faithful GA readers know that Trump Entertainment filed a new lawsuit last month to block the Philly casino projects on claims of bias and an equal protection violation in the PA licensure process.    

If the sit-down was really imminent, then the mayor may have a point although his previous hostility to the project appears to be well-known and that would help to justify SugarHouse's impatience.  Sounds like Bluhm and company have just had it with all the delays.  Yet, I can easily understand Nutter's difficult spot, given the vocal and prominent movement amongst some of his constituents to block waterfront casinos. 

Regardless of who may be right in this contretemps, the lesson is once again made clear: casino development is very unique and requires close collaboration between local residents, politicians and the gaming industry.   One day, this Philadelphia story will finally be over and the city will likely have two thriving casinos.  In the meantime, this is a very interesting scenario to follow and learn from.