First the good: Trump Entertainment has worked out a deal with bondholders to extend the deadline for its negotiations.  The bondholders want an interest payment that's past due on the company's $1.25 billion.  Yesterday, they negotiated a deal to keep talking.  That allowed the Trump group to avoid another bankruptcy re-organization.    

All right, it's not much, but the symbolism alone of another bankruptcy re-structuring would be another glancing blow to AC -- already somewhat punch drunk from the staggering bad news of the past four months.  Trump casinos and Atlantic City are linked in the public mind.  Salvaging the casinos without a re-organization and finally closing the deal with Coastal for the Trump Marina (future Margaritaville?) could provide a much-needed sliver of light amidst the darkness on the south Jersey shore. 

Now the bad: Penn National has officially declined an option to buy a 23-acre parcel along Route 30, where it had preliminary plans to develop a Borgata-like casino.  This comes as no surprise, but this particular piece of bad news out of AC seems to have a little more finality to it.  Sounds like the entire project is dead, in contrast to Pinnacle, MGM Mirage and Gateway, which technically just put their projects on hold.  Same with Revel, which slowed its project but not halted it.  

Yesterday someone passed me a link to this Philadelphia Daily News  piece which describes AC's late troubles.  Within the article, I found this important excerpt:

But New Jersey officials are willing to acknowledge that those in the public sector feel the casinos' pain. On Monday, a state Senate committee approved a bill co-sponsored by Whelan that would allow casinos to split the $11 million that has accumulated from unredeemed slot-machine tickets with the Casino Revenue Fund, which among other things bankrolls subsidies for senior-citizen prescriptions. "It's not going to pay the mortgage at Resorts or restore the jobs people have lost, but it will help a little bit," Whelan said, adding that other incremental measures would be considered in the future. The Casino Control Commission, which oversees the state's gambling industry, is partnering with the affected parties to lessen the impact of the crisis, commission spokesman Daniel Hennigan said.

The above excerpt from the article underlines the extent to which New Jersey's casinos have a substantial public component. They always have. From the time the referendum passed in 1976, the Atlantic City casinos have had a public mission and have been regulated via a unique public-private partnership. As I wrote about in Gambling on the American Dream, an AC casino employee testifying at a 1998 hearing for the National Gambling Impact Study commission inadvertently alluded to her employer (a casino) as the public sector.

Now, obviously casinos are private-sector operations typically and in business to make money, profits, maximize investor returns, etc.  However, the employee's slip had some logic to it-- in Atlantic City at least, they have always had a very public function and operated via a special trust between the state government, the public and private industry. Given this long-standing circumstance, some kind of state bail-out/support package makes sense and would be consistent with the history of the early casino era in Atlantic City.  As I posted last week,  the federal bill will have no support for the casino industry.  However, I think it makes sense for the state of New Jersey to come up with something if possible, given the history and importance of the casinos to the south Jersey economy -- including Cape May, Cumberland and Ocean counties. 

* Just for the record, the NJCCC spokesman referred to in the excerpt is Public Information Officer Daniel Heneghan (not "Hennigan") and he's been very helpful over the years to this researcher: a great asset at NJCCC.

Update 1 (2/12/09): Trump Entertainment and its bondholders agreed to another extension for the late interest payment (the fourth extension) .   Now, the company has until 9 AM next Tuesday (2/17/09) to make the payment.  According to the linked Press of Atlantic City piece, whilst both sides try to avoid a bankruptcy filing, some kind of pre-packaged re-organization similar to the 2005 event is looming larger.

I doubt many in gaming have any real expectations that the industry would receive any federal stimulus money to help struggling casinos.  But if anybody out there does have such expectations, your hope just died in the House.  According to CNN, Congress made sure to lump casinos in with zoos, golf courses, aquariums and swimming pools as places that are just not worthy of federal relief money. 

The stimulus bill now includes the following terminology (from the article on CNN.com):

"The purpose of this bill is to direct funding at projects that are primarily and clearly aimed at benefiting the economic conditions of communities and the public at large....The federal government and all other levels of government are directed to look with a skeptical eye at projects that don't meet that test."

Now, I'm not going to argue for federal funds to help casinos survive over direct funding for health care, education or necessary infrastructure.  Yet, I am critical of any position that automatically denies the real benefits of casinos to regional economies in the form of jobs, opportunities for local businesses (which provide jobs), and tax revenue.  In today's political climate, I don't expect Congress to do anything which seems to support legalized gambling.  However, the reality is that the industry is vital to the economic health of many Americans (probably in the millions).  Certainly, Americans living in greater Las Vegas, Atlantic City, Tunica County and Gulfport/Biloxi could testify to the positive multiplier effect of casino business. 

In that context, stimulus money for the casino industry would make some sense given its purpose: to support the American economy by helping average Americans make a living or keep their homes.  And, there's certainly an argument to make that the modern American gaming industry has been more responsible than the modern American banking industry or auto industry, both big recipients of taxpayer funds in direct relief.  Of course, not many people would include gaming as a staple sector that is too big to fail, as was the case with banks and Detroit's big three.  But, certainly it is an increasingly significant sector across the nation.

But alas, a stigma still exists with regard to gaming, thus making it politically untenable and therefore the object of specific exclusionary language in the federal stimulus bill.  I can't account for the bias against the other items other than golf courses.  Bias against them, I understand.  But aquariums and swimming pools?  My little girl loves these! 

In my view, there is some good news for the industry, for the casinos are lumped in with other recreational outlets in the exclusionary clause.  Perhaps this signals a federal recognition that they really do exist as recreational venues for the vast majority of their patrons, rather than smarmy houses of addiction.

Update 1:  According to this Press of Atlantic City article, Congressman Frank A. LoBiondo specifically tried to include support for the gaming industry in the stimulus bill, to no avail.  The article reports on the Revel's construction slowdown and layoff of 400 workers.  LoBiondo makes a good point with his question, as reported: "Why is a laid-off casino worker any less important, or their struggle any less severe, than a laid-off worker anywhere else?"  

Even as the Philadelphia casino situation remains murky, there's better news in western Pennsylvania for developer Neil Bluhm.  According to projections, by early August people will be able to celebrate the Steelers and gamble in downtown Pittsburgh when River Casino opens next to Heinz Field along the Ohio River.  So far there's been no permissions problems or legal headaches for Bluhm and his team, such as has been the case in Philadelphia. 

Tha article linked above also notes that casino executives are hoping to connect Steelers fans to the casinos: a Troy Palamalu slot machine perhaps?  At some level, it makes sense-- given the proximity of casino and stadium and lengthy tailgating: why not pop over for a little slots play before or after the game? 

The football-casino connection may also be realized in Baltimore, where the designated area for a slots casino is very near M&T Bank Stadium, home of the Ravens.  Perhaps the two rival AFC North cities will together pioneer "football gaming"  & maybe IGT, et. al. should be paying attention for slot machine/VLT designs of the future for these markets.  Of course, this would probably need NFL approval and who knows whether the league would go for it....

Today's Press of Atlantic City has an article that outlines the basics of a "rescue plan" for Atlantic City casinos.  According to reporter Donald Wittkowski, State Senator Jim Whelan and The Richard Stockton College will collaborate to provide help to the industry.  The college's Stockton Institute for Gaming Management will compile regional economic impact statistics to document the crisis.  Whelan may then use the data as a basis for new regulatory and/or legislative proposals to support the industry.  From today's article: 

The information we have here from Stockton shows that we ... can't sit here and twiddle our thumbs," he said of the urgency of the effort. Whelan ruled out the possibility of a tax cut for casinos, noting that New Jersey's state budget crisis would make that unrealistic. But he did say that some type of regulatory relief or new legislation would likely be major parts of the economic plan. One possibility is changing the regulations of the state Department of Environmental Protection and state Department of Community Affairs to stimulate construction projects and jobs, he said. "When we come back here in weeks, we will have some things we think are achievable," said Whelan, a former Atlantic City mayor.

I'm glad to read about local leaders (political, academic) stepping up to help out the people of south Jersey.   Many depend on the casinos for their jobs, business, tax revenues, cultural events and they will be gratified to see the state step up on their behalf.  To some extent, this reminds me of the situation in AC, @1991-92, when the industry similarly went through a downturn related to recession and the opening of Foxwoods in Connecticut, among other factors.  Then, industry leaders, politicians and regulators stepped up with substantial reforms and legislation that helped boost the industry for the rest of the 1990s through the mid-2000s.  

Then too, Whelan was a key player as Atlantic City's mayor along with Steve Perskie (then NJCCC Chairman) & state legislator William Gormley.  Representing the industry, Tom Carver, assorted casino executives and the New Jersey Casino Journal also played roles in enacting significant changes that helped sustain the industry's competitiveness at that time.  These included 24-hour gambling, regulatory streamlining and an innovative plan via CRDA that linked casino floor expansion to hotel room additions.  I covered this fully in Gambling on the American Dream. 

Of course, there are significant differences between then and now such as the explosion of regional and national competition that developed.  As well, this recession is significantly more severe than the one that earlier beset the industry.  The former crisis didn't include the virtual collapse of American investment banking and capital markets.  Nevertheless, history (easily misunderstood and abused, yet always illuminating) can and should factor into the current solution to today's troubles in Atlantic City.                  

Looks like the plans for the Atlantic City Margaritaville may include a water park on top of the roof, according to Chuck Darrow of the Philadelphia Daily News.  That would be fun-- something in Atlantic City to rival Vegas' Stratosphere amusement park.  I went on one the Stratosphere rides a few years ago whilst in Vegas.  Great concept, though not-so-great if your stomach turns when looking down from a high building...

On a heavier note, AC casinos laid off 2,125 employees last year, or about 5.2% of the casino workforce.  I haven't seen numbers from Las Vegas or Biloxi yet, but plan to do some research soon on this to compare the recession's effects on the three big gaming destination resorts in the US.  This would have a major ripple effect throughout south Jersey.  The number of multiplier-effect jobs from the AC casinos is hard to project and I've seen estimates of .5 jobs per full-time casino job to 1.5 jobs or higher -- depends on the source, typically, and circumstances surrounding the projection.   This Press of Atlantic City article projects a low-end multiplier (.5 of a non-casino job per 1 casino job), but still makes an important point on the significance of the cuts for a regional population that hovers just above 200,000 (coastal south Jersey). 

At any rate, 2008 was bad- 2009 still an open question: has the market bottomed out?  According to the article linked above, outgoing Borgata president Larry Mullin thinks it has-- but that doesn't necessarily mean revenue growth for the upcoming year.   I think this depends a lot on how well the Obama administration and Congress can reverse course on the economy, with a particular emphasis on reviving the housing market and maintaining reasonably low gas prices.

The casino gaming industry's 2008 troubles are well-known, but the state lotteries -- not so much.  Yesterday, I read this piece from the Wall Street Journal that detailed the lotteries' decline in revenue during this recession.  The declines aren't as sharp as in many casino locales.  However, according to an expert quoted in the article (John W. Kindt), this "is an unusual phenomenon" and that lottery sales often increase during downturns.  Apparently, bad economic times usually cause more people to seek quick economic fixes like winning the lottery. 

So how is this related to casino gaming, the raison d'être of this blog?  The article also makes the point that  other rasons for the decrease in lottery sales include "a lack of big jackpots in multistate games and increased competition from other lotteries and casinos for gamblers' dollars."  In my view, the decline in lottery sales also supports the point that  gambling is entertainment for the vast majority of gamblers-- it is a diversion and not a compulsion.  So, as people have less disposable income to spend on entertainment, they buy less lottery tickets and don't frequent casinos as much, or spend less when they do go to casinos.  Lottery proceeds and casino revenues would nary be impacted by economic downturn if the gambling industry were based primarily on compulsive behavior.  

The NY Times ran an interesting piece today about the Fernley Nugget and the casino smoking issue.  The Fernley Nugget is a northern Nevada casino that is smoke-free by choice.  Apparently, the brand new Nugget is doing well despite the recession, though it just opened on Nov. 5 - hence a little early to really gauge its success.  The Times described the Nugget's smoke-free policy as niche marketing:

 Advocates for smoke-free casinos are paying close attention to what happens in Fernley. But Scott Tate, general manager of the Nugget, which with only 10,000 square feet, 174 slots and 2 poker tables is dwarfed by the cavernous palaces of Reno and Las Vegas, makes clear that the ban here is all about business, not necessarily public health. Marketing research, he says, simply suggested an opening for smoke-free gambling. “We are not as a company taking a position to be smoke-free facilities going forward,” said Mr. Tate, who also oversees five other casinos in northern Nevada. “But this particular facility, in this particular market, in this particular location, we feel could be successful.”

The research-based consensus on casino smoking bans is relatively clear and I'm not debating that in this posting.  However, I do think that the Fernley example is interesting and possibly, a model for other gaming locales.  The Times article also mentions that Harrah's also operates a smoke-free casino (in Reno) amidst an otherwise smoky industry in Nevada.   

Given what's happened to gaming revenues after smoking bans go into effect, I can clearly understand the issues and reservations involved from an industry standpoint. But maybe this article provides an insight into an approach that could be applied elsewhere.  Mid-Atlantic residents from New York to Maryland have gotten used to smoke-free environments in bars and restaurants and many like the change, a lot.  Could one smoke-free casino in a multi-casino environment work in mid-Atlantic gaming markets?  Would this appeal to some players in the same way that Fernley (apparently) appeals to northern Californians?  

When the Philadelphia casinos are finally built, there will be four casinos/racinos operating in around the city - five if you include Delaware Park.  I wonder what would happen if one of them went smoke-free.  I know this is highly unlikely, but the results would be interesting to monitor: would non-smoking players in the Delaware Valley flock there over the other joints?  Or is the connection between smoking and gambling just too powerful to achieve real gaming success in the current casino culture?  My guess is that the answers to these questions may have to do with regional dynamics as much as anything.

From Lima, Peru:

(courtesy of Bubblepics - Lima, Peru:  http://limenhita.aminus3.com/)

As pointed out in my previous post in the series, total casino 'win' was down 7.8% in Atlantic City from Nov. '07 to Nov. '08.  With that context, I'm impressed that Borgata managed to keep its decrease to 2.9%.  Not as impressive as Harrah's increase, but still respectable in this tough climate for AC gaming.  Though Borgata made headlines a few months ago with its first-ever layoffs, the casino actually out-performed most of its competitors in a year-to-year comparison - at least in terms of casino 'win'.  So lets break down the numbers provided by the New Jersey Casino Control Commission, helpful as always.

Like Harrah's, Borgata's modest success stemmed from strategizing against type.  As Harrah's acheived its increased revenue from table games, Borgata offset the AC slowdown by increasing slots revenue.   Borgata increased its slots revenue by 3.2% in Nov. '08, the largest such increase of all the Atlantic City casinos.  In fact, Borgata was only one of two AC joints to increase slots revenue in this span & Harrah's increase was only .1% (though artfully done; see my previous post in this series).  In fact, Borgata's slots 'win' helped substantially to offset the casino's 12.4% decrease in table games 'win.'

An analysis of Borgata's slots formula showed that the casino increased its 'win' by adding more penny slot machines and making lots of money from them.  Between the two Novembers, Borgata increased its capacity of $.01 and $.02 machines by 33%, from 689 to 915.  The casino's enhanced penny slots sector won $9.4 million in Nov. '08, up from $6.5 million in Nov. '07 -- a 45% increase in the 'win.'  In Nov. '08, Borgata made over twice as much money from its penny slots than Harrah's and significantly more cash from these slots than any other casino in Atlantic City.  Its closest competitor in this category was Trump Taj Mahal, which made $7.4 million with more penny slots in operation (947).  By contrast, Bally's made $5.6 million from its penny slots in Nov. 08, even though it operated 988 of the machines-- somewhat more than Borgata.

Even more impressive, Borgata's 10.7% hold on penny slots tied Harrah's for the lowest in this category for Nov. 2008.  A penny slots hold increase of just 1 or 2% would have only brought it into alignment with the majority of AC casinos while increasing slots revenue even more.  The casino also added some "Multi-denominational" slots and made slightly more than $1 million more on them in Nov. '08, compared to Nov. '07.

The recent slots success at Borgata indicates that it is successfully appealing to traditional AC gamblers in addition to the upscale patrons that it is usually identified with.  It could also mean that Borgata's weekend hipsters have less disposable income but still want to have fun hanging out at the casino with the best image and slickest non-gaming attractions.  So, maybe they stretch their gambling dollars by playing penny slots rather than blackjack or craps.  This all gets back to the fact that the vast majority of casino patrons are in the casino to have fun through the whole casino experience: the post-Mirage Vegas formula for success, and the formula that Borgata has successfully transferred to Atlantic City. 

There is some irony that Borgata's gaming winnings have come increasingly from slots, given its leadership in the AC trend back towards table games over the past few years.  But, it is not surprising to me at all.  From the beginning, Borgata has had very effective gaming management and employed a careful strategy of employing Atlantic City veterans and others with solid expertise and backgrounds particularly catered to success in south Jersey.  They know how to evaluate Atlantic City's gaming culture, shift strategies as necessary and keep the gaming revenue flowing, even in hard times. 

Note: Of course I realize that a casino's overall well-being has to do with many factors besides the 'casino win.'  Finance, profitability, debt/asset ratio, local circumstances, EBITDA, etc. all play big roles & may very well be explored in later posts here at GA.

It's no secret that Pennsylvania gaming has not felt the sting of recession this year.  As this recent Phiadelphia Inquirer article points out, gaming revenues were up 13% from Nov. '07 to Nov. '08.  I generally agree with the views in the article, though I think the most important factor in PA's success is the proximity of her casinos to large populations.  If nothing else, PA's 2008 success in contrast to Atlantic City & Las Vegas has really demonstrated the power of non-destination casinos to survive (even thrive) weak economies.

I wonder if the success of Pennsylvania gaming this year led to the new lawsuit to force the PA Gaming Control Board to re-consider TrumpStreet's application for one of the Philly casinos?  As if the situation there isn't already interesting and complex: now we'll see if the Trump-led partnership (Keystone Redevelopment Partners) is able to get any traction with its argument that the GCB unfairly discriminated against Atlantic City-based firms.  SugarHouse people dismissed the suit as Trump's attempt to further delay the Philly casinos to help out his AC properties. 

On the subject of Philly casinos, I found this 'Philly Clout' blog post about a recent Wharton School forum on Foxwoods' Gallery East proposal.  A panel apparently delved into the topic of "environmental racism" and here's what ensued:

Grace Kao, director of the school's Asian American Studies Program, said that was a dangerous spot for a community she described as big on gambling. "The stereotype, unfortunately, of the Asian American gambler...is probably true," said Kao, who then struggled for an analogy to the casino location. "Like a bar in an Irish neighborhood," quipped former Inquirer columnist Tom Ferrick, who has written in favor of the two casinos proposed in the city. The academic crowd burst out in laughter. As long as we're stereotyping," added Mullin, whose firm works for Foxwoods, the casino considering the Gallery.

I love Ferrick's & Mullen's response to a clearly awkward point made by Kao (above quote) -- clever to demonstrate that a stereotype is a stereotype is a stereotype, even if it is used in some patronizing way in supposed support of the group in question.  At any rate, stereotyping is terrible justification for policy decisions, about gaming or anything else.