ATLANTIC CITY — Since the introduction of casinos in 1978, the gaming industry in Atlantic City has constantly evolved and responded to both internal and external market factors. And 2020 will be no different.
Although no longer the East Coast casino monopoly it once was, Atlantic City demonstrated its resiliency in the latter part of the past decade by reporting four consecutive years of total revenue growth. In 2019, the industry showed what it is capable of by eclipsing the $3 billion threshold in annual gaming revenue for the first time since 2012.
The gaming industry will be tested in 2020, with major regulatory rulings and potential market disrupters on the horizon, each with the ability to dull recent successes. Conversely, the yet-to-be-realized apex of sports betting and online gaming, combined with the ongoing diversification of the resort’s economy, inspires confidence in Atlantic City’s future.
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1. Caesars/Eldorado merger
The multibillion-dollar merger of gaming giant Caesars Entertainment Corp. with lesser known Eldorado Resorts Inc. is expected to be finalized in 2020. Federal and state regulators still need to approve Eldorado’s $17.3 billion acquisition of Caesars, a merger that would result in the country’s largest gaming company with nearly 60 properties in 18 states.
In New Jersey, regulators will have to grapple with the question of whether the newly formed company would result in an undue economic concentration since it would control four of the nine operating Atlantic City casinos and hold deed restrictions on three other non-gambling hotels. In a joint petition submitted to the state Division of Gaming Enforcement last year, the gaming companies said an expert would be presenting evidence to suggest there would be no economic concentration.
Daniel Heneghan, an industry consultant and retired public information officer for the Casino Control Commission, said one area regulators will be looking at is operating efficiencies. Eldorado CEO Tom Reeg has already publicly stated the new gaming company — which will retain the Caesars name — is targeting nearly $500 million in “synergies” upon completion of the merger.
“Anytime you see mergers and consolidations within an industry, you get concerned about whether or not there will be contraction in terms of things like the number of employees,” Heneghan said. “It can be more profitable. And if it’s more profitable, how does that affect the people who work (there), the community in which (the company) operates and the overall industry itself?”
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2. Sports betting + online gaming = $
The popularity of legalized sports betting and the continued growth of online gaming boosted the casino industry’s reported revenue last year. Combined, the two forms of gaming accounted for nearly 18% of the industry’s total through the first 11 months of 2019.
More than $4 billion was wagered on sports in New Jersey last year, generating more than $111 million in revenue and $13.7 million in taxes. Meanwhile, internet gaming revenues increased nearly 61% through the first 11 months of 2019 over the same period in 2018 and generated just shy of $433.4 million, according to state gaming regulators.
The interesting angle to watch in 2020 is the blossoming connection between the two. In its first full year of being regulated and legal in New Jersey, experts say sports betting helped grow internet gaming in 2019, particularly since more than 80% of all sports wagers in New Jersey were placed online. That trend is likely to continue.
“Six years in, and it’s clear that online casinos have been a win across the board in New Jersey,” said Eric Ramsey, online gaming analyst for PlayNJ. “Not only do online casinos continue to increase revenue at a breathtaking pace, they have built a symbiotic relationship with online sports betting. Online sportsbooks and casinos are helping to fuel each other’s growth.”
3. Regional competition
Atlantic City has shown itself to be vulnerable to regional competition. As gaming and tourism options continue to expand in nearby jurisdictions in 2020, Atlantic City, experts say, must be prepared.
“The uptick in revenue this past year from product diversification has helped to stabilize this fragile market temporarily,” said Bob Ambrose, an industry consultant and adjunct professor of casino management. “On the horizon for 2020, the economic-competitive pressures continue from an already oversaturated northeastern market.”
Ambrose pointed to Philadelphia, where the 2 million-square-foot LIVE! Hotel & Casino is expected to open in 2020, as just one example of how Atlantic City “will have another ‘notch’ carved into some of that coveted drive-in-market less than an hour away.”
Sports betting, which is legal in 20 states and Washington D.C., will also continue to expand, both at retail casinos and online. At least nine more states are expected to legalize sports betting in 2020, and a handful of others could do so the following year.
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4. Diversification of industry
The push to diversify amenities and offerings for casino guests has been a focal point of the industry for several years because of the realization that gaming revenue alone cannot sustain the operations. Atlantic City has, slowly but surely, started to emulate Las Vegas, where nearly 70% of all revenue is generated from non-gaming amenities.
Rummy Pandit, executive director of the Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism at Stockton University, said continued diversification of Atlantic City is critical to the resort’s long-term stability.
In the third quarter of 2019, Pandit noted that 47% of revenue was generated through non-gaming offerings, up from 27% for all of 2017.
“I anticipate that number is going to continue to grow as Atlantic City books more meetings and conventions and other leisure market segments continue to expand,” he said. “The product is constantly being refreshed by operators, creating a buzz about Atlantic City. That is further strengthening our position as a destination resort and helps to differentiate us from other locations.”
Recently, some of the casinos have even begun to embrace entertainment, dining and retail options outside their own walls in an effort to showcase the city. Hard Rock Hotel & Casino Atlantic City, Resorts Casino Hotel and Ocean Casino Resort have partnered with select businesses near their area of the Boardwalk to form a collaborative promotional effort called North Beach Atlantic City.
5. Public/private partnerships
Atlantic City remains under state control as a result of the 2016 takeover. And while the casino industry’s host municipality has made strides toward improving its fiscal situation, much remains to be done to further entice economic development.
Michael Pollock, managing director of Spectrum Gaming Group, said the ongoing presence of the state could be an opportunity for the city, and by extension the casino industry, to realize its full capability.
“Atlantic City’s potential, I equate to the horizon — it’s always out there, you never reach it, but it never goes away,” he said. “Hopefully, 2020 is going to be different than in previous years.”
Pollock said he envisions what he characterized as an “unprecedented public-private partnership” as a catalyst for realizing that potential. With the resources available from the state, such as tax incentives, combined with the will of private investors, Atlantic City can, once again, be the preeminent East Coast gaming destination, he said.
The Atlantic City Executive Council, a quasi-policy making body formed from a recommendation in the state’s transition report that includes both public and private stakeholders, has laid the groundwork. But, more could be done, Pollock said.
“You’ve got the mechanism, you’ve got the will and now you just need to identify the plans and put them into practice,” he said. “Atlantic City shouldn’t always be in a position where it hits bottom before it bounces back. Atlantic City should be ahead of the curve and use the gains it’s made from both internet gaming and sports betting to focus on getting a return on invested capital in the city itself.”
What are the top Atlantic City casino stories from 2019?
1. Gaming revenues eclipse $3 billion
Total annual gaming revenue reported by Atlantic City casinos went over $3 billion in November. The last time gross gaming revenue in Atlantic City was more than $3 billion for a calendar year was in 2012, when there was 12 operational properties. Two gaming amenities that were not available six years ago — online casino and sports betting — accounted for $544.5, or 18%, of the reported annual revenue through November.
In 2018, total gaming revenue for the entire industry was just under $2.86 billion.
"AC is on a winning streak," said Casino Control Commission Chairman James T. Plousis. "2019 marked the fourth consecutive year of growth for the Atlantic City gaming market and I believe it is poised for continued positive results in the new year."
The $3 billion revenue benchmark was significant for the industry's host city as well because it means Atlantic City will receive $20 million more in 2020 as part of the payment in lieu of tax bill signed in 2016 at the onset of the state takeover.
2. A.C. through the eyes of the head honchos
Two top executives associated with Atlantic City casinos offered blunt, and rather bleak, assessments of the seaside resort.
Jim Allen, chairman of Hard Rock International and CEO of Seminole Gaming, told a trade magazine that he was "disappointed" in Atlantic City after the company spent more than $500 million to revamp the former Trump Taj Mahal Casino Resort and reopen the shuttered Boardwalk property as Hard Rock Hotel & Casino in 2018.
Allen, who cut his teeth in the industry working in Atlantic City during its heyday, added that he still saw many of the same problems today that were prevalent decades ago. Despite "promises" from state and local leaders that things would change, Allen said the city is in "worse shape today than it was two years ago," when Hard Rock was starting its Boardwalk project.
Golden Nugget Atlantic City owner Tilman Fertitta, whose property had the second-largest decline in revenue from slot and table games in 2019 due, in part, to the addition of Hard Rock and Ocean Casino Resort in mid-2018, said there were too many gambling parlors for all to be successful.
"It’s not a nine-casino market, and I don’t understand why nobody realizes that," the billionaire hospitality mogul said in September. Fetitta said the market was repeating the same mistake it did several years ago before outside competition and a national recession contributed to the closure of five casinos in two years.
"It’s a seven-casino market, and when it was seven casinos, everybody was putting money back into the properties," he said. "Now, they won’t."
3. Bruce Deifik, 1955-2019
While only a part of the Atlantic City casino scene for a brief period, Deifik's death on April 8 was still deeply felt throughout the industry. The man who took a gamble on the former Revel Casino Hotel to reopen it as Ocean Resort Casino (now Ocean Casino Resort) died while leaving a baseball game in his home state of Colorado.
He was 64 years old.
From the time Ocean opened until he left the property in early 2019, Deifik was the face of Ocean Resort. He was often seen on the casino floor interacting with guests and employees and his likeness was plastered on promotional gaming dollars called "Bruce's Bucks."
4. The ebb and flow of Ocean Casino Resort
The year started off with uncertainty for the mega-resort, as an ownership change in January was needed because of a lackluster seven-month stretch where the property lost more than $23 million, according to state gaming regulators. Luxor Capital Group, a New York-based hedge fund that had financed a significant portion of Deifik's $229 million investment, assumed control and changed top management.
After the state Division of Gaming Enforcement and the Casino Control Commission approved the change, Luxor immediately spent $70 million at Ocean, with $50 million being used to pay down outstanding debt obligations and the remainder being infused into the gaming side of operations toward promotional expenses to attract, and retain, core casino players.
The strategy appears to have paid off — at least in the short-term — as Ocean reported its first truly profitable three-month period in the third quarter of 2019. After bleeding red ink for much of 2018 and half of 2019, Ocean posted a $10.2 million gross operating profit for July, August and September.
5. Caesars and Eldorado Resorts merger
In a classic case of the minnow swallowing the whale, Reno-based Eldorado Resorts Inc. announced in July it would spend $17.3 billion in a cash and bond deal to acquire Caesars Entertainment Corp. The deal was approved by shareholders from both companies in November. If approved by federal and state regulators, the merger would create the United States’ largest owner and operator of gaming assets with nearly 60 properties in 18 states.
Both Eldorado, parent company of Tropicana Atlantic City, and Caesars Entertainment, operator of Bally’s Atlantic City, Caesars Atlantic City and Harrah’s Resort Atlantic City, are current casino license holders in New Jersey. In 2020, state gaming regulators will be tasked with determining whether the merger would create an "undue economic concentration," since the newly formed company, which will operate under the Caesars name, would control four of Atlantic City’s nine casino properties.
6. N.J. is challenging Las Vegas for sports betting supremacy
It only makes sense that New Jersey — who spearheaded the effort to overturn a federal sports betting ban outside of Nevada and paved the way for nationwide legalized wagering in 2018 — would challenge Las Vegas for the top spot throughout the United States. Since taking its first legal sports bet in 2018, gamblers have placed more than $5 billion in wagers in New Jersey. More than $4 billion has been wagered at New Jersey's casinos and racetracks and with mobile/online operators through November, according to state gaming regulators.
"Nevada is clearly in our sights," Gov. Phil Murphy said during a sports betting conference in April. "We can overtake it as early as next year."
Atlantic City's casinos and their mobile/online partners generated more than $111 million in revenue from sports betting and just shy of $13.7 million in taxes for state coffers in 2019.
"New Jersey sportsbooks will remain the chief beneficiary as long as neighboring New York refuses to legalize sports betting," said Dustin Gouker, lead analyst for PlayNJ.com. "New York City's 8 million residents continue to be a key ingredient that has propelled New Jersey into Nevada's chief rival as the country's largest legal sports betting market."
7. Online gaming continues to grow
The massive growth of online casino gaming is a bit of a blessing and a curse for Atlantic City casino operators. The $433.3 million in revenue it has generated through the first 11 months of 2019 has helped boost the bottom line for some operators, but significant portions of the income goes directly to third-party platform providers.
Despite the seemingly double-edged sword that is internet gaming, 2019 was, by far, the biggest year in online casino gaming for Atlantic City since it was legalized in 2013, both in terms of pure dollars and percentage growth. In 2019, online gaming increased 60.7% over the same period last year, a figure that is nearly double the next closest percentage increase (2016, 30.9%).
"Six years in, and it's clear that online casinos have been a win across the board in New Jersey," said Eric Ramsey, online gaming analyst for PlayNJ.com. "Not only do online casinos continue to increase revenue at a breathtaking pace, they have built a symbiotic relationship with online sports betting. Online sportsbooks and casinos are helping to fuel each other's growth."
8. What's going on with the three former casinos on the Boardwalk?
The individual fates of the former Atlantic Club Casino Hotel, the former Trump Plaza Hotel & Casino and Showboat Hotel Atlantic City were all part of the narrative of 2019.
Colosseo Atlantic City Inc., a New York-based investment firm, purchased the Atlantic Club site in October. The buyer stated the former gambling parlor would be operated as a non-casino hotel.
Showboat owner Bart Blatstein was deemed suitable to seek a casino license by state regulators in March. Blatstein told the Casino Control Commission he intends to circumvent an existing deed restriction on the Showboat that prevents it from operating as a casino by constructing a gaming facility on an adjoining land parcel. Blatstein has not yet been approved by regulators for a casino license.
The Trump Plaza remains vacant at the center of the Boardwalk. Local officials continue to refer to billionaire hedge-fund manager Carl Icahn's property as an "eyesore" in the heart of the city. In January, Icahn purchased the deed to the property and terminated a complicated lease agreement signed by President Donald Trump in the early 1980s. The move effectively eliminated a sticking point that would complicate a sale of the property.
9. Mr. Johnson goes to Trenton...twice
Jim Johnson, former special counsel to Gov. Phil Murphy for the Atlantic City transition, testified for a review of existing casino regulations before committees in both the Assembly and Senate. Johnson even brought in an economist affiliated with Rutgers University who detailed how any further expansion of the Atlantic City casino market could be trouble for existing operators.
In his 2018 report on Atlantic City, Johnson recommended that lawmakers and regulators consider modifying the current standards that govern the industry in the wake of increased regional competition and to prevent future collapses, such as the one seen between 2014-2016 when five Atlantic City casinos closed. While not endorsing any tangible options, Johnson's report suggested potential modifications to regulations, such as a limit on the number of available casino licenses or a cap on total market capacity.
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