Atlantic City gambling in 2013

the current situation

In 2006, Atlantic City casinos “won” $6 billion from gamblers there.

National GDP that year was $13.9 trillion.  This year the figure will be around 20% higher.  Using this change as a(n admittedly very crude) gauge for what gambling win for the New Jersey shore resort in 2013, AC should take in $7 billion+.

In actuality, aggregate casino win will be closer to $3 billion.  …and even that 50% haircut from seven years ago may be too high.

How so?

By far the biggest reason is that similar lower-end gambling establishments have been legalized in neighboring states, notably in Pennsylvania.  Why drive when you can get your entertainment in newer venues in Philadelphia, Bethlehem or Mt. Pocono?

The profit situation in AC is in all likelihood worse than that (filings with the Casino Control Commission would show how bad things have gotten, but I haven’t looked).  For reasons best known in Trenton, the New Jersey state government offered $300 million+ in subsidies to persuade foolhardy entrepreneurs to add new capacity into a declining market by opening Revel in 2011.  Already through bankruptcy once, that casino is still up and running in its newest incarnation.  All Revel has done has been to force all casino operators to pay out larger incentives to lure customers in.

At least one more shoe may be about to drop.  Governor Cuomo of New York has been persuaded (thanks to the Lim family of Malaysia?) that his state, too, needs more non-Native American, non-racetrack casino gambling and has been pushing for legislative action in Albany for a while.

how Trenton is responding to the decline

…after the Revel disaster, that is.

–most important, it’s launching online gambling in the state.  Borgata is the first casino to have the service–customers need not be on the casino premises, but must be physically located in New Jersey while they’re online.

–the state has tried to offer sports betting in the casinos, but its thumbs-down to sports books years ago when Federal enabling legislation was being written closed the door to this possibility

–it’s trying to persuade United to service the AC airport, dangling better treatment in its Newark terminals as an incentive, and,

–newspaper reports a while ago suggest the Casino Control Commission has been asked to reconsider its ban of Ho family ownership of casinos (although unless a Ho-related entity were going to buy and refurbish/rebuild an existing casino, I don’t see any positives here).

success = slowing the AC decline?

That’s the best I think Trenton can hope for.

what catches my eye

As an analyst, what gets my attention is the combination of large amount of effort Trenton is exerting, with apparent lack of any forethought.  AC is clearly important to Trenton, but I wonder why there’s so little effective action.

From a stock market point of view, Borgata will soon be giving us some practical insight into the effect of online gambling on casino operations.  Does it bring in new customers (a clear positive)?  does it increase the amount existing customers gamble with Borgata (another positive)?   or does it mostly substitute for visits to the physical casino (presumably a negative)?