By Jerry GarnerSince gambling was first legalized in New Jersey in 1978, the casinos of Atlantic City have faced more than their fair share of obstacles. They have endured hurricanes, blizzards, and the collapse of a parking garage. Last year the casinos were even closed due to a State budget crisis, and more recently the city has been plagued by a serial killer targeting prostitutes. Despite all of this, gaming revenues at the casinos have always skyrocketed, increasing each year, until now.
Annual revenues for Atlantic City’s casinos is projected to decline in 2007, for the first time ever. A number of factors play into this expected decline in revenues. Atlantic City currently faces increased competition from slot parlors in neighboring states, such as Delaware and Pennsylvania, as well as the closing of one of the city’s casinos. It is also uncertain how much the new smoking ban will impact gaming revenues in Atlantic City.
Revenue figures released for the month of January are already down from 2006, triggering concerns that this could be the start of a trend that would carry forward through the rest of the year. If revenues do face a long-term decline, it would have negative consequences for both Atlantic City casinos and the State of New Jersey, which depends on taxes from casino revenues to support State budgets.
Carlos Tolosa, the Eastern Division President for Harrahs Entertainment said, “There will be an impact, no doubt. The Pennsylvania slots parlors will certainly cause competition. In the past, people just came to Atlantic City. That’s the part that always scares you. Atlantic City relies on high frequency customers.”
The new slot parlors in Pennsylvania have already begun to cut into Atlantic City’s casino revenues. Atlantic City went head-to-head against two new Philadelphia area slot parlors in January. Financial figures for this period showed Atlantic City’s overall revenues declining 2.9 percent from a year ago, with slot machine revenues specifically facing an even bigger 7.2 percent drop.
Philadelphia Park, located about 20 miles North of Philadelphia, opened it’s doors to the public on December 19. This was followed by the opening of Harrah’s Chester Casino and Racetrack on January 22. Both locations admitted that their target audience was comprised of customers who would have otherwise gone to Atlantic City.
While this may be bad news for Atlantic City Casinos and the taxes they generate for the State of New Jersey, it is not necessarily bad for the casino customers. Increased competition is generally good for consumers, and many industry insiders expect that the casinos will have to offer more financial incentives to keep players coming back. These incentives will likely result in a lot of free rooms, meals and show tickets up for grabs to anyone who will choose Atlantic City over the neighboring States’ alternatives. It is also likely to lead the city to expand revenues that are not associated with gambling.
"Clearly, Atlantic City recognizes that for its overall revenue to grow, it has to become less gaming-centric," said Joseph Weinert, Vice President of Spectrum Gaming Group, a casino consulting firm. "A majority of Atlantic City's customers will be able to play slots somewhere closer to home. Atlantic City has to give them a compelling reason to drive farther, stay longer and spend more."
“It’s difficult to spend time on the gambling floor morning to night,” said Barbara Sieminski, a retiree from Mountaintop, Pennsylvania, who comes to the Borgata at least once a month for amenities like the manicure she treated herself to last week. "I come for the total package. Coming to Atlantic City is like a vacation for us."
Even if revenues do continue to decline for 2007, it is not a trend that will be irreversible. Harrahs executives noted that the casinos shut down last July during a State budget crisis, which is an event that is not likely to repeat itself in the future. It should also be noted that Three new casinos will be adding more than 2,500 new hotel rooms to the city, which more than compensates for the closure of the Sands Casino and Hotel last November.
"I don't think anybody doubts that long-term, Atlantic City is going to remain a powerhouse," said Frank Fantini, publisher of The Gaming Morning Report.
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