Making the News

Atlanta Journal-Constitution

Originally Published:Sunday, March 8, 2009

Will Atlanta's casino gamble pay off?

By Rachel Tobin Ramos
Atlanta Journal-Constitution

Can a casino at Underground Atlanta create a powerful economic engine for Atlanta?

The answer depends on where you cast your bet.

Some casinos in rural Southern states such as Alabama and Mississippi have turned farmland into money crops with hotels and casinos sprouting jobs and millions of tourists. Tunica, Miss., is now the third largest casino destination in the United States, with nine casinos. And new casinos in Pennsylvania are performing well.

But other places that have planted casinos where there are no significant hotels or other entertainment destinations have seen mixed results. New Orleans' river casinos are a prime example.

And the nation's two largest casino destinations, Las Vegas and Atlantic City, are finding casinos are not recession-proof.

Those destination towns are struggling as the downturn has deflated casino profits.

Wynn Resorts saw revenue from its Las Vegas properties decline 15.1 percent in the fourth quarter. And Trump Entertainment Resorts, with three casinos in Atlantic City, was delisted from the NASDAQ and is filing for bankruptcy.

Casinos also can have a heavy social toll, with gambling addictions blossoming in cities with casinos.

Nevertheless, states continue to eye casinos as a way to mend government budgets. The gaming industry, including state lotteries, clocked in at $93.8 billion in 2008, according to the American Gaming Association and Christiansen Capital Advisors.

Those piles of dollars have nearly doubled in the last decade. In 1997, the industry took in $50.9 billion.

Several experts said Atlanta has what it takes to make a casino work.

"It's a very different situation and economic model than what you see in Las Vegas," said Joel Koblentz, senior partner of the Koblentz Group of Atlanta.

Koblentz leads an executive search and advisory firm that last year placed an executive on the board of Las Vegas Sands Corp.

Koblentz said Las Vegas is a destination people have to fly to for the specific purpose of gaming. Atlanta, with 13 Fortune 500 companies, a strong convention business and other tourist attractions, is more diversified, he added.

That diversification is key, agreed Michael Pollock, managing director of gaming consultancy Spectrum Gaming Group in Linwood, N.J., near Atlantic City.

"Gaming has to be fully ingrained into the tourism and urban redevelopment infrastructure," he said. "All of the public and private policy makers have to be on the same page. They can't be at cross purposes."

Other states looking at gaming in the midst of a deep recession are Maryland, where voters recently approved slot casinos, and Kentucky, where some want video lottery terminals to go with existing racetracks.

In Atlanta, the lease-holders at Underground Atlanta - the downtown retail, restaurant and nightclub destination that is owned by the city - want to spend $450 million to build a "video lottery terminal" casino.

Plans call for a 29-story hotel, new upscale restaurants and shops, and up to 5,000 slot machines.

Developers Dan O'Leary and John Aderhold said the facility eventually will create 3,000 jobs and generate $600 million in gross revenue annually. They said that slots at Underground could catapult the ATL over (or at least up to) popular convention cities such as Orlando with Disney World and Las Vegas with its famous strip.

The developers have given their proposal to the Georgia Lottery board and are awaiting a vote.

The proposal does not require a vote of the Georgia Legislature or the Atlanta City Council. Last week, however, the plan picked up the endorsement of the City Council, and it has Mayor Shirley Franklin's support.

The city has a lot to gain if a casino project at Underground is successful. The city took out $85 million in bonds to redevelop Underground and is still paying off the debt. The rundown area around Underground also could benefit from an uptick in tourism.

The state would be in charge of the video lottery terminals in the Underground plan. Developers would give half of all revenue to the lottery for the popular HOPE college scholarships, or an estimated $300 million after a few years.

When asked how he feels about proposing a casino in the middle of a recession, O'Leary didn't flinch.

"Were not concerned about the economy at all," he said. "Casinos may not be recession proof. But they're still making money."

Added O'Leary: "Look at our potential customer base, with the busiest airport in the world, the third largest convention center in the United States and a metro Atlanta population of 5 million people."

He believes metro Atlanta can support a lot more than the 2,000 machines in phase I of his plan. "We're ready to go," he said.

O'Leary and Aderhold have a letter of intent with Dover Downs to operate the video lottery terminals.

Last quarter, Dover Downs, a Delaware company with video lottery slots, horse racing and a hotel, saw a dip in profits.

Net profit declined nearly $2 million to $3.5 million, or 11 cents a share in the fourth quarter. Revenue dropped 6.5 percent to $55.4 million. Revenue from gaming declined 7.3 percent while other operating revenue rose 2.2 percent as a result of the expanded 500-room, four-diamond hotel, where occupancy was about 75 percent.

Compare that to Atlanta's hotel occupancy: Last year it was 58.8 percent metrowide and 61.2 percent downtown, according to the Atlanta Convention and Visitors Bureau.

Ed Sutor, president and CEO of Dover Downs Hotel & Casino, said his business has been hit by the downturn.

Dover Downs gets more than 3 million visitors a year - 70 percent are from out of state (half from Maryland), Sutor said. What worries him is three casino projects pending in Maryland.

"What we can tell from this current bad economy is that casinos are not recession proof. But we tend to do better than most businesses."

Sutor has no worries about a casino in Atlanta, however.

"There's absolutely a sufficient number of people to keep that place humming all the time," he said.

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