Making the News

New York Times

Originally Published:Monday, March 19, 2007

Michael Pollock, publisher of The Gaming Industry Observer, a trade journal based here, predicted that 2007 would “almost undoubtedly be the first time Atlantic City sees a year-to-year decline in revenues at its casinos.”

Atlantic City Aiming Higher as Casinos Slip

By Gary Rivlin
New York Times

ATLANTIC CITY, March 14 - Making money used to be so easy in this doleful seaside resort, at least if you were in the casino business: Efficiently shuttle a steady parade of day-tripping grandparents clutching rolls of quarters through midmarket gambling halls, and success was all but assured.

But now casino operators and politicians here are worried about a fall in revenue in the first two months of the year and are braced for what analysts predict could be Atlantic City's first annual drop since gambling was legalized in the state in 1977.

One culprit can be found 77 miles away at the Philadelphia Park Casino, a low-frills slot parlor that opened in December amid the suburban chain restaurants of Bensalem, Pa. There, on a sunny Sunday afternoon, sat Ron Thomas, 72, who would agree to talk only if it did not interfere with his simultaneous play of a pair of $5 Double Diamond slot machines.

"The wife and I, we went to Atlantic City around once a month for years," said Mr. Thomas, a retiree who lives in Churchville, Pa. "But this place, we're 10 minutes away."

Why would he ever return to Atlantic City, Mr. Thomas asked, when it would require a 90-minute car ride "to do exactly what we can do here?"

No wonder, then, that Atlantic City is once again plunged deep in what seems a perennial discussion of how to reinvent itself.

Faced with competition from three new casinos in eastern Pennsylvania and slot machines recently added to Yonkers Raceway in the New York suburbs, casino operators here are wagering large sums that they can transform this low-rent gambling factory on the Jersey Shore into a world-class entertainment destination. They envision a future in which Atlantic City moves upmarket to become a kind of Las Vegas East, where fine food, big-name performers and other amenities - and not just the thrill of pulling a slot machine handle or throwing dice - lure a younger, more free-spending tourist from among the roughly 50 million people who live a tank of gas away.

"This is a town that had been on cruise control for 25 years," said Larry Mullin, president and chief operating officer of the Borgata, the city's newest, largest and most successful casino, which spent $200 million last year adding restaurants tied to the celebrity chefs Wolfgang Puck and Bobby Flay and a nightclub as glittery as it is pricey. "The biggest challenge now facing Atlantic City is itself."

Money is one way Atlantic City is fighting back, sex another.

The city is in the midst of its biggest building boom since the 1980s. Casino operators have invested more than $4 billion in Atlantic City over the past five years, and plans are on the drawing board for at least two more megacasinos, each costing $1 billion-plus.

The city recently dropped its building height restriction as a further draw to casino companies seeking to bring a touch of Vegas bravado to a burgh of 40,000 perhaps as well known for its political corruption and violent crime as for its Boardwalk and ocean views.

These days, cocktail waitresses working the flashier casinos show more skin and are younger and more buxom than they used to be, and a few years ago the city adopted a new slogan: "Always Turned On." The Borgata, the first billion-dollar casino in town and one of four to report a jump in revenue so far this year, sells a "Babes of Borgata" pinup calendar featuring female employees covered by little more than feathers and strategically placed hands.

"This is an adult entertainment town," said Mayor Robert W. Levy. "That's what our casinos have to capitalize on to keep the industry healthy."

But the mayor and others began seriously worrying when January turned out to be a poor month at the casinos, and February was worse still. Slot revenue was down 8 percent - and overall gambling revenue 4 percent - for the first two months of 2007 compared with those months last year. Michael Pollock, publisher of The Gaming Industry Observer, a trade journal based here, predicted that 2007 would "almost undoubtedly be the first time Atlantic City sees a year-to-year decline in revenues at its casinos."

A dip in receipts hurts not just the casino industry, but also the public agencies that rely on its tax dollars. Last year Atlantic City's 11 casinos contributed $417 million - 8 percent of the $5.2 billion gamblers collectively lost - to a state pool used to finance programs to help the state's senior citizens and disabled residents. The casinos paid an additional $65 million, or 1.25 percent of revenues, into a redevelopment fund intended to combat blight throughout the state, though a portion of that money has been reinvested in casino expansions and renovations.

Atlantic City long ago lost its East Coast casino monopoly as Indian tribes opened gambling outlets in eastern Connecticut and nearby states like Delaware and West Virginia legalized slot machines. Yet gambling revenue in Atlantic City has risen reliably year after year, as it has in Las Vegas and in virtually all the 30-plus states where some form of casino gambling is legal.

But the competition seems to be catching up to Atlantic City, which is steeling itself for what many see as the greatest threat of all: the increasing likelihood of a Las Vegas-style resort in the Catskills, just 90 miles north of Manhattan. More and more, regulars in Atlantic City, 130 miles south of Manhattan, are being offered free meals and generous cash rewards to keep them coming back.

This year's dip in casino revenue comes at a time when many here thought Atlantic City was on an upswing. The Boardwalk is looking spiffier than it has in years, and the city - using casino dollars set aside for capital improvements - has induced a long list of name-brand retailers, from Banana Republic to Polo Ralph Lauren, to a downtown business district that has been struggling for decades.

Yet so palpable are fears over the long-term viability of the casino industry that roughly one-fifth of the money originally intended for economic development across the city and state has in recent years been diverted back to casino-oriented projects.

"It's critical that we give people a reason other than slot machines to come visit our casinos and spend time with us," said Jay Snowden, 30, general manager at the Showboat casino. "For too long people in the industry thought of Atlantic City as nothing but a bus market for blue-haired nickel-slot players."

Opened in 2003, the Borgata is in many ways the model for the newest new Atlantic City. Unlike its neighbor casinos, the Borgata does not bus in daily visitors. Even so, gamblers collectively lost $122 million there in the first two months of 2007, nearly twice the average, $65 million, of the city's other 10 casinos.

"The Borgata has certainly opened everyone's eyes to the potential for a new market for Atlantic City," said Ken Condon, general manager of Bally's, where gamblers lost just under $100 million in January and February, second to the Borgata.

Yet more inspiring than the Borgata's casino revenue is the money other parts of the resort generate. It was in the 1990s that Las Vegas operators started to veer from the long-held notion that every moment a visitor spent somewhere other than the casino floor translated into money lost. As a result, the big players in Las Vegas have long gotten more revenue from shops, high-end restaurants, shows and spas than from casino floors; last year, 59 percent of the income for casinos on the Las Vegas strip was nongambling.

Mr. Mullin, the Borgata chief executive, said his property collected 35 percent of its revenue from sources other than gambling. That is far behind Vegas, but way ahead of the comparable figure across Atlantic City, which Mr. Pollock of The Gaming Industry Observer put at 10 percent.

Jeffrey S. Vasser, executive director of the Atlantic City Convention and Visitors Authority, said that is largely because the average visitor spends 24 hours here rather than the three or four days he might spend in Las Vegas.

"We still have a long way to go before we get where I know we can be," Mr. Vasser said. "But where in the old Atlantic City the casino operators would never let people out of the building, at least now they understand that it might be a good idea to let them play a round of golf, because that way they might even be inclined to stay here for a few days."

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