Making the News

Press of Atlantic City

Originally Published:Thursday, November 20, 2008

"We don't see the situation improving in drastic form in the upcoming year," said Harvey Perkins, a senior vice president with Spectrum Gaming Group, a Linwood-based casino consulting firm. "It's not doom and gloom. It's reality."

Casino earnings plunge 23 percent in third quarter

By Donald Wittkowski
Press of Atlantic City

ATLANTIC CITY - Casinos have set another record. Unfortunately, the type of records they have been racking up lately are going in the wrong direction.

Buffeted by the weak economy and competition from slot parlors in Pennsylvania, Atlantic City's gaming industry posted a nearly 23 percent decline in gross operating profits in the pivotal third quarter. It was the biggest decline ever for the third quarter and more dreary evidence of a prolonged slump expected to continue well into next year.

"We don't see the situation improving in drastic form in the upcoming year," said Harvey Perkins, a senior vice president with Spectrum Gaming Group, a Linwood-based casino consulting firm. "It's not doom and gloom. It's reality."

All 11 casinos had lower earnings in the third quarter. Only Harrah's Resort, down 1.7 percent, avoided a double-digit decline. Overall, gross operating profits fell 22.9 percent to $318 million, compared to $412.5 million in the same period last year. Net revenues declined 6.1 percent to $1.27 billion, according to figures released Wednesday by the New Jersey Casino Control Commission.

Gaming revenue has dropped in seven of the first 10 months this year, assuring that Atlantic City will have its second straight down year in the casino "win." September's winnings from slot machines and table games plunged 15.1 percent, the biggest monthly revenue drop ever in the city's 30-year history of legalized gambling.

The third quarter includes July, August and September and is traditionally the industry's strongest money-making period because of the peak summer tourism season. In the past 12 years, the casinos have suffered a decline in third-quarter earnings only five other times. However, declines have occurred in the last three years.

For the first nine months this year, gross operating profits are down 19.5 percent industrywide to $809 million. In the same period, net revenues have decreased 4.8 percent to $3.5 billion.

"I think it's the same lack of confidence we are seeing in the retail business and the housing business. The gaming business is not immune to it," explained Mark Juliano, chief executive officer of Trump Entertainment Resorts Inc., operator of three casinos.

In addition to the sluggish economy, Juliano noted that summer business was hurt by soaring gas prices. Atlantic City is particularly vulnerable to volatile gas prices because the vast majority of visitors arrive by car or bus.

Gas prices have tumbled since Labor Day. But Perkins said any benefits for the casino industry from lower fuel prices may be offset by new toll hikes on the Atlantic City Expressway, the main route into town.

Even the normally powerhouse Borgata Hotel Casino & Spa struggled in the third quarter. Borgata led the industry with gross operating profits of $60.9 million, but that represented a 16.9 percent decline compared to the same period last year.

Earnings at Borgata fell despite the grand opening over the summer of the new $400 million Water Club, a posh 800-room boutique hotel that is expected to draw high-end customers to the city.

Larry Mullin, Borgata's president and chief operating officer, said earnings were affected by the ramp-up phase for the new hotel and nonrecurring expenses related to its launch. He also blamed the economy's malaise for the drop in Borgata's profits.

"The beginning of what you're seeing today was starting in that quarter, which was softness," Mullin said.

The Atlantic City Hilton Casino Resort and sister property Resorts Atlantic City were the biggest losers in the third quarter. Earnings plummeted 73.7 percent at the Hilton and 62.3 percent at Resorts, figures show. Resorts, the city's oldest casino, disclosed that it missed a monthly interest payment Nov. 7 and is in negotiations with a lender to resolve the issue.

Tropicana Casino and Resort, still looking for a buyer after its former owner was stripped of its license last year for regulatory violations, continued to struggle in the third quarter. Its gross operating profits slipped 42.8 percent, the industry's third-biggest decline.

Providing some relief to the bottom line in the third quarter was a slight easing of a marketing war that has gripped Atlantic City for months. Casinos cut back on the promotional expenses for free hotel rooms, cash giveaways and other "comps" that are used to lure customers. Promotional costs fell 4.8 percent industrywide to $428.2 million for the quarter.

 

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