Making the News

Press of Atlantic City

Originally Published:Friday, May 22, 2009

Could A.C. do better with fewer rooms?

By Donald Wittkowski
Press of Atlantic City


Atlantic City may grow larger by making its casinos smaller.

Confronted by the grim economic realities of the recession, a town that once clamored for Las Vegas-style megaresorts may have to settle for mini-casinos instead. But supporters believe the latter would add new attractions to a development-starved city and boost tourism overall.

The catalyst for change is a state senator's proposal to lower the threshold for casino hotels from the current 500 rooms to a relatively puny 200. If the room requirement is revised, Atlantic City could possibly see a new generation of smaller, cheaper gaming halls or some of the existing noncasino hotels converted into casinos.

Critics, however, believe that tiny casinos would cheapen the city's image.

"We can't have casinos with 200 rooms. That isn't what we're looking for. I guess the next thing is to have a casino with a bed and breakfast," James Kehoe, chairman of the Casino Reinvestment Development Authority, said mockingly.

Sen. Jim Whelan, D-Atlantic, started the debate by telling the East Coast Gaming Congress this week that a radical overhaul is needed with New Jersey's casino regulatory system to help a distressed industry. Whelan, a former Atlantic City mayor, called for streamlining the regulatory process to make it less expensive and onerous, but really struck a nerve when he also proposed slashing the room requirement for casino hotels.

Revel Entertainment Group's $2 billion casino, scheduled to open in 2010 or 2011, may very well be the last of the mammoth gaming projects ever built in Atlantic City, officials say. The economic meltdown and global credit crisis have dried up funding for huge casino projects, so Whelan believes the next best thing are boutique-style gaming halls having as few as 200 hotel rooms.

"I think given the current economic situation, that is more likely than people coming in and spending $2 billion," Whelan said.

Another possibility is to convert some existing noncasino hotels, such as the 330-room Chelsea hotel or 206-room Courtyard by Marriott, into casinos. Whelan suggested that both of those hotels could meet the standard of a "superior, first-class facility" required of casinos under New Jersey's gaming laws.

"It's no secret with the Chelsea and Marriott, they are struggling," Whelan said. "If this is a way to make them more stable, then I think we ought to consider it. Obviously, you would scale down the casino commensurate with the size of the hotel.

"We're looking at places that would still meet the threshold of a first-class facility," he continued. "We're not looking to accumulate a group of guest houses to qualify for a slots parlor in the lobby.

"We're not looking for motels with cramped rooms."

Disagreeing with Whelan, one gaming analyst said Atlantic City would be better off with major resort casinos to help transform the town into an upscale tourist destination.

"In order for Atlantic City to survive, it would not be desirable to retrofit existing noncasino hotels to present a fresh, clean face," said Harvey Perkins, a senior vice president with Spectrum Gaming Group, a casino consulting firm based in Linwood.

Smaller casinos, Whelan argued, could fill in the "dead zones" of blighted property that tarnish the Boardwalk. He pointed to an expanse of undeveloped land north of the Revel site and property between Resorts Atlantic City and Bally's Atlantic City. Parcels between Boardwalk Hall and Tropicana Casino and Resort and heading south to the Atlantic City Hilton Casino Resort would also be candidates for redevelopment.

Eminent domain, the government power to seize and demolish private property, should be aggressively used to clear out derelict buildings and tattered property, Whelan said.

Legislation would be needed to carry out the regulatory overhaul Whelan has proposed, including dropping the casino hotel room requirement. Whelan said he is not yet ready to introduce the legislation, preferring to discuss his plan first with the casino industry, city officials and business leaders.

"If somebody else has a better idea, I'm willing to listen," he said. "If you don't like 200 rooms or eminent domain, then tell me how to get rid of the blight we've had for the last 30 years. It hasn't happened in the casino zones."

Perkins maintained that a new group of smaller gaming halls could harm Atlantic City's 11 existing casinos by stealing their business. He said other ideas such as property tax abatements should be explored as possible ways to stimulate growth.

"Lowering the room threshold clearly endangers the billions of dollars in asset value in Atlantic City," Perkins said. "Those lowly capitalized casino operations may indeed take revenue share from existing companies that have invested billions in the resort."

The Casino Association of New Jersey, the trade group that represents the gaming industry, seems wary. The association released a statement pledging its cooperation and praising Whelan for his willingness to take "a hard and fresh look" at ways to reinvigorate the industry. But it also noted the potential downside.

"We have many questions regarding the proposal to reduce the 500-room threshold and its potential negative impact on the objective of Atlantic City continuing its transformation into a destination resort," the association said.

The statement went on to say that the association will work with government leaders to ensure Atlantic City remains the No. 1 gaming market in the Northeast and is competitive with casinos in surrounding states.

Atlantic City has been battered by the recession and extra competition from slot parlors in Pennsylvania and New York. Gaming revenue declined in 2007 and 2008 and is heading lower again this year, already down an alarming 15.7 percent through the first four months.

Whelan said competition will become even more intense now that Delaware has approved table games and sports betting for its three racetrack slot parlors. Table games are also seen as inevitable for Pennsylvania.

"There's a feeling that when the economy turns around, we're going to be OK. But that's not the case," Whelan said, alluding to Atlantic City's growing competition.



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