Atlantic City Places Another Bet on Summer 2013

Tara Nurin | May 13, 2013 | More Issues, Planning
Despite claims of yet-another AC comeback, skeptics wonder if the casino city can reverse plunging gaming revenues

Atlantic City Day
As Atlantic City boosters await the arrival of Memorial Day weekend, they’re trumpeting the start of yet-another new era for the beleaguered city.

It seems as if they have more than enough to herald: the grand opening of Jimmy Buffet’s $35 million Margaritaville complex at Resorts Hotel Casino; new management and a first-on-the-East-Coast “day-club” at the bankrupt Revel; and a $20 million advertising campaign by the city’s casino-funded marketing arm.

But as summer 2013 approaches, observers are asking the same question they’ve posed since 2007: Will these efforts be enough to stop the relentless freefall of gross gaming revenues that has skeptics writing the city’s eulogy every time analysts release the quarterly financial reports? And if not, can the eventual addition of Internet gaming — and, supporters hope, sports betting — finally reverse the casinos’ declining fortunes?

The current picture isn’t as rosy as the cheeks of the Miss America contestants returning to AC this September after a seven-year absence. After peaking in 2006, gross gaming revenues have tumbled every year, falling a total of 41 percent. Figures released Friday show a drop of 10 percent from April 2012 to April 2013.

Last year, Pennsylvania’s gaming industry surpassed AC’s as the nation’s second-highest grossing (behind Las Vegas). And even aging Van Halen guitarist Sammy Hagar yanked his name and ownership stake out of his beach bar at Bally’s Atlantic City Hotel and Casino.

The real estate market is just as troubled. Trump Plaza’s primary investor Carl Ichan wants to halt the property’s sale for $20 million — an amount that was the lowest ever for an AC property when negotiations began. However, the Atlantic Club Casino Hotel has since been put on the market; the parent company of online gaming company PokerStars has made an offer . . . for $15 million.

Bringing Gaming Back Into the Picture

Still, investments are being made and marketing dollars are being spent. The year-old Atlantic City Alliance (ACA), a nonprofit organization established by an act of the Legislature to promote the city for five years, is rallying hard with press trips, road shows, social media; a massive “Do AC” ad buy in Philadelphia, New York, and Baltimore; and the feverish creation of festivals, events, public art, and a 3-D multimedia light show beamed at the façade of Boardwalk Hall. And after a year of focusing on every activity but gambling, the ACA is bringing games of chance back into its messaging.

“We purposefully excluded gaming [at first] because the quickest way to get media attention is to do the opposite of what people expect,” said Jeff Guaracino, chief strategy and communications officer for the ACA. “We had always intended to highlight gaming. It’s a major visitor amenity [and] there’s an increased demand for a destination that includes it.”

The ad buy — on TV, radio, print, Internet, and taxicab monitors — tries to create an urgency to “Do AC Now.” It also aims to help the ACA position the city as one of the few American resorts where visitors can gamble at myriad locations; hit the beach; and take in celebrity-owned restaurants, chic shopping, and first-class nightlife.

This year, the array of amenities will expand with the addition of Margaritaville, a mammoth indoor-outdoor “playground” set to open May 24 where Jimmy Buffett fans (called “Parrotheads”) can game in the themed casino, eat and drink at three bars and restaurants, shake off their island-drink-fueled hangovers at the brand’s first coffee shop, and buy merchandise at a retail store.

Resorts President and CEO Mark Giannantonio, like fellow casino execs who’ve orchestrated massive AC projects in the past, calls it a “game-changer.”

“Majority owner Morris Bailey bought the Resorts property a little over two years ago in a declining and difficult climate. Realizing he had to do something, he invested in Margaritaville,” Giannantonio said. “That brand is so positive. Think of Jimmy Buffett and think of all of his loyal followers, some of whom might not already be coming to AC.”

To ready itself for the expected throngs of Parrotheads, a new Resorts management team put into place by Mohegan Sun, which took over operations last fall, invested an additional $35 million in a food court and cosmetic changes to the property. Giannantonio says the upgrades were necessary since Resorts opened as the first AC casino in 1978 and occupies a building built in 1922.

Elsewhere in the city, other anchor properties like Borgata Hotel Casino & Spa, Golden Nugget Atlantic City, and The Chelsea are renovating hotel rooms and casino floors and adding and rebranding restaurants and nightclubs. Steel Pier continues its three-year, $100 million renovation by installing new amusements and bars.

And Revel is launching the new HQ day-club, a 45,000 square-foot adults-only beach club complete with internationally renowned DJs and private cabanas fitted out with flat-screen TVs, lounge beds, and European bottle service. It brings the entertainment and see-and-be seen bar scene of Revel’s extravagant HQ nightclub to daytime hours and to the beach.

“HQ Nightclub has redefined nightlife in Atlantic City, said Neil Moffitt, CEO of Angel Management Group, alluding to the idea that the upscale casino is more in the mold of Las Vegas. His statement continued, “It’s tremendous success proves that the market for such experiential entertainment offerings is thriving.”

But the ultra-luxe casino-hotel still has to shake off its troubled past. Construction during the recession was almost abandoned at the three-quarter mark, only to be saved by a $261 million state tax credit. Criticized for being too lavish, Revel declared bankruptcy after less than a year of operation.

According to the Press of Atlantic City, chief restructuring officer Dennis Stogsdill told a bankruptcy judge approximately six weeks ago that the $2.4 billion Revel had fared so poorly because of construction cost overruns, poor marketing plan, lack of budget restaurants, no smoking or VIP areas, and Hurricane Sandy.

Executives say they’re addressing each consumer complaint, including opening a cardholder lounge last Friday night. Interim CEO Jeffrey Hartmann told the Associated Press Friday that the Pearl Lounge “is the first of many new amenities and investments being made at Revel as we seek to broaden our appeal across a variety of demographics and gaming preferences. We are launching new initiatives that will drive future growth.”
What’s especially noticeable about these comments is their relatively conservative tone. Jeffrey Vasser, president of the Atlantic City Convention & Visitors Authority touted Revel’s launch as last year’s “game-changer.” And when gaming revenues showed a slight uptick in December 2011, Robert Griffin, then-president of the Casino Association of New Jersey told the AP, “I believe we will look back at December 2011 as the beginning of the rebirth of Atlantic City. These results in December clearly show that the future of Atlantic City is a bright one.”

The AC Comeback

So how do marketing execs put a positive spin on this year’s news? According to Guaracino, every destination needs a comeback story.

“Look at Miami Beach. It was the place for celebrities. Then by the ’90s it was truly like Miami Vice. And now it’s the travel destination for South Americans,” he said. “And close by, Asbury Park is a place where presidents once vacationed. It’s had times that haven’t been so great. And now it’s undergoing a spectacular renovation.”

Guaracino adds, as he and his colleagues often do, that the gaming numbers don’t tell the whole story. He says indicators like nongaming revenue and social media interaction show an increase, and notes that the city still generates an enviable $1.26 billion in annual tourism-related revenue in addition to gaming revenue.

“AC used to have a near monopoly on gaming in this country. Your only benchmark was Vegas. You’re still looking at $3 billion in revenue from gaming, which in most places is a hall with a bunch of slot machines,” he said.

He adds that AC might see a boost in hotel stays this summer, as visitors find their usual spots are still struggling to recover from Hurricane Sandy. He feels that as time relegates Sandy to a more distant memory, would-be visitors from outside New Jersey are realizing the error of media reports that overplayed damage to the city and its boardwalk. And, he says, AC will benefit along with the rest of the shore from Gov. Chris Christie’s $25 million post-Sandy push to promote summer tourism.

Not a Happy Camper

But not everyone is satisfied with the governor’s response to AC’s struggles. Pro-gaming state senator Raymond Lesniak (D-Union) calls Christie’s initiative to form the Atlantic City Alliance a “bailout program [that] has been a total failure.”

“Atlantic City continues to limp along, and marketing efforts were doomed from the start. They were a Band-Aid when Atlantic City needed a major influx of new revenues,” he said.

The new revenues, Lesniak says, should have come from Internet gambling two years ago. Though Christie signed a law allowing brick-and-mortar casinos to offer online gaming to New Jersey residents in February, Lesniak still smarts at the veto that met his legislation. He does, however, say he has hope for the future of AC now that online gaming can provide a lifeline to the city and perhaps become “the Silicon Valley of internet gaming” if the state chooses to partner with other states and aggressively market to their residents.

While many of the city’s casinos are quietly working to contract with Internet gaming providers to offer the service shortly after the state releases its detailed regulations in late November, various government agencies and outside analysts are issuing wildly divergent statements on how much money the new format will generate in revenues and taxes. But to Lesniak, it matters little whether casinos can raise $262 million or $1.2 billion in the first year — the lowest and highest numbers being circulated — because to him, it’s sports betting that’s really, “the big Kahuna.”

Most recently, the state appealed a federal court decision to prohibit sports betting in New Jersey despite a law signed last year to allow it. Lesniak says he’s confident that the federal appellate court will rule in the state’s favor. And even though opponents like the NFL and the NACP will likely appeal that decision to the Supreme Court, he doesn’t think the appellate court judges will issue an injunction to halt it in the meantime.

“The sports community cannot prove irreparable damage because it’s already legal in four states,” he said of the industry that’s projected to generate $100 million in state tax revenue in the first year.

Guaracino take on these controversial types of gambling could explain his philosophy about Atlantic City in general. “Casinos need to remain current and responsive to consumer demand and technology. I think we have to evolve just as the games evolve. I never thought there’d be Sex and the City slot machines when I was younger, sitting there feeding quarters into the machines. Remember when we used to put quarters in machines?”