A tale of regulation and two cities; a Boardwalk and a Strip city By June 27, 2013 at 12:34 am Since 1978, it has been impossible to avoid comparing the cities and the casinos of Las Vegas and Atlantic City. In the beginning they were the only American jurisdictions with casinos; but even as Iowa, Colorado, South Dakota, Illinois, Indiana, Mississippi, Missouri and Louisiana joined the ranks of states with casinos, Las Vegas and Atlantic City were still the crème of casino crop – the gold standard of the casino world. It wasn’t until Foxwoods and later Mohegan Sun opened in Connecticut, that Atlantic City had competition on the East Coast for the title of “king of the casino hill.” Las Vegas has its share of competition, but somehow the Strip always seems to be a step or two ahead of the competition. When Pennsylvania legalized slot machines Atlantic City was seriously challenged. Now, of course Atlantic City is slowly moving down the list and with Massachusetts and New York coming online in the next few years it is hard to say just how far down Atlantic City may fall. In most of the commentary on the subject, competition is always blamed for the decline in both revenue and prestige of the Atlantic City casinos and indeed without the casinos in surrounding states the boardwalk casinos would still be growing year over year. Las Vegas struggled also; it has been hit hard by the recession. But Las Vegas revenues are not down 50 percent like Atlantic City. Is it geography, the difference between being on the ocean and being in the desert? I think not and neither does the governor of New Jersey. By the time Chris Christie was elected governor of New Jersey, the city’s casinos were in free fall; one of Christie’s major priorities as governor was to regain some of the lost revenue and prestige. Christie had a list of things that needed to get done. First, he thought the city needed a new casino like the ones being built on the Strip in Vegas to make Atlantic City exciting again; he helped to gain financing for the stalled Revel project that allowed the $2.4 billion project to be completed. Besides a new, modern, mega-casino, Christie thought Atlantic City needed a more focused approach to managing its casino district and to its marketing; he created a special district within the boundaries of Atlantic City to improve the city’s image and marketing. Christie had one more thing on his list of necessary changes, regulation. Christie thought that existing regulatory structure inhibited the growth and financial prosperity of the casinos. Of course, that was not necessarily a new idea – casinos operators had been complaining about the limiting and expensive regulations for years to no avail. It took a motivated governor to make some much needed changes. All of those changes were needed, but I think they came much too late, especially the regulatory changes, to really make a difference. After 35 years, it is not difficult to contrast Las Vegas and Atlantic City and see the differences that are due to regulation. In those 35 years, casinos on the Strip have grown up like weeds; wherever there was land a casino was likely to be built; the size of the casinos, hotels and all of the other associated features and amenities were all market driven. How many slot machines will the market support, how many rooms? Everything in Las Vegas is market driven – and of course by the developer’s ability to procure financing and licensing. But during that time, on the Boardwalk all of those same things were regulation driven. While Las Vegas recovers from the recession and fights off competition from around the world, Atlantic City fights to keep the lights on. Reading the press in both cities everyday really drives the point home for me. For example, on June 18th there were several projects on the Strip making news; MGM wants to spend $350 million to build a stadium; MGM is also proposing eliminating the outer walls of MGM Grand, opening up the casino itself to Strip; Genting wants to begin its multi-billion dollar Genting World by building some interim entertainment venues around the construction; and Thrill Rides has submitted plans to the Federal Aviation Administration in April to build the 650-foot-tall roller coaster. And the news from Atlantic City? The city is going to have a fireworks display on the Fourth of July. I am certain the fireworks will be marvelous and thousands of people will watch. Of course Vegas will also have fireworks; there is only one difference, the fireworks in Vegas will be the largest and most expensive in the world, or at least in the top 3 and hundreds of thousands of people will watch. Why do I say these stories illustrate the difference in regulation between the Boardwalk and the Strip? First none of the projects planned for the Strip would be approved in Atlantic City – nor would anyone finance such projects on the Boardwalk. But June 18th is just one example of the tangible results of the two separate regulatory systems. In the last 35 years, hundreds of projects costing upwards of $50 billion dollars have been built in Vegas. While in Atlantic City, a dozen medium size projects have been approved and built. In the early days of Atlantic City, the regulators were proud to proclaim – “Atlantic City will not be another Las Vegas.” And indeed it is not; of course they were talking about organized crime, skimming and evil things that go bump in the dark; or they thought they were. In really they were talking about the innovation, adaptation, investment and 40 million visitors a year that distinguish the Strip from all other casino cities, but are missing from Boardwalk. The gaming industry has a long and varied history, enough so now we can begin to understand the impact of different systems of regulation – and of different rates of taxation. The gaming industry, Wall Street, lawmakers and regulators would benefit from serious, independent research into the impact of both of those factors. The lawmakers and regulators in New Jersey might still have made the same decisions as they did make in 1977 with solid data comparing one system to another; but they would have made the decisions knowingly instead of blindly. As Massachusetts and New York start down the same path, it seems to me this is as good a time as any to stop shooting from the hip and to begin studying the results of each of the various systems.