Atlantic City: A Word of CautionBy Ken Adams, CDC Gaming ReportsFebruary 7, 2019 at 2:31 pmAtlantic City is seemingly experiencing a resurgence. Gaming revenue has grown year over year for the last two years after ten years of declines. In 2018, total gaming revenue was up 8.7 percent and for December, a whopping 25 percent. However, a word of caution, it may not be what it appears The pressure from casinos in Pennsylvania that lead to a decade of decline still exist and will continue to make an impact on the Boardwalk. The year before Pennsylvania gaming hit Atlantic City was 2006, that was the peak year for Atlantic City casinos. The eleven casinos operating in Atlantic City that year generated $5.1 billion in gaming win. It was the 29th consecutive year of revenue growth for the city’s casinos. It had been a great run, but it ended in 2006 as gaming in Pennsylvania ramped up the following year.That year, 2006 was the best-ever year for casinos on the Boardwalk. As they say, it was all downhill from there. The relentless loss of revenue eventually led to five casinos closing in 2014 and 2015. The future would have looked very dim if internet gambling had not been legalized. Internet revenues have increased every year since 2013. In 2018, online gaming revenue reached $98.7 million, up 21.6 percent from 2017. Online gambling was not the only factor in Atlantic City’s turnaround. In June 2018, two of the closed casinos reopened. Revel reopened as Ocean Resorts and the Taj Mahal began taking bets under the Hard Rock brand. The final piece in the puzzle of reversal was sports betting that became legal in New Jersey in June, 2018 and generated $94 million for the year. Hard Rock, internet gambling and sports betting combined to give Atlantic City hope. With the addition of two casinos, online and sports betting, the total revenue for the year was $2.9 billion. As good as that number looks today, it is down 44 percent from what casinos without those advantages did in 2006.Although A.C. casino revenue increased by 4 percent in 2018, seven casinos that existed before Hard Rock and Ocean Resorts opened have reported declines since June. The city’s market did not grow, revenue grew only because of the two new casinos. New Jersey has been under siege since that fateful year of 2006. Casinos have sprung up all around in neighboring states and each one takes another bit out of Atlantic City’s potential. Last year, casinos that did not exist in the region in 2006 generated approximately $8 billion in gaming win. The situation is going to get worse. All of the neighboring states will be discussing sports betting in 2019 and the old nemesis, Pennsylvania is also going to be adding more casinos, slot machines in bars, truck stops and convenience stores and sports betting.A spokesperson for Hard Rock recently said that if Hard Rock could not grow the market something would have to give. After six months of operation no growth of the casino market is evident and all of the casinos are feeling the pressure. Ocean Resorts has changed owners already with its major creditor taking over the property; it could be a telltale sign of potential failure. There might be other casinos at risk, but not Hard Rock. In December, Hard Rock was third on the revenue list behind Borgata and Tropicana and just ahead of Harrah’s. The casinos at risk are likely to be those farther down the list, Ocean Resorts is on the bottom with the least amount of win in December, Bally’s and Resorts are the next two. Bally’s is the most at-risk of the city’s nine casinos. It is just ahead of Ocean Resorts in producing the least revenue in Atlantic City and the parent corporation, Caesars, has three casinos in A.C., Caesars, Harrah’s and Bally’s. Owning more than one casino in a challenged market is not a very good long-term strategy. There are no buyers, so closing the weakest is the most obvious solution. Caesars has done that before. In 2014, it closed Atlantic City Showboat, its weakest property in the portfolio. It would have required too much investment to make it competitive; taking it off the market reduced corporate exposure. In Atlantic City, in 2018, Harrah’s win dropped 8.4 percent, Caesars 11.2 percent and Bally’s 9.1 percent. Even with the decline, Harrah’s generated $332.9 million. Caesars was close with $326.9 million, but Bally’s only produced $191.9 million in win for the year, making it a target for the graveyard.It may not happen in 2019, but it seems very likely that Bally’s time is running out. Ocean Resorts also poses a question. It began life in 2012 as the Revel and cost $2.4 billion to build; it closed two and half years later. It never had a good month and changed hands or was sold five times. Every new owner seemed to think that they could make a difference when all of their predecessors failed. Assuming you are smarter and more capable is generally not a successful strategy. The new owner, Luxor Capital will be forced to put more money into the property. How much is Luxor willing to invest before it too throws in the towel? Hard Rock should illustrate the difficulties of entering Atlantic City. Hard Rock is an international brand. If that name and marketing organization has not grown the market as the company anticipated, how could a lesser brand? Caesars can also shed some light on the subject. Caesars Corporation has a database of 50 million players. For years, Caesars has used that database to drive business at all of its properties in the country. It has been a very successful marketing strategy in most cases.Hard Rock is right; without growing the market something will have to give. The weakest links at the moment are Bally’s and Ocean Resorts. However, the pressure from surrounding jurisdictions will only increase. So even if Bally’s and Ocean Resorts close their doors, the other casinos at the bottom end of the revenue chart will be feeling the same pain. There is no magic pill; sports betting, online gambling and a Hard Rock cannot reverse the course of history.