Recently, the Press of Atlantic City published an interview with Tilman Fertitta, owner of the Golden Nugget in Atlantic City discussing his views on the Atlantic City casino market. In the interview Fertitta said Atlantic City was a seven-casino, not a nine-casino market. The comment was in reference to the addition of Hard Rock and Ocean Resort to the Boardwalk City in June 2018, raising the number of casinos in the city from seven to nine. Fertitta said that while total casino revenue and employment had increased in the last year, the revenue, cash flow and number of employees at the previously existing casinos had fallen due to Hard Rock and Ocean Resorts. He wondered why people could not understand the market was simply too small for nine casinos implying that regulators, casino developers and investors had ignored the crisis period between 2014 and 2016 when five casinos closed in Atlantic City.
Fertitta’s question is valid. Why do lawmakers, regulators, developers and investors ignore historical trends when seeking opportunities to expand gaming? The answers are as varied as the number of people involved in the process. The easiest to understand are the lawmakers; they are simply looking for short-term solutions to current fiscal needs. That was the rationale behind casino legislation in most states, including New Jersey. Although the state’s most recent legislation authorizing sports betting and online gambling was also intended to help the casinos. And to the lawmakers’ credit, the addition of online gambling and sports betting has been a clear benefit to the casino industry. In August, those two sources represented over 20 percent of the total gaming win in Atlantic City.
The role of regulators in the expansion process is more complicated. Regulators in Atlantic City and in most other jurisdictions are charged with assessing the suitability of a licensee, rather than the suitability of the market to an additional casino. It is the nature of our economic system; the market determines the winners and losers, not politicians or regulators. As long as the applicant has the financial capabilities, the proper business experience and a past free of crime and criminal associations, the regulators are obligated to grant the license. That leaves the investors and developers; so, what are they thinking? Most often it seems, they are thinking that they are smarter and better operators than some of their competitors or predecessors. That is particularly true in Atlantic City. For example, Ocean Resorts has had numerous names and owners in its short, but checkered history and yet up to this point someone has been willing to buy the property and give it a go.
Like Ocean Resorts, Fertitta’s Golden Nugget has had a difficult history, with bankruptcies, refinancing and a variety of ownership configurations in its 35-year history. Fertitta thought he got a deal when he bought the property for $38 million. By remodeling and rebranding, he was sure he had a winner. He might have had more success without the two new properties cutting into his market share and reducing his cash flow. However, he had an ace in the hole. His online business is the best in the state, producing nearly as much money every month as his casino. Still, the Golden Nugget has taken a hit and the problem is larger than two new casinos.
The problem facing Atlantic City casinos is not just the other casinos in town, it is the other casinos and gaming options all over the region. In the eight years that Fertitta has owned the Golden Nugget, dozens of casinos have been added to the regional marketplace. Even if by some twist of regulation or logic, two casinos close in Atlantic City and no more are permitted to replace them, the situation will not improve. It is very likely that in five years one of the operators in Atlantic City will see clearly that it is a five-casino, not a seven-casino market. And five years after that, well you get the idea.
The casinos in New York, Massachusetts, Maryland and Connecticut are going to continue to invest in their properties in an attempt to attract more customers. And the expansion is not yet over; Pennsylvania is going to add at least three mini-casinos, one full-fledged casino in Philadelphia, thousands of slot machines and online casino and sports gambling. All of this will increase the competitive pressure on Atlantic City. Soon enough people in other states will begin to ask the same question, how many casinos are too many for this market? The answers will be complicated and different in each location, but they will have one common denominator that they will share with Atlantic City. There is a limit to the number of casinos any jurisdiction can support. I suspect regulators will begin, as they already have in some states, to take that into account. Investors and developers are already becoming more cautious as the situation in Chicago has shown.
The one group that does not seem to be paying attention are the politicians making the laws. Their situation is the most complicated as the majority of state legislators only serve one or two terms. They are often replaced by someone with no knowledge of the issues or experience in the process. Added to that is the constant pressure to find new sources of government funding due to inflation and the increasing costs of providing services. Back to Tilman Fertitta in Atlantic City wondering why people just don’t get it. They don’t get it because the people and the situation are never the same from one period to the next. That means that other casinos will fail in Atlantic City and many other states. Lawmakers won’t care, they are already moving past casinos to slot machines in non-casino locations and online gambling. In the meantime, Atlantic City will not have fewer casinos until one closes and nobody is willing to reopen it.
