Casino gambling – a major theme, a minor theme and a hurricane

The great gaming expansion in the United States that began 90 years ago is nearing its end; like the westward expansion in the 19th century, eventually the pioneers, explores and settlers run out of land to conquer and subdue.  There is not much virgin territory left for the casino pioneers and settlers; it was a great run.  The expansion could be broken down into phases or eras quite conveniently and each era had a major and minor theme.  For example, between 1931 and 1978, the story was the casinos in Nevada; the primary storyline was the sensational growth of the Las Vegas Strip; the minor themes included Reno, Lake Tahoe and nationally racetracks and after 1964 state lotteries.

With the beginning of the 21st century casino gambling entered it final era of expansion.  The latest era was brought about by an attitude change in the general population; for the first time in the last 150 years in the United States gambling is fully acceptable as a business and as an activity, except in Utah and Hawaii.  The major theme of the 21st century has been one of expansion into nearly every state, most recently Pennsylvania, Maryland and Ohio.  Twenty states have casinos, there are 460 Indian casinos, combined, there are over 1500 casinos in the country and 42 states have a lottery.  That is the major, the dominate theme; but there is a minor theme “the impact of new casinos on existing ones” and it is growing louder all of the time.  In time the minor theme may replace the major theme.  It is a theme that has been developing slowly and quietly since New Jersey first opened its casinos, but it did not become anything worth noting until the advent of Indian gaming – for convenience sake, one could say for the last 20 years.

 As long as the dominate theme of expansion failed to directly impact a major market, that is the Las Vegas Strip or Atlantic City, no one gave much thought to the minor theme of impact; after all, who cared what happened to casinos in Reno, Laughlin or even West Virginia?  Even the impact of the two Indian casinos in Connecticut was not taken as a serious or long-term threat to the profitability of Atlantic City casinos.  However, six years ago when the first casino opened in Pennsylvania, people started to think about the impact of casinos in Pennsylvania on Atlantic City.  Before 2006 over 50 percent of the gamblers in Atlantic City came from Pennsylvania, still operators in Atlantic City said those “slot parlors” could not compete with the real casinos in Atlantic City.  Wall Street did not take the threat of Pennsylvania much more seriously than the casino operators – those things in Pennsylvania were simply not in the same class – were they?

 That thinking was 2006 vintage, in 2012, no one would say that Pennsylvania has not had a dramatic effect on Atlantic City; casino revenues in Atlantic City are down 36 percent since 2006; with few exceptions revenues drop every month and no one compares 2012 revenues to those of 2005.  Now the story, the minor theme, as grown past the Boardwalk; casinos in Indiana, Pennsylvania, West Virginia, Connecticut, Rhode Island and Delaware have all been impacted by new casinos in Ohio, New York and Maryland. All of the existing casinos on the East Coast are struggling to find a market niche and compete against newer rivals.  The situation has been made worse by the downturn in the economy now in its fifth year; but Hurricane Sandy may have been the straw that broke the camel’s back for Atlantic City.

 The storm forced the closing of all the casinos for four days, worse Hurricane Sandy dramatically impacted the primary feeder market of AC, New York State (50 percent of Atlantic City customers now come from New York). As you might guess, people have not been as eager to travel or gamble in the aftermath of the devastation; some waited for weeks for power, fuel and the full return of public services.  Chris Christie, governor of New Jersey, is estimating that Sandy will have cost New Jersey $30 billion when all of the bills have been paid.  Hurricane Sandy and its aftermath will continue to impact some areas for years to come.

 Hurricane Sandy did no direct and physical damage to the casinos – but it may have destroyed one, two or even three or four totally.  The combination of being closed and then drastically reduced revenues on top of the constant pressure of competition and an already weakened economy may be too much for the weakest of Boardwalk casinos.  On the short list are the Atlantic Club, the former AC Hilton, Trump Casinos and the city’s newest and most expensive casino, Revel.  Pundits have been saying for a while now that a couple of casinos needed to close if the remaining ones were to continue to exist and be profitable. They are about to see how that will work out.

Still,  I don’t think anyone expected Hurricane Sandy or any act of nature to be the instrument that forced one or more Atlantic City casinos to fail.  But that is the way it always works, the weakest casinos (or any other type of business in any industry) are always holding on by a thread.  As long as nothing unusual happens – a recession, significant new competition or a natural disaster – they survive.  However, something happens eventually, always.  In Reno, the flood of 1990 was just such an event, but there were other events, such as an Indian casino in Sacramento that had the same effect.  Hurricane Sandy is going to prove to be that final blow, the straw that breaks the camel’s back for the weakest of Atlantic City casinos.  The first casino to close in Atlantic City will not be the last, not in Atlantic City or in the region.  There is at least one casino in Maryland, Pennsylvania, Delaware, Illinois and Indiana standing on the edge of a precipice.  It will not take much to push them over the edge into bankruptcy and closure.  They stand waiting for a hurricane, a flood or simply a flood of competition – you know like casinos in New York and Massachusetts.

“We are all going to do our best and react to the conditions that come up to us. I honestly don’t know what normal business levels are anymore. We have been looking to find a bottom in this market. It’s been difficult.”  A small crowd waited to get inside the Atlantic Club Casino Hotel when it reopened the morning of Nov. 5 after a weeklong shutdown caused by Hurricane Sandy. The meager turnout portended what was to come for the Atlantic Club and the rest of Atlantic City’s casino industry in the hurricane’s aftermath…They say the stronger casinos can withstand the downturn, but there are concerns that weaker properties such as the Atlantic Club may not survive if the market takes a long time to recover… About half of Atlantic City’s business comes from New York and North Jersey, some of the areas hit hardest by the hurricane. Donald Wittkowski, Press of Atlantic City, 11-21-12



2 Responses to “Casino gambling – a major theme, a minor theme and a hurricane”

  1. 1 rexdstock1 November 25, 2012 at 8:38 am

    Boom. Bust. Debris.


  2. 2 Ken Adams November 25, 2012 at 1:10 pm

    Of course there is the ever present boom and bust cycle of capitalism; gaming is just another illustration of the phenomenon. But as it has been the industry that has given each of us, you and I, our careers and livelihoods it feels much more personal and important to me than textiles in the 19th century or even automobiles in Detroit since the end of World War II. But my comments are more related to a general awareness of the downside, the underbelly of expansion; that is relatively new. We who live and have lived through floods and Indian gaming in Reno have long been aware of the finiteness of any customer base. Watching that knowledge spread has been very interesting for me. Today, the Las Vegas Review-Journal has an article on the subject. We will all be watching, reading about and writing about that dark underside of the sparkling coin of prosperity much more in the coming years. And yes, I did steal the concept and paraphrase a book I read years ago about the underside – the world of Charles Dickens – of the of the coin of Victorian prosperity. Doesn’t everything have a shadowed opposite, a negative? However, we often forget it and therefore are blindsided by it.

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