After Sandy – facing the future badly wounded


Hurricane Sandy was probably the most destructive storm to hit the United States, ever; the hurricane was even given a hyper name, Super-Storm Sandy. Sandy was terribly destructive not because of the power of its winds or the amount of rain it brought with it, although both were significant, but rather because it hit the most populous area of the country.  The northeastern states of Connecticut, Delaware Maryland, Massachusetts, New York, New Jersey and Pennsylvania were all impacted.   The financial impact numbers are still coming in, but the total cost of Sandy will be in the billions of dollars, Wikipedia estimated $63 billion for the damage in the United States.

The storm effected everyone and every business in its path, it shut down the transportation, education, government, communication and power systems; even the ubiquitous cell phones were disabled for a time – some regions were without power for a couple of weeks.  The casino industry, too felt the impact of the storm, although there was no physical damage the any of the casinos in Atlantic City or other casino jurisdictions.  Most of the gaming operations in the region closed for at least a few hours, in Atlantic City the casinos were closed for several days.  The damage was to the customers rather than the casinos, even after the casinos reopened gambling was not the first thing on most people’s priority list.

Floods and hurricanes have closed casinos in the past – including Atlantic City; particularly in Mississippi and Louisiana it is not uncommon to be hit by a hurricane or a flood.  The impact can be lasting,  it took the casino industry in Biloxi, Mississippi a very long time to recover from Hurricane Katrina.  But recover it has and today Biloxi is in the midst of a mini-expansion phase, partly due to the hurricane.  Katrina led Mississippi to allow its casinos to come onto land;  that change in the long-run will turn out to be the most important effect of the storm.

Sandy, too, may end up helping Atlantic City in the long-term; resulting in more favorable legislation as New Jersey does what it can to improve the business environment in Atlantic City and reducing the number of casinos competing for a declining market share. Most of the legislative and regulatory changes being discussed were well on their way before Sandy.  Governor Chris Christie has made Atlantic City and the casinos one of the top priorities of his administration.  However, nothing is cooperating with Christie, not the external competition or even the weather.  Things are looking very, very dismal for Atlantic City.  The casino control commission released the figures for November of 2012, casinos revenues were $176.6 million, down 28 percent from November of 2011.  But that is only part of the story – casino revenues are down 57 percent from November of 2006 when casinos were just starting to open in Pennsylvania.

 Atlantic City: November gaming revenues rose 1.6% to 406.1 million.  Alan R. Woinski, Gaming Industry Weekly Report, 12-18-06

 Hurricane Sandy clobbered the Atlantic City casino market again in November, helping send revenue to the biggest monthly decline in the resort’s 34-year history of legalized gambling.  Total revenue from slot machines and table games fell 28 percent, to $176.6 million, compared with $244.9 million in the same month last year, the state Division of Gaming Enforcement reported Monday. Slot revenue slipped 27 percent, to $126.1 million, while table game winnings were off nearly 30 percent, to $50.5 million.  Donald Wittkowski, Press of Atlantic City, 12-10-12

 The worse of the post-Sandy news concerns the newest casino in town, Revel; Revel cost $2.4 billion dollars to build, more than twice what the other new kid in town, Borgata cost when it was built in 2003.  In simple terms, that means Revel should do twice as much revenue to justify the cost and to service the debts.  It is not, in November Revel generated $6.2 million n gaming revenue, 11th in the market and Borgata generated $42 million – 23 percent of the win of Atlantic City – Borgata has been the number one revenue producer in Atlantic City since it opened.  Unite Here, the local union estimated that it will take between $28 and $30 million in monthly gaming revenue for Revel to pay its debt cost and survive.  That is two or three times the amount of revenue that Revel has generated in any month since it opened 8 months ago.

 Hurricane Sandy left its mark on November gaming revenue at all 12 Atlantic City casinos. But none took a more debilitating hit than Revel, which has been burning through cash at an alarming rate and which generated just $6.2 million from gamblers last month…Revel’s November totals ranked it 11th among the dozen casinos. To keep the operation open, its owner is currently seeking additional money from its lending group.  Revel had upped its credit line to $100 million in mid-August, but it quickly exhausted most of that money, more than $77 million as of Nov. 21, according to company filings. Suzette Parmley, Philadelphia Inquirer, 12-10-12

 Revel is seeking additional financing trying to make it through the winter, but one suspects there is not enough available to keep in afloat.  The latest figures put the additional debt, the money borrowed since it opened to keep it afloat, at nearly $1.6 billion.  Will Revel close?  Probably not, but it will have to have its debt restructured dramatically.  However, some casino will have to close, maybe as many as two or even three, for the rest to survive.  Each casino is fighting for enough market share to stay alive, to be able to keep the property up-to-date and to show a profit.  With the declining revenues and increasing competition, it is certain that all of the 12 casinos now operating in Atlantic City will not make it.  Hurricane Sandy may just have been a tipping point for some casinos in Atlantic City.  It will be a while before we know exactly what changes Sandy brought, but it is not too soon to say that Sandy did bring some drastic changes to the legendary boardwalk and the seaside casino city.  Hurricane Sandy wounded Atlantic City, for some casinos the wound will be too much to overcome.

 

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