A changing of the guards – Cleveland tops Atlantic City

The news from Atlantic City has not been good this week; the New Jersey Division of Gaming Enforcement released the gaming revenue figures for December and for 2012 and the numbers are not pretty.  The casinos in Atlantic City just finished the sixth consecutive year of gaming revenue declines; gaming revenues in 2012 were 41 percent below 2006 and the lowest they have been since the 1990s.  December was only 8 percent down from 2011, but even 8 percent year after year becomes really significant over time.

Unfortunately, the story of Atlantic City’s decline will not end with 2012.  The casinos in Pennsylvania that have been eating Atlantic City’s lunch are not going away.  In fact, at this moment, there is a competition for a new casino license in Philadelphia, once a major source of customers for Atlantic City.  And still to open are three casinos the governor of New York is proposing for New York, three in Massachusetts, two more in Maryland and the possibility of expanded gaming in Delaware, Rhode Island and New Hampshire.  The picture is not bright for the boardwalk empire; Hasboro is going to eliminate one of the Monopoly game pieces.  The company is asking players to vote on which piece to eliminate; the loser will be dropped from the game.  That same process is taking place in Atlantic City – players are voting with their dollars; the casino with the fewest votes will be forced out of the game.

Atlantic City is much like a typical American family that bought a new house or refinanced one in 2006; it has too much debt, too many expenses, too little revenue and no prospects of increasing the revenue, decreasing or restructuring the debt is the only option. Oh, and for the individual casinos, they have to hope some of the other casinos will close and take their gaming devices, table games, restaurants and rooms offline.  For the latest and most expensive casino in town, Revel, its management has to find a way to reduce its debt, increase its revenue and lose some of its competitors.

It sounds so simple, only it is not; most of those variables are not within Revel’s control.  Revel is not alone, Trump casinos is in the same position.  The Donald is no longer a factor, after three bankruptcies he lost control of the company and is only a minority stockholder with no say in the business; the new operators paid $225 million, a far cry from the $2.6 billion that it cost to build Revel, but too much for the Atlantic City market in this day and time. The chairman of the board is leaving, a clear admission that something needs to be done; the something is the same as at Revel – restructure the debt, reduce expenses and increase revenues while praying for the death of a competitor or two.

The casinos are not the only ones suffering from the downturn caused by completion and exacerbated by the recession.  The city is in the same boat; when the casinos were prospering and spending money hand over fist, the city was prospering and spending money hand over fist.  Both the casinos and the city were spending cash, but they were also borrowing some of the money they spent.  Who wasn’t?”  Every year we all made more money, all of our assets appreciated and the future was rosy and bright.  But after 2007 or so, life changed and it has never been the same for most of us.  No, we are not going to automatically make more money next, no, our assets do not appreciate and the future is not rosy and bright.  That does not mean, everything is dark and dismal and there is not hope that things will get better – it is not and things are getting better, slowly.  The casinos in Atlantic City are making less money and therefore they are paying less in tax to the city.  The city is borrowing more money to make up the deficit – not a receipt for success in the long-term.

But for anyone with 2006 debt in 2013, things are likely to be difficult.  That is Revel, Trump and Atlantic City’s problem.  Their debt may not be quite 2006 (but they were using a 2006 template), but it is not suited to 2013 – at least not yet.  All three may find a way to restructure, – they must find a way.  They may even generate a bit more income, but none have the future they imagined while they were using that 2006 template.

It is old news and old thinking, things have changed a great deal since 2006.  The torch has been passed to a new generation of casinos. In 2006, the casinos in Atlantic City were second only to the Las Vegas Strip casinos in revenue.  That position now belongs to Pennsylvania – actually it is third, as Vegas has been passed by Macau.  And possibly most shocking and unimaginable –a casino in Cleveland, Ohio generated more gaming revenue in December than all but one casino in Atlantic City.  The gaming industry is like all other industries, it is dynamic.  Nothing and no one can sit still and stay in the game; or as the saying goes, “when you snooze, you lose.”  And like any other reality show, you are likely to get voted out of the game.

 Revel Entertainment Group LLC’s $850 million term loan fell to a record low as Atlantic City gambling revenue declined 8.9 percent in December. The debt due in 2017 fell 7.125 cents to 46.5 cents on the dollar yesterday, from 53.625 cents on Jan. 9, according to prices compiled by Bloomberg…Revel needs to generate between $28 million to $33 million in revenue a month to cover payments on its first-lien debt, according to a Dec. 10 research report by Unite Here, a labor union representing workers in industries such as hotel, gaming and food service. For October and November, Revel reported a loss before interest, taxes, depreciation and amortization of $23.4 million…. in December Revel reported a total casino win of $9.9 million, ranked ninth among the 12 gaming properties in the city. Krista Giovacco, Bloomberg, 1-11-13

 Atlantic City sold more general purpose debt per capita than most other governmental entities nationwide during 2012 — including those at state and county levels. Local officials say tourism and commercial development skew such population-based statistics. Financial experts, however, say that effect doesn’t matter as much for Atlantic City because of its economic dependence on the struggling casino industry — a situation that caused the municipality to borrow money in the first place.  The city’s $114 million in combined issues last year ranks 100th among total amounts borrowed by other U.S. governmental entities for tax appeal relief, refinancing and other general. Emily Previti, Press of Atlantic City, 1-11-13

Tourism statistics released by the Atlantic City Convention & Visitors Authority Thursday pointed to small increases that could indicate some degree of a bounce back following Hurricane Sandy. Jennifer Bogdan, Press of Atlantic City, 1-11-13

 The billionaire New York hedge fund manager who led the $225 million bankruptcy buyout of Trump Entertainment Resorts is resigning as the casino company’s chairman of the board. Marc Lasry, chairman and chief executive officer of Avenue Capital Group, announced Friday evening he will leave the Trump Entertainment board of directors on Feb. 28. Bob Griffin, who serves as president and CEO of Trump Entertainment, will replace Lasry as company chairman. Donald Wittkowski, Press of Atlantic City, 1-11-13

 The Horseshoe Casino Cleveland brought in more in gambling revenue than all but one of Atlantic City’s 12 casinos in December. It also outpaced all nine casinos housed along the city’s famed Boardwalk…Horseshoe’s December take was $24.53 million, which when compared to Atlantic City came in behind only the market leader Borgata, which posted a total casino win in December of $54 million and just a hair ahead of its sister property Caesars, which came in at $24.43 million. John Kosich, WEWS-TV, 1-10-13


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