Adjusting to New Market Realities

On June 1st, Harrah’s Casino Tunica closed its doors for good. Harrah’s shocked the Mississippi Gaming Commission and many others with the announcement it would close its Harrah’s Tunica. The company said there are too many casinos in Tunica for the number of customers the market attracts.

The dice are no longer rolling and the slots aren’t spinning at Harrah’s Casino in Tunica. The casino lights went out for good a little after midnight Sunday, meaning 1,300 employees are now looking for work. For many people, the closure marks the end of an era in gaming in Tunica County…The casino’s lights burned for a few minutes past midnight, and then at 12:05 Monday morning, they went dark for the last time. It was an eerie sight, seen only once before in 2011, when flood waters closed the casino. Many believed the flood was the beginning of the end for Harrah’s, which has experienced declining revenues…Harrah’s Tunica opened in June 1996 as The Grand Casino. The name change to Harrah’s Tunica was finalized in May 2008. Mike Suriani, WREG-TV, 6-1-14

Atlantic City started the year with 12 casinos. By Labor Day, it could be down to nine. For years, economists and analysts talked in theoretical terms about “casino saturation” in the northeastern United States. But there’s nothing theoretical about what’s happening in Atlantic City now. The Atlantic Club is dead, taken down by two rivals. Revel says it will close if a buyer can’t be found, and Caesars Entertainment, which says there are too many casinos in New Jersey, plans to shutter one of its four, the Showboat, on Aug. 31. Mayor Don Guardian, who could see a quarter of his city’s casinos close during his first year in office, said Atlantic City is in the midst of a difficult but necessary makeover from being a gambling resort to a multi-faceted destination where betting is only part of the allure. Wayne Parry, Associated Press, 6-29-14

The ink was hardly dry on the announcement of the demise of Harrah’s Tunica before Harrah’s announced it would close the Showboat casino in Atlantic City. The wording of the announcement was exactly like the previous announcements – “there are too many casinos in Atlantic City.” Harrah’s had already reduced the number of casino in Atlantic City by one, when it bought and closed the old Golden Nugget. And oops, but Revel has announced that unless it finds a buyer within the next month, it too will close.

The Showboat Atlantic City Hotel and Casino will close Aug. 31. “I know that the workers are getting issued WARN Act notices tomorrow,” Bob McDevitt, president of Unite HERE Local 54, said Thursday, referring to the federal law that requires companies to give notice to employees if a business plans to close…The casino had more than 2,100 workers as of June 2. “The fact that Caesars would close a casino that continues to be profitable … is a criminal act upon the citizens of Atlantic County,” McDevitt said. Reuben Kramer, Press of Atlantic City, 6-27-14

Revel AC Inc. has set Aug. 6 as the tentative auction date for Atlantic City’s Revel Casino Hotel, subject to bankruptcy court approval. In order to participate in the auction, bidders will have to submit qualified bids by Aug. 1, according to a motion filed Saturday in U.S. Bankruptcy Court for the District of New Jersey by lawyers for Revel. The attorneys requested a July 11 hearing on the bid procedures, arguing that Revel doesn’t have enough money to continue operating for long. “Without an expedited sale, the debtors would have no obvious alternative other than to cease operations and liquidate their assets,” the motion filed Saturday said. Harold Brubaker, Philadelphia Inquirer, 6-24-14

The casinos in Atlantic City are being forced to adjust to customer demand. The process is well-known in retail. No one is surprised when Wal-Mart closes a store due to underperformance. Wal-Mart closes and opens stores regularly, moving locations from unprofitable areas to areas with more financial upside. Demographics shift, new competition comes in and new areas develop with more potential and less competition. Wal-Mart is constantly adjusting to the changes in the marketplace. All retailers do it and they do it regularly. To the casino industry closing a casino is very rare and when Caesars began to close casinos – Showboat will be its third – it was shocking. The casino industry has been on a 50-year growth and expansion binge, but that is over. Now the industry will have to adjust itself to existing conditions. Caesars is just doing what retailers do regularly, closing poor locations and opening new ones. As Caesars closes one casino in Atlantic City it will be opening another in Baltimore. It has also applied for a license in New York and one can surmise if Caesars gets the New York license another underperformer in the region might bite the dust.

The fight for four New York state casino licenses is set to intensify as operators including Caesars Entertainment Corp. and Genting Bhd. jockey for access to the 8.3 million residents of the biggest U.S. city. Formal bids are due today at the state Gaming Commission, which in April received $1 million filing fees from 22 entities. At least three filers, including Foxwoods Resort Casino of Connecticut, have since dropped out. The biggest prize among three regions approved for casinos is the Catskill Mountains-Orange County area, parts of which are only 50 miles (80 kilometers) from New York City. The commission must balance the goal of economic growth in the Catskills, a once-booming resort destination, against the potential for more tax revenue in Orange County. Freeman Klopott/ Christopher Palmeri, Bloomberg, 6-30-14

The Horseshoe Casino Baltimore is scheduled to open in late August. Casino officials say the $442 million casino is scheduled to open on the night of Aug. 26, pending regulatory approval. The casino will feature 122,000 square feet of slot machines and table games like blackjack. It also will have two celebrity chef restaurants and a steakhouse. The facility will have about 2,500 slot machines and 100 table games. It also will have a World Series of Poker-branded poker room. Casino officials say it will employee about 1,700 people. Associated Press, 6-27-14

This is just the beginning; the casino marketplace has reached a point of saturation and each casino jurisdiction is going to have to some “right” sizing. Besides market right sizing, individual properties are going to have to restructure. Debt levels that were sustainable and serviceable in pre-recession times will not be sustainable in the future. However, it will require more than just restructuring debt – a thing that is never simple. It will require restructuring the operations, reducing the number of gaming devices and positions to fit the demand. Restaurants, entertainment and retail are also going to need restructuring. The casino industry is entering a new era, a new reality and this new reality will take some very painful adjustments.


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