Is Atlantic City a Failed Experiment?

In a recent conversation with Jeff Compton, he asked if I thought Atlantic City was a failure. It is not an uncommon question. If you Google “Atlantic City a failed experiment,” you get dozens of hits written over the last two years. The reason for the question is obvious; casinos are closing. Within a month, Revel, Showboat and Trump Plaza will be closed. Add to that list the Atlantic Club which closed in January and four casinos will have closed in 2014. Casino revenues are down 45 percent since 2006 and the city has lost over 20,000 jobs. It is not a pretty picture. The situation is attracting mainstream media attention in a way that Atlantic City never did in the good days which means the question will be asked more frequently in the future.

Atlantic City’s casino, Resorts, opened Memorial Day, 1978 to huge crowds, overwhelming approval and the envy of every casino owner in Nevada. Over the next thirty plus years Atlantic City went from a post Great Depression, sad, deserted, former resort with a famous boardwalk to a crowded, popular and successful casino resort city with that same famous boardwalk. At their peak in 2006, casinos in Atlantic City employed over 50,000 people and generated more than $5 billion in revenue. That is hardly the description of a failure. Although some individual casinos have failed, the industry itself has not failed. Revel, Showboat, Trump Plaza and the Atlantic Club have closed, but that leaves 8 casinos with a better chance of success. In 1977, when people voted to approve casinos they did so to save Atlantic City and bring back the glory days when the city was a major resort destination. The legislation anticipated a city rejuvenated by revenue from the casinos with plenty of money left over for the city, county and state coffers. There are things that failed to meet the expectations of voters in 1977. For example, everyone would agree that efforts to redevelop the rest of Atlantic City fell short of expectations. And, it is now painfully obvious that Atlantic City also failed to become a true destination resort.

However until recently, even without better redevelopment of the rest of the city and the creation of a true destination, Atlantic City casinos did what the voters wanted when they authorized casinos. Since 1978, the casinos have paid a great deal of money in taxes to the city, county and state. The experiment was very successful until Atlantic City was overwhelmed by competition. No one, not the voters, public officials or regulators in 1978 could have anticipated the impact of Pennsylvania. The rules and regulations put in place in the beginning did not permit casinos in Atlantic City to grow and adapt the way they did on the Las Vegas Strip. However, that is not the reason for Atlantic City’s troubles. Atlantic City was caught in the wave of expansion and it is not alone. Michigan, Indiana, Illinois, Mississippi, Louisiana, Connecticut, Nevada-except for the Strip, and most states with Indian casinos have been caught by that same wave.

That fact, begs another question: Is it possible to pass any legislation to solve a temporary problem that will remain viable forever? I think not; few business models last any longer than the New Jersey casino experiment. One could ask the failed experiment question about all the states mentioned above; Are they all failed experiments? No, things just change; the times change, business models change – everything changes. And the casino industry has changed as well; it is dramatically different than it was in 1978. To survive and prosper, the industry needs to continue to change and every jurisdiction too will have to adapt and evolve in its own unique way.

The Atlantic City casino industry must resize and adapt to a new reality that includes casinos in all of the surrounding states. Whatever happens, Atlantic City has an ocean and oceans attract visitors. It also has some very nice casinos and some will survive. In fact, given the current pressure to expand gaming in New Jersey, Atlantic City casinos will probably be getting subsidies from the expansion and in all likelihood be operating the new casinos. I think of Atlantic City as an experiment in flux. What do you think, is Atlantic City a failed experiment?


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