Gary Says Its Over – He Should Know, He started it

Well, we have it “straight from the horse’s mouth” the worst is over in Atlantic City. Caesars started this ball rolling by closing the Atlantic Club and then Showboat, so if anyone should know the worst is over, Gary Loveman should. “Atlantic City has taken its worst blows. I’m cautiously optimistic that a turn is coming. There will be a few more blows, but none of them will be as severe as what we’ve had thus far,” Loveman said. Things may not get better, but they are not going to get worse – or at least, not a lot worse.

Caesars Entertainment Corp. (CZR) Chief Executive Officer Gary Loveman said the worst may be over for Atlantic City after five of the New Jersey town’s 12 casinos have closed or said they may shut this year. Freeman Klopott/ Christopher Palmeri, Bloomberg, 9-18-14

This terrible year – The Year the Casinos Died – started with closing the Atlantic Club. In June, Harrah’s in Tunica closed. Some might argue it was a dress rehearsal for the closure of other properties in the Caesars portfolio. Tunica was a good test for the company; it helped the company establish necessary procedures, gauge the financial market’s reaction and test the response of gaming regulators. In August, Caesars closed the 27-year old Showboat in Atlantic City. Showboat was the second casino to close in 2014, but two more followed close behind. In the last 80 years of legal commercial gaming in the United States many casinos have come and gone. But four casinos closing within a 12-month period in a market with only 12 casinos in the first place is unusual to say the least.

It is unusual, but it may be the beginning of a trend. Caesars pointed the way and other casino companies are sure to follow. It made sense for Caesars to rid itself of underperforming properties in saturated markets. In many markets Caesars has multiple properties; closing one protects the others as long as there are no new licenses available. Closing also made sense for Revel. No buyers were willing to assume the property’s debt. As it was, the property could never have generated enough revenue to pay its debts. It might not even have been able to pay its operational expenses. The property may be purchased and reused, but it will not have the same operational model or the significant debt.

Like Revel, debt has been a liability for the Trump casinos all along. After four bankruptcies no one would argue the Trump properties are worth saving. The properties are old and tired with mountains of deferred maintenance. It would take hundreds of millions of dollars to make them competitive and even then it would be a struggle. The Golden Nugget spent that much to make Trump Marina competitive and still finds the Atlantic City market challenging. . Now however, without those four, the remaining casinos may be more profitable. I think that is what Gary Loveman meant; the worst of times for the casinos left in Atlantic City are over. The year, 2014, is almost over and it will long be remembered as The Year the Casinos Died. One can only hope that Loveman is right and that 2015 will be a better year for Atlantic City.


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