Casino-nomics: The Good, the Bad

By Barry Rascovar

July 17, 2014 — Once upon a time, casinos looked like the salvation of Atlantic City, a famed but dilapidated resort town on the Jersey shore.

Historic Atlantic City

For well over a quarter-century, New Jersey’s gamble worked.

Unfortunately, state and local politicians failed to reinvest the taxes flowing from a dozen casinos into Atlantic City. It remained a depressing, down-on-its-luck town of impoverished minorities surrounded by glitzy hotel-casinos.

Now the bubble has burst.

Out of State Competition

Pennsylvania, Delaware and New York gambling casinos have set Atlantic City on its heels.

Maryland’s initial entries — at Perryville and outside Ocean City — were too small and poorly run to create a problem for the Jersey resort.

But when David Cordish’s huge Maryland Live! Casino opened, Atlantic City took a big hit.

Maryland Live!

Maryland Live!

The growing number of casinos in the Northeastern U.S. is delivering staggering blows to the former Queen of the Atlantic Resorts.

The jobs of 7,000 Atlantic City casino workers could disappear by Labor Day — a stunning number for a community of 40,000.

One casino, the Atlantic Club (formerly the Hilton and before that the Golden Nugget), went out of business in January.

Atlantic Club

Shuttered Atlantic Club

Two more casinos are definitely shutting after August — Trump Plaza and Showboat, owned by Caesars Entertainment.

Showboat Casino closes in September

Showboat Casino closes in September

A fourth hotel-casino along the boardwalk, the spectacular and expensive ($2.4 billion) Revel high-rise, is in bankruptcy for the second time. It will be shuttered in mid-September unless a buyer surfaces.

 

Revel Hotel and Casino

Revel Hotel and Casino

More closings are possible.

Caesars Entertainment, for instance, is wallowing in a sea of debt and must increase the profitability of its three remaining Atlantic City properties.

Others, like Resorts International, can’t overcome aging buildings and lack of drawing power in the winter months.

Resorts International

Resorts International

It was bound to happen.

Atlantic City eagerly let too many casinos open their doors. Now the town is over-saturated with giant gambling hotels. A contraction was inevitable.

City and state officials  never planned for the day when competing casinos would surface in nearby states, thus shrinking Atlantic City’s gambling market. They placed all their economic bets on the gaming industry.

Now town officials are belatedly scrambling to rejuvenate Atlantic City and bring in other attractions before blight and despair set in around the hulking, abandoned gaming halls and hotels.

Success at Maryland Live!

Maryland, meanwhile, is profiting handsomely from its long-delayed entry into casino-nomics.

Cordish has shown the way, outmaneuvering racetrack owners and creating a mecca for lovers of casinos.

Maryland Live! is now the most profitable full-service gambling site on the East Coast.

In June, Maryland Live! raked in $56.5 million, $8 million more than Atlantic City’s Vegas-like casino, Borgata, situated several miles from the resort’s boardwalk.

Borgata complex

Borgata complex

Business is booming on Maryland Live!’s casino floor and restaurants. Locating the facility in one of the East Coast’s most popular shopping malls, Arundel Mills, proved a huge asset.

Yet those halcyon days are coming to an end for Cordish.

In late August, Caesar’s will open its Horseshoe Baltimore casino near Ravens Stadium.

It will cut into Maryland Live!’s gambling revenue by as much as one-third.

There’s more bad news coming: Completion of the MGM National Harbor casino overlooking the Potomac River and the Capital Beltway in late 2016.

MGM National Harbor

MGM National Harbor

This will be the most elegant and trendy gambling joint in the region, ideally situated to draw customers from Washington, D.C., Virginia, the Carolinas and Prince George’s County.

Still, Cordish’s complex — on the lower floor of a parking garage — will remain quite profitable.

That’s because Maryland capped the number of in-state casinos at six.

Moreover, the chances of Virginia joining the casino craze are highly unlikely.

Meanwhile, Maryland’s future Big Three — in Baltimore, National Harbor and Arundel Mills — will compete for gambling customers without fear of other entrants diluting the market.

Rural Casinos in Maryland

Maryland’s three smaller casinos are surviving, though at a lesser level of success.

Penn National’s poorly conceived and poorly run Perryville casino in Cecil County should be thriving given its location directly off an I-95 exit.

Hollywood Perryville

Hollywood Perryville

But Penn National threw up a bland, warehouse-like structure in an out-of-sight valley. It has failed to offer gamblers much in the way of entertainment, excitement or value.

Yet Hollywood Perryville took in $7 million in June. Not bad, but it hardly taps the site’s potential.

Harness Racing and Slots

Bill Rickman’s Ocean Downs casino and race track near Ocean City stubbornly refuses to offer table games.

Still, its 800 slot machines do exceptionally well in the summer months, taking in $4.8 million in June — an average of $200 per day per machine.

Rickman, whose main money-maker is the Delaware Park casino and race track near Wilmington, has an added advantage at Ocean Downs: He gets a slice of slots revenue from other Maryland casinos to boost racing purses and make track improvements at his Ocean Downs harness oval.

It’s a great package deal.

Western Maryland Casino

Maryland’s other small casino, at Rocky Gap Lodge near Cumberland, is still in its developmental stage.

Yet it took in $3.7 million in gambling revenue in June from 577 slot machines ($186 from each device per day) and 16 gaming tables.

Rocky Gap near Cumberland

Rocky Gap near Cumberland

With savvy management and marketing by Lakes Entertainment, Rocky Gap could evolve into a popular resort destination offering far more than gambling — a championship golf course, a comedy club, 215 hotel rooms, a convention center and a lakeside location in a state park.

Lakes Entertainment benefits from the fact it bought Rocky Gap on the cheap from the state, which was desperate to reinvigorate the picturesque lodge built with state funds.

It paid the state just $6.8 million and has poured another $25 million or so into upgrades. Gambling revenue will help make the resort much more viable.

Rocky Gap

Rocky Gap

Unlike Atlantic City, Maryland never viewed gambling as an economic development savior.

It’s a pleasant economic bonus for Maryland’s education coffers and a generator of lots of decent-paying jobs for the state.

Casinos can’t be viewed as a long-term growth industry, though. More likely, the six casinos will turn into steady generators of state tax revenue, much like the state lottery.

slots

With no back-up plan, the end of the casino boom is a calamity for Atlantic City.

In Maryland, legalized gambling at a limited number of locations has a far better chance of becoming a long-term survivor.

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