Two Way Hard Three | Las Vegas Casino & Design Blog

May 31, 2011

Some thoughts on Atlantic City

Posted by daveschwartz

The AP's Wayne Parry wrote an excellent article about Atlantic City's rise and fall. He reached out to me for my thoughts, and I answered several of his questions. Obviously, with space constraints being what they are I figured most of what I said wouldn't make it into the story, so I planned to post it here so I could share my thoughts with a broader audience. You can see many of the numbers I reference in my Atlantic City Gaming Revenue (pdf) report.

Here are his questions and my responses:

What were the crucial points on the way up--and the way down--for Atlantic City, and why?

The first seven years (1978-85) saw phenomenal growth. In 1982, Atlantic City casinos surpassed Las Vegas Strip casinos in total revenues. In the mid-1980s, though, things started to change. AC's table revenues began to stagnate; today, they are about where they were in 1985; adjusting for inflation, that mean's they've shrunk in real dollar terms. At the same time, the Las Vegas Strip really boomed. So by 1990, even though Atlantic City revenues were still growing, they were now increasing at about half the rate of the Strip's. Since 2007 (the decline predates the recession) revenues have declined by 9% per year, on average. That's worse than Las Vegas, and, unlike in Vegas, the bottom still hasn't been hit.

What could have been done differently, and at what point?

For a while in the mid-1980s, it looked like AC was going to become the world's gambling capital. That didn't happen because of industry and regulatory inertia. Everyone was happy to coast along since the money was coming in. The responses to Foxwoods and increased competition in the early 1990s (24-hour gaming, poker, keno, simulcasting) should have been the start, not the end. The failure to legalize sports betting was a historic mistake, and it's symptomatic of what ails the AC industry: a lack of strategic planning. By the mid-1990s, it should have been clear to everyone that there was going to be substantially more regional competition, and that AC needed something that no one else had. But for many reasons (political, cultural), the industry couldn't lobby successfully for sports betting, which would have been a game-changer.

In general a less parochial perspective on behalf of legislators, regulators, and the industry would have benefited everyone. Casinos were worried about their "competition" at the other end of the Boardwalk, not Foxwoods, Las Vegas, or Delaware. While AC's market share was getting chipped away in the 1990s and 2000s, Las Vegas was successfully building up its own in the face of dramatically more competition, particularly in California, its primary feeder market. AC execs should have seen what was working in LV, and the regulators should have empowered them to make the necessary changes.

What do you think is the worst-case scenario for Atlantic City's future, as well as the best-case scenario?

Worst-case scenario is that the ROI is no longer there, and future investment dries up. The city saw this happen from the 1940s to the 1970s, and it isn't pretty. It's happening right now in Northern Nevada. Casinos close, and the existing operators run what's already there, but don't do much to attract new interest. There will still be revenues, but you won't have as many jobs or any real prospect for growth.

Best-case scenario is that the regulators get out of the way and the state creates an environment that attracts new capital. New people with new ideas come into the market (seeing a bit of this with Revel and Golden Nugget) and are able to create distinct destinations that continue to draw visitors--and their money.

What do you think of what is going on now with the tourism district, regulatory reform and the greater overall state attention to AC?

It's a good idea, but it has to be done right. I'd suggest looking at what worked and what didn't in Las Vegas. In addition to building attractions, the entire region needs a marketing push.

What role did municipal government have in the industry's decline, and how might it help bring it back?

As with the regulators, it's mostly a failure to imagine something besides the status quo. I don't see much leadership coming from the municipal level: mostly the city needs to provide services to its residents and businesses and, as much as possible, stay out of the way.

Can things ever get back to where they were just four years ago, or are we in for a "new normal" of reduced revenues and third-class status, behind NV and PA?

Things will never go back to where they were: conditions have just changed too much. If things remain as they are, the city's casinos will slowly lose market share to PA, NY, DE, MD, and whoever else gets into the game. If there's substantial new development and a coordinated effort to brand and market the city in a different way, Atlantic City can be successful again, but it's going to require a reinvention, not a return to the past.

Basically the city needs to stop looking backwards and start looking ahead.


Read archived comments (4 so far)
June 1, 2011 6:10 AM Posted by Bryan

I've been to AC many times the last 10 years. The last time I went, I was playing with 'scared money' b/c I kept thinking "If I lose this too quickly, there's nothing else to do." That pretty much sums up the problems right there.

Also, you should have mentioned the weather as a factor. It's not like Vegas where even a 'cold' February is 50 degree and better than AC. Even in Foxwoods, you fell like its a better place to be.

The Broadwalk has become such a miserable place too. Seagulls, homeless, dirt, broken boards....

June 1, 2011 7:14 AM Posted by DuLac55

Don't you think the lack of a real commercial airport contributed to killing their long-term prospects as well? If they could have built up the shore, imagine what you could have in the summers there. With all of the pool parties in LV and the Jersey Shore show being so popular, AC could have been a big summer destination city. Instead it's a pit. Why would anyone fly into Philly just to drive another hour or so to go to AC?

Sports betting would have kept their edge. Oh well.

June 1, 2011 9:16 AM Posted by parchedearth

Local government deserves much of the shame with all the wasted tax revenue. You can't even walk safely a block off the boardwalk. This was a significant factor in the Borgata and Harrah's success away from downtown. The city spent huge sums on tunnels, roads, a minor league ballpark, and a convention center blocks from anywhere. Some basic urban planning could have made a big difference.

June 1, 2011 12:21 PM Posted by Dave

I think the weather and the airport are both contributing factors. AC casinos should have made better summer use of their beach access long before they started to.