Atlantic City Recovery?

For the first time in precisely a decade, (2006 compared to 2005) the Atlantic City casino win improved over the previous year’s numbers. Granted, it was not a perfect year for Atlantic City as they are still (as a city) saddled with massive debt and bordering insolvent, but it was a reasonably good year for the casinos.

One exception is the Trump Taj Mahal, the closure of which I covered pretty extensively (and, in person) both here and on Wizard of Vegas. However, the Trump Taj Mahal was something of a pimple on Atlantic City’s ass in that, as of the end of June 2016, it was the only Atlantic City casino (other than two of the three Caesar’s Entertainment ones, and CET was having its own problems as a company last year) performing worse than it had to date in 2015. In other words, CET’s problems likely managed to benefit all of the other Atlantic City casinos, other than those named, ‘Trump Taj Mahal.’

Not only was Atlantic City stronger through the year (+1.55% overall), but they also finished strong with $189,697,948 in total casino win for December of 2016 compared to $177,615,601 for December of 2015. The difference of $12,082,347 reflects overall gains of 6.8025% compared to December of the previous year. That’s potentially huge because not only does it mean that Atlantic City finished the year really strong, but that the gains in overall casino win (2016 compared to 2015) EXCEED the amount of money that Trump Taj Mahal made in December 2015 in casino win ($10,688,310) which means that Atlantic City was obviously not passing around what would have otherwise been Trump Taj Mahal money.

In fact, if we assume that all of that money did get spread around the remaining seven Atlantic City casinos, then what we end up with is those casinos enjoying an extra $22,770,657 between them all in casino win for the month. Subtracting the Taj Mahal’s revenue for December 2015 and redoing the numbers results in casino winning gains of 13.641% when we look at just the other seven casinos.

It shouldn’t be a surprise that the Tropicana (+26.963%) fared extremely well in casino win in 2016 compared to 2015 since that casino is owned by Carl Icahn, owner of the shuttered Trump Taj Mahal, and he focused great energy on transferring players from one casino the other. It may come as a small consolation, however, that he only managed to divert about 53.003% of the Trump Taj Mahal’s overall business (December v. December) to the Tropicana who saw casino win gains of $5,665,143 in 2016 compared to 2015, despite the fact that The Taj won $10,688,310 by itself in December of 2015.

(Tropicana 2015) + (Taj Mahal 21015) > (Tropicana 2016)

In fact, in raw dollars, one casino even managed to beat Tropicana in raw gains from December 2015 to December 2016, and that was Caesar’s which enjoyed a raw gain of $7,292,852 in casino win. Of course, that is a 32.602% gain in December 2016 compared to December of the year before for Caesar’s. They still led the way, though, even in terms of percentage.

Bally’s (which is itself almost a redundant casino to Caesar’s) was up 0.33% in December 2016 compared to December 2015 and was the only casino not to improve meaningfully in overall win. The average gain was also somewhat tempered by Borgata, who improved 3.716% in December 2016 compared to December 2015. The other five Atlantic City casinos each improved by a percentage greater than the average for December 2016 as compared to December 2015.

Beyond the Numbers:

To what do we owe the pleasure of Atlantic City’s first positive year compared to the previous year since 2005-2006?

The majority of articles covering this topic point to online gambling increases, ($196,709,000 compared to $148,880,000 the year before, +32.13% as a category) and certainly when we compare it to $2,602,721,000 to $2,563,118,000 for the year before for a difference (all rounded to the nearest thousand) of $39,603,000 compared to the $47,829,000 for online gambling increase, we see that the difference between online gambling win is greater than the difference in overall gambling win.

However, if we were to take online revenues completely out of the equation, Atlantic City is still left with $2,406,012,000 in total win for 2016 compared to $2,414,238,000 for the year before. That means that Atlantic City would have actually lost about 0.342% in casino win for 2016 compared to 2015 if we ignore online gambling. While that still may not seem like much of a positive, it is definitely a slimmer deficit than any other two years previous going back to the 2005-2006 period during which AC saw its most recent year-over-year gain.

Simply put, the Internet Gaming segment appears to be growing for Atlantic City whereas the traditional gaming segment appears to either be on an improving trend, or stabilizing, depending on how you want to look at it. Given the incredible revenue differences between December of 2016 and December of 2015 in all segments, it is possible that traditional gambling revenues are improving, but if we look at a November 2016 that was actually weaker for casino win than November 2015, then one almost has to argue that it is stabilizing.

For whatever reason, casinos also tend to fare well when the players have confidence in the financial stability of the casino. CET, as a whole, looks reasonably stable, now, and the revenues appear to have borne that out. It makes sense, in a way, patrons do not want to establish a relationship with a casino just to see that same casino end up in financial trouble, close, and now the patrons have to go and establish a relationship (and play) with a different casino.

One of the major events to break Atlantic City’s way in 2016, which may well have influenced the tremendous revenue gains for December 2016 compared to December 2015 (in all aspects) is the failure of the Atlantic City casino expansion measure on the November ballot.

Not only did the measure fail, it was roundly rejected with nearly 80% of voters against opening two casinos in Northern New Jersey. Naturally, this is great news for Atlantic City and had Trump Taj Mahal not (arguably, at least) closed because of the Unite Here strike, it is quite possible that the news that Atlantic City would not face an increase in in-state competition would have prompted even further investment by Icahn into the Taj.

In other words, Atlantic City goes back to feeling like a, ‘Safe,’ town for patrons to establish relationships with the casinos because the majority of the casinos, at least now, do not appear to be under any sort of grave and imminent threat to their existence. Granted, it may come to pass that casinos opening in other nearby states (Massachusetts is one example) may prove detrimental to Atlantic City, but at least AC doesn’t run an imminent risk of losing some of the residents of their own state to other casinos. The casinos that were proposed to open would have served as, ‘Local casinos,’ to several people and would have likely cut off a not insignificant piece of AC’s market...not to mention cutting off travelers coming down from New York State!

Furthermore, all of the remaining casinos also have current labor agreements in place with Unite Here 54, so there is no uncertainty with the union. Finally, CET seems to have their ducks more-or-less in a row.

The Uncertain Future:

While all of these things seem like positive developments for Atlantic City (as a whole) the casinos that may have been on the chopping block even after the Trump Taj Mahal closure are not necessarily safe just yet. Glenn Straub, one can assume, is getting closer and closer to reopening the former Revel (to be named TEN) and it is difficult to predict what impact that may have on the overall market.

It seems like, every time Atlantic City seems to be back into some kind of balance, a major event happens that shakes the whole thing back up again, and I think the opening of TEN will be it. The first thing that we can posit is that TEN will have an impact, though difficult to measure, on every casino by way of pulling revenues that would have otherwise went to the other Atlantic City casinos. Granted, Revel didn’t have much of an impact on anybody, but that is because Revel started out in dire financial straits, (as well as being absolutely TERRIBLE at marketing) the CEO, Kevin DeSanctis, was basically an asshole to convenience gamblers and weekenders...which you may recognize as Atlantic City’s entire market...and the property was just unable to do anything to meaningfully draw players from other AC casinos.

Even when Revel ran the huge, ‘You Can’t Lose,’ promotion, which was a $100,000 Loss Rebate of a player’s losses for AN ENTIRE MONTH, they still didn’t manage to pull that much business from other casinos, and many gamblers were worried that, if they did play the promotion, Revel would end up closing before the players got the rebate in the form of free play, anyway.

While we don’t know how Glenn Straub, or whatever management company and/or lessee he gets to handle the casino operations will market or promote the property, what we do know is that TEN casino (if/when it finally opens) will start off in better financial condition than did the Revel. While potential gamblers may doubt the ability of TEN to profit over the long haul, they should definitely feel more secure than they did when it was the Revel.

What we know is that TEN must, by necessity, pull some of its revenues from customers who would have otherwise gone/spent more in other casinos. There is simply no scenario in which 100% of TEN’s market is comprised entirely of people who would not have otherwise gone to Atlantic City and spent money elsewhere. With the beaches and the Boardwalk, despite the city’s dire financial straits, it remains as much of a draw (if not more so) than the individual casinos. If nothing else, they complement one another.

With that being the case, some of the casinos that found themselves potentially on the chopping block had the casino measure for Northern Jersey passed and those casinos been built (namely Resorts Casino and the almost redundant Bally’s...and some would say Golden Nugget...but I disagree) might find themselves in potential trouble yet again. It cannot be emphasized enough that TEN will have to get its business from somewhere, and that somewhere is, more likely than not, going to be a little bit from everywhere.

Conclusion:

In terms of the number of casino properties in Atlantic City, that number contracted from twelve to seven in the last few years simply because the market contracted given the increasing competition in surrounding states. While the market for Atlantic City has shown potential signs of improving (December 2016 v. December 2015) or stabilizing (traditional casino percentage difference in casino win of -0.342% comparing 2016 to 2015) it has not necessarily shown any meaningful signs of being able to support more than seven casinos.

The Atlantic City casinos spent the first half of 2016 in a war of attrition with Carl Icahn (given the Unite Here strike) deciding it was better to close the Trump Taj Mahal and divert as much of its business as he could to the Tropicana. Aside from that, they spent the first half of the year somewhat concerned that the move to legalize new casinos in Northern New Jersey might gain traction thereby further lowering the ceiling on whatever market share the casin!os might potentially enjoy.

While those questions have been answered, there are more questions to come for 2017:

Are the December 2016 v. December 2015 numbers indicative of an improved market?

How will the opening of TEN impact the other Atlantic City casinos?

Will any of the other former casino properties be purchased with an eye toward opening a casino?

Granted, the third question is very likely a, ‘No,’ but the first two are going to be extremely relevant as we get 2017 rolling. For now, all we can do is speculate, but we aren’t far away from the January numbers rolling in.