Was Sweetheart Month Sweet for AC?

For the month of February 2017 as compared to February 2016, Atlantic City enjoyed a negligible overall casino win for this year as compared to last. The results for the month were $205,364,455 compared to $204,717,179 (+0.316181%) compared to the previous month.

However, this improvement was driven entirely by Internet Gaming Win $18,722,090 compared to $14,749,620 (+26.932694%) as the city’s casinos took a little bit of a hit in the realm of live gaming revenues, $186,642,365 compared to $189,967,559 (-1.75%).

While that may initially seem alarming, it is important to note that February of 2017 had only twenty-eight days as compared to last year’s Leap Year in which there were twenty-nine days. Therefore, this is the one month-to-month comparison every few years in which it might be more relevant to look at live casino win on a per day basis, so what we will do is take a peek at that:

189967559/29 = $6,550,605.48 (Rounded)

Vs.

186642365/28 = $6,665,798.75

Therefore, when we look at the day vs. day revenues for live casino gaming, we see that 6665798.75/6550605.48 = 1.01758513321, which means that the (mean) average day in Atlantic City Live Gaming saw a revenue increase of 1.758513321% as compared to February of 2016. Of course, this represents a significantly lower growth percentage for February (as opposed to last year) as compared to all of January 2017 v. January 2016 (+5.915%) which may or may not be indicative of a general leveling out of the market whereas the last two months showed some actual growth.

The early part of the year, however, does not necessarily make or break Atlantic City. Most of the revenues for the year come during the Summer, so those months will be most relevant to the operators. The entire early part of the year could be up, but just one down month in the Summer could theoretically negate all of that.

Even despite the fact that 2016 had one more day than 2017, Atlantic City revenues are still positive (overall) for the year of 2017 as compared to the one before.

The oceanside town was up 26.93% in overall Internet Gambling Win for the month in question as compared to last year. It was especially a great online gambling month for Golden Nugget. Their online branch pulled 5.175 million dollars for the month beating their previous monthly record of 4.79 million. The previous record was set in December of last year.

Golden Nugget winning out amongst online casinos in the city is hardly an unusual event as, in addition to beating its own records somewhat regularly, GN has also been the leading cyber casino in gaming win five out of the previous six months. It should come as no surprise as the Internet Gaming market is something of a, ‘Great equalizer,’ among these casinos. If you consistently deliver a great product, and you run it correctly, then it doesn’t matter what the capacity, size or scope of your brick-and-mortar product is, you will successfully compete in the online market.

Another thing that many people asked when NJ first opened itself up to legalized and regulated online gambling was, “Why would they limit it to only casinos operating in the State?” While a truly fair market would allow for all-comers that could adhere to the laws specifically related to Internet Gambling, (with exception to the live casino requirement, of course), I think that we see that the state wanted to artificially reduce the number of potential competitors to protect its revenues.

If the jurisdiction is going to demand a licensing fee as well as a cut of revenues, then the casinos within the jurisdiction must have a reasonable profit expectation. Because the casinos with a land-based presence cannot operate online outside of New Jersey, it makes sense for New Jersey not to allow any outside operators.

It is important to remember that online casinos in New Jersey are taxed on part of their, ‘Gambling Win.’ What that means is that they pay a percentage of online revenues to the state even if they don’t make a profit for the year. The long and short of that is operators can operate at a loss (and could theoretically do so, in part or in whole, because of these tax requirements on revenues) and that does nothing to change the licensing fees or the fact that taxes must be paid on the revenues.

By artificially reducing the access to the demand side of the market, what essentially happens is that the limitations to competition make it even more likely that the casinos will operate in the jurisdiction given the level of demand they perceive themselves as having access to. In the strictest sense, this is evident because every gambling operator in Atlantic City (not by the casino, but it should be considered that CET owns three casinos) operates an online gambling site. (CET’s is operated as, ‘Caesars Interactive.’)

Given the continued strength of the online gaming segment, which shows no real signs of slowing down and, based on the first two months of this year, I would suspect going to continue to grow on a year-over-year basis until at least next year. (I wouldn’t be shocked to see it level out next year, but I have been wrong about this before) Even if it did, the market seems strong enough that the addition of one or two casinos into the digital realm would not cause the others to operate at a loss. With exception to TEN Casino and Hard Rock AC, the only possible new online casinos would come if a new referendum authorizes casinos in Northern New Jersey. Last year’s referendum failed by a wide margin and a new one cannot be introduced until next year.

In that sense, it does have to remain a self-contained market on both the supply and demand side of things for operators to justify going online there. Just as online casinos from jurisdictions outside the U.S.A. operate within the country, albeit generally illegally, these casinos still have access to the New Jersey market. One would imagine that most players would rather play at casinos regulated by their state, but certainly, some of them still play at casinos abroad.

It’s also important to note that the cut the State takes out of revenues is higher than most, if not all, jurisdictions that operate outside of the United States. Again, this is a win-win as it guarantees a certain subset of the market will play at the casinos falling under the purview of the New Jersey Division of Gaming Enforcement while paying significant fees for the right to do so.

Since none of these things are going to change anytime in the near future, and perhaps not ever, this puts the NJ-backed digital casinos in a position to be envied.

In order to analyze how the Boardwalk and Marina establishments really performed for the month, it is more appropriate to go with the metric of daily gambling win for the live casino segment. As with overall performance, this metric, ‘Normalizes,’ things so to speak so that we can get a measure of how each place is running compared to this time last year.

 After normalizing for Mean daily revenues so that we are making an apples-to-apples comparison, we notice that a few casinos experienced meaningful decreases (in terms of increase percentages) as compared to January of 2017 v. that of last year while a few casinos performed remarkably better.

We will start with the always redundant Bally’s and note that, on a day-to-day basis, revenue fell 1.33% as compared to a revenue gain of roughly 0.6% for Jan. over Jan. The result of that is a ‘Swing,’ of almost 2% and Bally’s (after normalization) being the first casino this year to experience an overall revenue decrease for the year. ($30,314,954 YTD to $31,039,023 YTD -2.39%) Even after normalizing their results, Bally’s is still down in revenue per day for this year compared to last. ($513,812.78 RPD v. $517,317.05 RPD; -0.68%)

While some might argue that such is not a major problem for Bally’s, I maintain that the opposite might be true. It should be mentioned that Trump Taj Mahal drew $12,099,685 in gaming win last month, and if Bally’s benefited from any of that at all (on direct), it certainly has not manifested itself in the form of a positive revenue trend compared to last year. The Taj accounted for 6.37% of the YTD total revenue for the city next year. What should happen, assuming an equal distribution of those revenues, is each casino would be up 0.91%. We see the exact opposite in the case of Bally’s, not only is new money entering the market after normalization, for the first two months of this year over last, but Bally’s cannot even manage to get a piece of the revenue from Taj that was theoretically redistributed, though unequally.

Speaking of Tropicana, after normalizing the results, it experienced revenue gains for the month of 32.71% as compared to 15% for the first one of the year. Tropicana’s dollar-to-dollar normalized gains per day $248,898.85 are the most significant, by far. However, they still only reflect 248898.85/417230.52 = 59.65% of what The Taj pulled in on a daily normalized basis. For Tropicana, that still represents a vast improvement in that metric over the 25.45% from last month.

Another casino with reasonable large swings appears to be Resorts with normalized gains per day of 25.72% as compared to the 8.6% enjoyed by the property last month. In terms of normalized percentage gains, the casino also jumps from fifth to second among the seven remaining casinos. We shall see what happens when they are the last place standing on that side of the Boardwalk this Summer (barring an opening of TEN-the former Revel-by then) but for now, Resorts seems to enjoy that side of the Boardwalk all to itself.

After normalizing, the former location of Trump Marina improves from fourth to third in terms of revenue percentage increase, although, the increase in gaming win percentage itself dropped from 9.6% to 8.77%. Either way, those are generally consistent numbers and the home of the 24 Karat Gold Players Club seems to be leveling out at least a little bit after taking advantage of the several casino closures of 2014 and that of The Taj just last year.

Caesars jumps from a HUGE first place in terms of percentages for January down to fourth place. While one usually does not want to speculate, a few high rollers losing big can sometimes make a tremendous difference in revenues. That is pretty likely as Caesars is the only casino with a revenue drop between the first two months of this year that cannot be explained by the sheer difference in number of days in the year. In any case, the casino did +4.47% on a normalized basis for the month of 2/17 as compared to +41.1% last month.

Moving from sixth in gains up to fifth is Harrah’s improving from +1.1% for January to +4.14%.

Rounding out the casinos who gained money, at least on a normalized basis, Borgata comes in sixth place with +2.81% as compared to +16.2% for last month.

In the cases of both Caesars and the Borgata, I think a reasonable argument can be made for the high-roller theory. If we first accept that high-rollers often tend to prefer table games to the machines, we first look at Caesars and notice that it brought in $14,099,936 in January in Table Games win as opposed to $7,925,847 for February. Even normalizing for the number of days, it is simply such a substantial difference that there is really no, “Organic,’ way that should occur. It should also be noted that, for Borgata, a normalized Table Game win for January as compared to February still produces a meaningfully better January, (despite the fact that overall live casino normalization favors February) so again, it may come down to the performance of a handful of high rollers.

If you’re a huge fan of Bally’s, I would suggest that you have reason to worry if TEN Casino ever opens its doors, and especially when Hard Rock Atlantic City opens, probably at some point during Summer of next year. We have already discussed how a partial diversion of revenues to existent locations of a business’ operating arms can provide a greater overall profit than maintaining all properties in a given market, and we saw that in action when CET closed the profitable Showboat. Therefore, even if Bally’s could remain profitable in the face of new competition, which itself is very questionable, it may not be enough so to justify continuing to operate rather than divert those revenues to other Total Rewards properties in the face of new competition. Besides, assuming that these properties take more-or-less equally from the remainder of the market, any revenue diversions will help assuage the cuts into the revenue that the other properties operated by CET are sure to experience.

Until we see what happens with the Hard Rock Casino AC, which will definitely open at some point next year, and TEN Casino, which will allegedly open, it is pretty safe to assume that all of the remaining properties in the market are scooting along just fine so far. With exception to Bally’s, all of the other properties have enjoyed normalized gains for the year over-and-above the numbers that would simply be making up for The Taj. While certainly not swimming in it, if we can assume that all of the properties were profitable before the closure of The Taj (Icahn claimed The Taj was the only property still losing money, overall) then we can only assume that the remaining properties are even more profitable than before.

The question of any casinos in the Garden State aside from AC is no longer worth attempting to answer, at this point, as we don’t even know if the referendum to add same will be on the ballot in 2018. If it turns out that there is another strong push in favor of the passage, then we will discuss the matter more fully at such time.

Conclusion:

While a glance at the raw numbers for February 2017 compared to February 2016 seemed a little bit alarming, after taking into consideration the fact that there was one fewer day this year and, ‘Normalizing,’ the revenues accordingly, we see that the city enjoyed a very modest revenue gain on a day-to-day basis. Granted, the +1.76% normalized numbers for the second month of the year were not as promising as the 5.915% revenue gains for the first, but they are still representative of a market that is stabilizing.

It also cannot be forgotten that The Taj Mahal spent the first several months of last year on the chopping block before being shuttered in October, so an overall gain in revenues is excellent for the city and all of the properties located therewithin given the distribution of the shuttered property’s would-be revenues. The only casino to arguably not benefit from the closure of The Taj (which would mean it experiences less than a 1.76% gain in normalized revenues) is Bally’s, which after the month, is the only AC casino to be down for the year thus far.

The future certainly seems bright for the city, on the whole, and for the State of New Jersey. (who enjoys taxes on gambling revenues no matter what) The futures of the other individual casinos are not so clear, especially not for Bally’s. The one or two new casinos that are set to open in a year and a half can be expected to cause Bally’s revenues to continue to decline.