Atlantic City losing to Walmart-style casinos in Pa.

Kevin C. Shelly | (Cherry Hill, N.J.) Courier-Post

Show Caption Hide Caption How Philadelphia casinos are affecting Atlantic City Atlantic City casino’s woes have many causes, but the growing popularity of competing casinos in Pennsylvania and beyond figure big in the industry’s downturn. Here, Sugar House patrons explain why they no longer drive to Atlantic City.

Amount of money spent on gambling in New Jersey down by half since 2005

Pennsylvania has become No. 2 behind Nevada in gambling revenue

More gamblers are staying within 20 miles of their homes

ATLANTIC CITY — The year 2005 was a very good year for this casino resort town.

That year was the high-water mark for casino gambling in New Jersey, with more than $5.9 billion in gaming revenue.

The eight years since? Awful.

The latest figures show gaming revenue has plunged 44%, to around $3 billion, according to Joe Weinert, senior vice president of Spectrum Gaming Group.

The last time Atlantic City brought in less than $3 billion was 1991.

The free fall continues with numerous consequences:

• More than 10,000 jobs lost.

• Several casinos on shaky financial footing.

• Revel, touted as the city's savior, quickly went bust and already is trying to rebrand itself following bankruptcy.

Investment dollars have flowed elsewhere. Just two major developments are on the city's horizon. One is a conference center at Harrah's, underwritten in part by state support and tax credits. The other is a Bass Pro Shop.

Gaming tax revenue to the state has been slashed in half, curtailing aid for seniors and contracting support for economic development.

"There is a bottom, but we don't know what that is," Weinert said. "This is a longer loss than anyone anticipated."

Cost of convenience

Convenience gambling and regional competition are driving the decline.

Casinos with fewer amenities — dismissed recently by a Tropicana casino executive Tony Rodio as "Walmarts with slot machines and a bar and a restaurant" — have opened in or near major population centers.

That is a far different business model from New Jersey's dozen full-service casinos clustered in an oceanside resort with intractable urban issues, even in a city of about 40,000 people.

Regional competition "will continue to grow for the next few years. The expansion is faster and broader than expected," said Weinert, who points to continuing expansion plans in nearby states and the likelihood of a second casino coming to the heart of Philadelphia.

In 2012, Pennsylvania surpassed New Jersey to become No. 2 behind Nevada in money spent on gambling, according to the American Gaming Association's 2013 State of the States report. Gamblers spent $3.2 billion in Pennsylvania casinos vs. New Jersey's $3.1 billion. That meant $1.5 billion for Pennsylvania coffers last year vs. $254.8 million in New Jersey because of differing tax rates.

New Jersey's tax revenue declined 8.2%; Pennsylvania's was up 2.1% from 2011.

In 2005, gambling brought in $490.2 million in taxes for New Jersey. Pennsylvania didn't have any casinos.

Exactly where did all of New Jersey's revenue go?

Brian Tyrrell, the vice president of the New Jersey Travel Industry Association, smiles and shakes his head. He takes out a pen to answer the question.

A professor of tourism at Richard Stockton College, Tyrrell draws a map of the Northeast and Mid-Atlantic states as he discusses the proliferation of casinos in what once was an East Coast market monopolized by Atlantic City.

Connecticut, Delaware, Maryland, New York and Pennsylvania, — once prime feeders for Atlantic City's drive-in casino market — each have multiple casinos now.

Tyrrell puts a big X over Connecticut and the rest of New England. Too far.

He says to not pay much attention to competition in western New York state and western Pennsylvania. Also too far. And never mind West Virginia — way too far.

He draws an oval stretching from the western end of Long Island to Delaware and suburban Washington. That is the three-hour or less drive-in market for Atlantic City.

Then he writes, 2005 — $5.9 billion.

Next he writes: 2012 — NY, PA, MD, DE, NJ — $8.9 billion.

Take away New Jersey's $3 billion in revenue, and that leaves $5.9 billion.

"That's the core market," he says, tapping the pen on the oval to emphasize that the amounts are the same. "That's where New Jersey's casino revenue went."

Skimming off the top

Want to see how nearby states ate Atlantic City's lunch? Visit Parx Casino in Bensalem, Pa., a suburb north of Philadelphia.

At midday midweek, the parking lot is jammed. The license plates show where Parx's market: mostly Pennsylvania, then New Jersey, followed by New York. A smattering of cars come from other states.

A man dressed in a T-shirt bearing the name of the nearby sheet metal company he owns — and has ducked out of for a few hours of gambling – shakes his head at the crowded lot.

"It's amazing how crowded it is at this hour. PA is skimming New Jersey. A lot of people would rather drive here, drive for a few minutes, rather than drive more than an hour to Atlantic City. I ought to know; I was one of them," he said as he made his way into the casino.

Unlike Atlantic City, parking at Parx is free.

Unlike Atlantic City, Parx has no bus programs bringing in gamblers — patrons come by car, on their own schedule.

Unlike Atlantic City, food options are limited. The high-end food outlet during the day is Chickie's and Pete's, a sports bar.

Unlike Atlantic City, the casino has no headline entertainers.

And unlike Atlantic City, the casino is filled with gamblers at midday midweek.

At Parx, 80% of the casino's business comes from within 20 miles.

Maureen Andrews, 75, of Croyden, Pa., was visiting with friends from grammar school: "Atlantic City is better with amenities. And they have more to do on the boardwalk. But this is local."

Besides Parx, Pennsylvania has 11 other casinos — six not far from New Jersey, especially Harrah's in Chester, just over the river from New Jersey, and Sugar House in Philadelphia.

Some, such as Sands Bethlehem, have amenities — big-name chefs, comedy shows and headline entertainment — along the lines of Atlantic City.

But most are stripped down, nicely appointed warehouses with slot machines.

Welcome to convenience gambling.

That's the thing the Atlantic City casino executive missed when he derided his competitors in Pennsylvania: Walmart with slot machines works.

"There's a place for Bloomingdale's and a place for Walmart," said Doug Harbach, a spokesman for the Pennsylvania Gaming Control Board. "Pennsylvania is a market of convenience. Casinos here are doing what they need to do to be successful businesses."

By this summer, Pennsylvania will have 12 casinos — the same number Atlantic City has — but Pennsylvania already is the bigger market in terms of gaming revenue.

"Many states are now replicating what we've done. The idea is to stop the loss of gaming revenue to other states," Harbach said.

Missed wake-up call

While the sustained decline of Atlantic City's fortunes is relatively recent, New Jersey, which has had casinos for 35 years, had plenty of time and fair warning about competition.

The state and the gaming companies just ignored it.

The warning shot came in 1992, the year Foxwoods Resort Casino opened in southeast Connecticut. That year slot growth slowed for the first time in New Jersey.

But when overall casino revenue did not drop, Atlantic City just kept doing exactly as it had done before.

"That should have been a wake-up call. They should have protected their interest," said Tyrrell, the tourism professor.

"Atlantic City was a destination city with an ocean. That's difficult to duplicate," said Tyrrell, who added that the state and the city failed to reinvest in a meaningful way that protected the resort's interests. "They treated Atlantic City like a cash cow."

He particularly faulted the state on several critical issues, such as not expanding service to Atlantic City International Airport, which has been under state control since 1992 (just 1% of gamblers arrive by air), failing to make timely expansion improvements to state roadways (projects on the Garden State Parkway and Atlantic City Expressway are ongoing) and adding state-imposed $3 parking fees at casinos.

A recent Stockton College study found that every form of travel to Atlantic City was down in 2012, overall by 4.3%.

"Distance is nowhere as near as important as travel time and convenience," Tyrrell said of the impediments to travel the state has been slow to address.

That said, he is unimpressed by the lack of amenities in some of New Jersey's nearest competition. "Blech!" he says of Harrah's in Chester, Pa.

Veteran journalist George Anastasia, who began covering Atlantic City in the late 1970s as a reporter for The Philadelphia Inquirer, is even harsher in his assessment of the failures to make Atlantic City a more resilient and complete destination to compete with "the arcades with slot machines" that he says many Pennsylvania casinos resemble.

"Atlantic City should have gotten beyond being a quick-hit visit. It should have been a Vegas experience, where you go there and stay there," said Anastasia, who retired from the Inquirer recently but continues to write as a freelance journalist.

"With the casinos, there was a lot of rivalry, a lot of competition for the gambler. Nobody had vision. They sold it to the voters as a tool of urban redevelopment, but that was a hustle, a big hustle," Anastasia said. "This was an opportunity for people with vision. Now it is a second-rate casino city. A bunch of casinos in a honky-tonk place."

On the other hand, Nevada turned the corner in 2011, posting a 1.5% increase in gaming revenue following several years of contractions.

Diverse amenities

John Palmieri and the state Casino Reinvestment Development Authority he leads were charged by Gov. Chris Christie with turning around the city's fortunes by diversifying its amenities to broaden the resort's appeal beyond gambling day-trippers.

Eighteen months into Palmieri's tenure, Frank Fahrenkopf, the president of the American Gaming Association, said he is not sure those initiatives have yet had any real effect on the city's fortunes.

Palmieri, who does not gamble and never has set foot in a Pennsylvania casino, believes the state's initiatives eventually will work though he does not minimize the challenges.

"Time is of the essence," he said, and added that "aggressive correcting" still needs to take place in Atlantic City, because "the economy seriously declined and the competition is enormous."

Following the governor's creation of a tourism district within the city, which Christie repeatedly has said must be clean and safe, the development authority is adding lights, knocking down blighted buildings, paying to repave streets, trying to tempt new vendors, adding roving goodwill ambassadors to the boardwalk and underwriting the pay of 39 additional law enforcement officers.

The Atlantic City Alliance is spending $20 million a year to market the city and redirect emphasis away from gambling and toward additional amenities and overnight stays.

This seems to have had some success.

Overnight stays have increased along with noncasino sources of revenue, cushioning the ongoing loss of gaming revenue, said Jeff Gauracino, a spokesman for the alliance.

Harrah's, a successful casino property in Atlantic City, derives 25% of its income from noncasino spending; its sister property in Las Vegas earns 55% of its income from noncasino revenue, said Tyrrell, the tourism professor.

One lingering issue that dogs the city are the "unresolved tensions" that remain between the city's mayor, Lorenzo Langford, and Christie, said Palmieri, who reports to the governor.

"Atlantic City is uniquely positioned to be OK long term. Its greatest resource is the beach and the boardwalk," the mayor said. "I think there is a bottom for us, but I'm not a prognosticator."

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Atlantic City's competition

Gambling halls in Delaware, eastern Pennsylvania and Maryland are creating a lot of competition for Atlantic City's casinos, which have high overhead.

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Highest rollers

By state, the casino with the highest revenue:

• New Jersey: Borgata, $611 million.

• New York: Resorts World New York City, $732 million.

• Pennsylvania: Parx Casino, $602 million.

Source: SpectrumMetrix January report, based on last three months of revenue for each property