“I believe the slot business by itself is not going to grow, but possibly decline”

2016-03-18

Reading time 2:12 min

Earlier this week, New Jersey passed a resolution that will give voters the chance to decide in November whether to allow casinos in the northern part of the state. Will Atlantic City's 40-year-old monopoly on casino gambling come to an end? Read Yogonet's interview with Moody's Keith Foley.

Why would a North Jersey gambling expansion be bad news for Atlantic City?

For one primary reason: the two North Jersey casinos would be located in areas closer to the population that usually goes to Atlantic City to gamble. Putting high quality casinos in these areas to intercept traffic would absolutely have an impact on Atlantic City.

“
“
Casino closures is something that has occurred and could occur again

”

Eight new casinos are expected to open in the northeast by 2018. Will this imply more casino closures for AC?

It certainly could. Right now it's all about survival of the fittest. If you take a look at Atlantic City, you'll see that some of the remaining casinos are doing better because of the closures the city has experienced. These casinos managed to capture some of that market and survive. But looking ahead, any casino opening that offers an alternative will certainly not help the already struggling gambling destination. I couldn't say which or how many casinos might close. But clearly, casino closures is something that has occurred and could occur again.

AC casinos have seen some improvement in their operating profit, but how long can that keep going if North Jersey allows gambling?

Obviously, if someone steps in with a more convenient product, you would expect for it to have a direct impact on the profitability of existing operators in Atlantic City. Casinos know that and they're working on it. Big companies such as the Borgata are already implementing debt reduction plans and cost-improvement programs -although you would expect the Borgata to be okay at the end of the day-. Everybody is hoping for the best and preparing for the worst.

“
“
Companies like Scientific Games and IGT are investing more in software, gaming distribution systems and products outside of traditional casino gaming

”

What would be the financial impact of expanding gambling in North Jersey on gaming giants such as Scientific Games, IGT and Konami? What about small and medium-sized companies?

It implies that they would sell more slot machines. But these gaming giants are evolving their businesseses. I believe the slot business by itself is not going to grow, but possibly decline. Companies like Scientific Games and IGT are investing more in software, gaming distribution systems and products outside of traditional casino gaming. They're taking traditional slot games and putting them into distribution channels all over the world.

For small and medium-sized companies this wold be a good thing.

How will North Jersey gambling expansion affect Pennsylvania and other neighboring states?

It could definitely affect Pennsylvania and other states. Every time you go to a dense population center and offer people a good product, history shows they will at least try it out. In New York, when the two casinos opened the population was so dense that it actually doubled the market. I don't think this will be the case, though. I believe North Jersey's gambling expansion will have a cannibalization effect on nearby casinos. Competition will be devastating.