early 3,000 casino jobs have been lost in the past 12 months. More layoffs are expected as the recession deepens. The fractured economy, global credit crisis, competition from Pennsylvania slot parlors and the city’s partial casino smoking ban have created what one gaming executive calls "a thousand year, once-in-a-lifetime perfect storm." Resorts Atlantic City, the Atlantic City Hilton Casino Resort, Trump Marina Hotel Casino and the Claridge Tower at Bally’s Atlantic City are aging, smaller properties that some analysts believe could join the now-defunct Sands Casino Hotel as .
Casinos were once thought to be "recession-proof" - just as the Titanic was considered "unsinkable." Now, casinos are suffering as the economic meltdown saps consumer confidence and discretionary spending. Not only are customers cutting back on their casino outings, but they are more tight-fisted when they do gamble.
In a period marked by huge government bailouts for troubled industries, the casinos could use a little help. But President Obama’s massive stimulus package explicity prohibits any funding to companies involved in gambling. With the economy getting worse and supply exceeding demand, the casinos seem ready to join the electronics, retail and auto industries in a fight for survival.
"In our view, there is a distinct possibility that 1-3 casinos could be permanently closed in the next few years, particularly when many older locations are barely breaking even and, we believe, cannot be rehabbed to be economically viable," analyst Joel H. Simkins, of Macquarie Securities, wrote in a new report summarizing Atlantic City’s plight.
Israel Posner, executive director of the Institute of Gaming Management for The Richard Stockton College of New Jersey, also said some casinos could be shut before the nation and Atlantic City recover from the economic crisis. Afterward, he thinks a new generation of megaresorts will rise in a post-recession building boom.
"Clearly, we are in for turbulent times," Posner said. "We run the risk of losing a couple of properties. If we think long term, I think we’ll see fewer casinos before we see more. But I do think we’ll see more. If I had to use my crystal ball, I would say within the next five years there will be more."
Only one new casino is being built, and even its fate is uncertain. The owners of the us$ 2 billion Revel Entertainment Group casino have slowed construction to stretch out the cash they have on hand until they can secure long-term financing to finish the project. Revel’s planned grand opening in the summer of 2010 now appears out of the question.
Last week offered an extraordinary glimpse of the troubles gripping the existing casinos. Events included a new bankruptcy filing, plans for a bankruptcy sale and an unprecedented attempt by lenders to foreclose on a casino.
Trump Entertainment Resorts Inc., owner of three casinos, filed for Chapter 11 bankruptcy protection Tuesday, only four days after Donald Trump resigned as its chairman. Trump, a man synonymous with Atlantic City’s casino scene since the 1980s, quit after bondholders spurned his offer to buy the public company and take it private.
Tropicana Casino and Resort inched closer to being sold in a bankruptcy auction after the New Jersey Casino Control Commission on Wednesday set March 18 as the latest deadline for its sale. Whether that date will be met is debatable because the property originally was supposed to be sold by last April. Six deadline extensions have been granted since then, with the recession and shaky credit markets to blame for the delays.
Tropicana has been on the market since December 2007, when its former owners were stripped of their license following mass layoffs and regulatory violations. On Wednesday, a group of investors headed by billionaire financier Carl C. Icahn emerged as a possible buyer. The Icahn group holds a us$ 1.4 billion mortgage on Tropicana and wants to be designated as the leading bidder when the casino is auctioned off.
Resorts, the oldest casino in town, is struggling to survive in a foreclosure battle with its lenders. Column Financial Inc. is seeking Casino Control Commission approval to take over the property after Resorts defaulted on its us$ 360 million mortgage. The commission expects to rule on March 4. Resorts would be the first casino to be foreclosed on in the city’s 31-year history of legalized gambling if Column is successful.
"If I had a crystal ball two years ago, I would have never taken on this debt. It was a mistake," Nicholas L. Ribis, vice chairman and chief executive officer of Resorts, said during a commission hearing Wednesday on Column’s foreclosure request.
Ribis said the sagging economy accelerated a breathtaking decline that began with the frozen credit markets, fierce competition from the Pennsylvania slot parlors and Atlantic City’s partial casino smoking ban. "We’re in the midst of a thousand year, once-in-a-lifetime perfect storm, trying to preserve this asset," he said. "None of us could have predicted two years ago the way the world is now," he continued. "I’m not saying this town will be back where we were two years ago. I wish we were. But that’s going to take some time."
Resorts and the Atlantic City Hilton Casino Resort are both owned by affiliates of Colony Capital LLC, a private real estate investment firm based in Los Angeles. The sister casinos are seen as among the most vulnerable to the economic downturn. They suffered the steepest drops in gaming revenue last year.
"(The) reality is that several of the original casinos that emerged in the late 1970s, like Resorts, AC Hilton and the Claridge, may not be viable in today’s competitive environment," Simkins, the Macquarie Securities analyst, wrote ominously in a report titled "The casino diet: weighing capacity reductions."
Angered by the doom-and-gloom reports, Ribis claimed Atlantic City will rebound as soon as the economy stabilizes and the casino companies get their operating costs under better control. "There are a lot of analysts who write that Atlantic City is yesterday’s news. I don’t agree with that," Ribis said.
Another analyst, Kim Noland, of Gimme Credit LLC, warns that Trump Entertainment is approaching "a death spiral" in its latest bankruptcy, the third for the Trump casinos since the early 1990s. She wrote in an investment note that the company’s survival depends on the proposed $270 million sale of Trump Marina, the city’s lowest-grossing property.
Trump Marina is regarded as another candidate for a shutdown if its buyer, Coastal Marina, fails to close the deal. Coastal wants to rebrand Trump Marina into a Margaritaville-themed casino in partnership with singer-songwriter Jimmy Buffett. However, Coastal has still not secured the financing, even though Trump Entertainment agreed to lower the sale price from us$ 316 million to us$ 270 million.
Claridge Tower, formerly a separate casino that was folded into the Bally’s complex in 2002, has had its gambling operations dramatically scaled back by owner Harrah’s Entertainment Inc. Claridge’s "Pennyville" slots parlor and most of the other casino space in the 500-room hotel tower have been closed because of declining business.
When the Sands Casino Hotel was imploded in 2007, speculation mounted that the casino next door - the Claridge - would be the next to go. Built in 1929, the Claridge Hotel was reincarnated as a casino in 1981. The Claridge survived the Great Depression, but the odds that this architectural relic will be part of the casino industry in years to come seem increasingly slim.