In New Jersey, a case of too many casinos

Revenue plunge forces retooling

Caesars plans to shutter one of its four Atlantic City casinos, the Showboat, on Aug. 31.
photos by Wayne Parry/associated press
Caesars plans to shutter one of its four Atlantic City casinos, the Showboat, on Aug. 31.

ATLANTIC CITY — Atlantic City started the year with 12 casinos. By Labor Day, it could be down to nine.

For years, economists and analysts talked in theoretical terms about ‘‘casino saturation’’ in the Northeast. But there is nothing theoretical about what is occurring in Atlantic City.

The Atlantic Club is dead, taken down by two rivals. Revel Casino Hotel will close if a buyer cannot be found, and Caesars Entertainment, which said there are too many casinos in New Jersey, plans to shutter one of its four, the Showboat, on Aug. 31.


Mayor Don Guardian, who could see a quarter of his city’s casinos close during his first year in office, said that Atlantic City is in the midst of a difficult but necessary makeover from being a gambling resort to a multifaceted destination.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

‘‘Although it is sad today, it’s part of the transition that Atlantic City needs to have,’’ he said last week after the Showboat closing was announced. ‘‘There is pain as we go through this transition, but it’s critical for Atlantic City to realize we are no longer the monopoly of gaming on the East Coast.’’

Since 2006, Atlantic City’s casino revenue has plunged from a high of $5.2 billion to $2.86 billion last year. It has been beset by competition from Pennsylvania, which has surpassed it as the nation’s number two casino market, after Nevada, and suffered further losses with additional casinos coming online in New York and Maryland.

Israel Posner, executive director of the Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism at Stockton College, said the resort has been dealing with casino saturation for a while now.

‘‘We know that the oversupply of gaming product is a regional issue, as we’re seeing the effects of the pressure all around Atlantic City,’’ he said.


Bob McDevitt, president of Local 54 of the Unite-HERE casino workers union, called Caesars’ decision to close a profitable casino ‘‘a criminal act.’’

Since before Revel opened, McDevitt warned that adding another casino to the 11 operating at the time could cause one or more to close. That has come to pass — and then some.

Yet some analysts say what is occurring in Atlantic City and other parts of the nation is actually good for a market that has gotten too big to sustain itself. Fitch Ratings saw the upside in the shutdown announcement.

‘‘The closure makes financial sense for Caesars and is a positive for the oversupplied Atlantic City market,’’ the company wrote in a note to investors. ‘‘Showboat has about $50 million in labor costs and pays about $15 million in property tax (although Caesars is appealing Showboat’s $625 million assessed value). Caesars will likely recapture most of the Showboat customers at its three other resorts in Atlantic City.’’

Speaking at the East Coast Gaming Congress in Atlantic City in May, several Wall Street analysts said Atlantic City’s casino market is in the process of correcting itself.


Adam Rosenberg, a managing director with Goldman Sachs, said the reduction in capacity that is underway is a positive. Srihari Rajagopalan, a debt analyst with UBS, agreed.

‘‘You are seeing the market right-size, which is a positive,’’ he said. ‘‘There are unprofitable casinos shutting down.’’

That clearly applied to the Atlantic Club. It struggled for years before being bought in a bankruptcy auction by two local competitors, Caesars Entertainment and Tropicana Entertainment, who divvied its assets and closed it Jan. 13. It would apply to Revel, which has never turned a profit since opening two years ago, if it shuts down.

But Showboat was profitable, having posted a gross operating profit of nearly $2 million in the first quarter of this year, down from nearly $8.5 million in the first quarter of 2013.