The Borgata Wins Over Atlantic City

Peanuts and Poker Chips Old and new in Atlantic City

While Atlantic City has always been big with gamblers, with annual revenue growth around 3% over the last decade, the lack of new glitz has left it somewhat moribund compared to the Las Vegas Strip. Since 1997, in terms of total gaming revenue, Atlantic City's 11 casinos have trailed the 40-plus casinos on the Strip, but not by a wide margin. In 2003, Atlantic City racked up $4.5 billion in gaming wins to the Strip's $4.8 billion.

But Las Vegas trumps Atlantic City in terms of nongaming revenue, racking up half of its business from entertainment, shopping and dining. In 2003, Las Vegas booked $4.7 billion in nongaming revenue vs. just $300 million for Atlantic City. Furthermore, there aren't enough hotel rooms in Atlantic City, which has 105,000 fewer rooms than the Strip. As a result, hotels are often at 90% occupancy even in off-peak season.

Business at the Borgata is so good that the casino and hotel operator said it has been turning away business. And while Borgata's parent companies have plans to expand their individual empires, with Boyd's announcing a deal to buy Coast Casinos and MGM Mirage moving into the U.K. market, they're not neglecting the Borgata. The companies plan a 500,000-square-foot expansion of the casino on 95 adjacent acres that MGM owns.

The Borgata boom is only now being felt. From 1978, when gambling was introduced in Atlantic City, until 2003, a total of $8 billion has been invested in the market. Over the next four years alone, at least $2 billion in investment is expected. A new wave of construction is already under way, with Harrah's Entertainment (HET) adding a hotel tower prior to the Borgata's open.

"The nature of the casino industry is that you have to stay new and fresh and cutting edge in order to retain and gain the interest of the customer," said Bradford Smith, principal of International Gaming Consultant Services. "The Borgata was the shining new kid on the block and the other casinos have to keep up with their neighbor. Now there's more pressure and you're seeing the building start."

Indeed, in September, the Tropicana Casino and Resort will open The Quarter, a $245 million expansion that will add 502 rooms and 200,000 square feet of entertainment, dining and retail space. The Quarter was originally scheduled to open in March, but was pushed back after a parking garage collapsed at the end of October, killing four workers and injuring 20.

Top Table The Ombra is one of the upscale restaurants in the Borgata

Caesars Entertainment (CZR) is converting the Million Dollar Pier into The Pier at Caesars, an entertainment, dining and retail destination scheduled to open next year. The casino operator also plans to build another hotel tower and could further expand in Atlantic City, where it owns parcels of land in and around the Boardwalk.

While the marina is hot, even off the Boardwalk, the momentum is building. Another wing of The Walk, a $76 million retail-outlet shopping center in midtown, will open this spring, adding more stores to the 70 that opened last summer, which includes upscale brands like Tommy Hilfiger and Guess?. And New Jersey Gov. James McGreevey wants to provide $60 million in aid for the Casino Reinvestment Development Authority to fuel hotel construction.

"There is a lot of building done down here. There's a big move toward retail, dining and entertainment venues," said Kassekert. "We have so much more to offer. We have the ocean, people can come in and stay overnight. Atlantic City is becoming more of an overall destination location, which is what it was in the past, even before gambling."

>To order reprints of this article, click here: Reprints