Atlantic City Is Dealing With Growing Pains

Editor's Note: This is the second in a series of articles looking at the changing face of Atlantic City's gaming industry.

A decade ago, Michigan Avenue in Atlantic City was home to housing projects, auto body shops and small factories, an industrial eyesore that was incoming visitors' first impression of the gaming mecca.

Today, visitors see a Michigan Avenue that is full of construction and home to the Walk, a 320,000-square-foot outlet shopping mall connecting the new Atlantic City Convention Center up the street with the boardwalk near the Atlantic Ocean.

"It's right off the mouth of the expressway, one block over," says Ernie D'Ambrosio, director of strategic planning for the Innovation Group, a casino consultant. "There are probably dozens of stores open now, and they're working their way down the corridor [toward Bally's]. It's fresh. It's clean. It's what Atlantic City has been lacking the last couple years."

Welcome to a slowly gentrifying Atlantic City, where million-dollar construction projects mix with strip clubs and shuttered factories, an area that is grappling with its seedy past and slowly paving over it. In the coming years, public companies have billions of dollars in construction planned for the area, spurred by the success of the Borgata, a joint venture of MGM Mirage (MGG - Cramer's Take - Stockpickr) and Boyd Gaming (BYD - Cramer's Take - Stockpickr).

In mid-March, Harrah's Entertainment (HET - Cramer's Take - Stockpickr) CEO Gary Loveman talked up plans to add as many as 2,000 rooms to the Showboat and Harrah's Atlantic City. It's a bullish stance, especially given that Harrah's just completed the first phase of a $200 million expansion of its Atlantic City properties.

"Clearly, Atlantic City is under-roomed, and, to the extent that you want to have other revenue drivers like convention business or group business, is negatively impacted by the lack of rooms in Atlantic City as well as just general weekend business," says Scott C. Butera, executive vice president, Trump Hotels and Casino Resorts (DJT - Cramer's Take - Stockpickr). "There are large amounts of turnaways because of the lack of rooms."

No Vacancies, No Revenue

Atlantic City has 100,000 fewer rooms than Las Vegas, and that has made it difficult for hotel casinos to attract lucrative group tours and convention-goers. With many of the hotel rooms given away gratis to loyal old customers, there's no place for new business to sleep. But this situation is changing rapidly as casino operators like Harrah's add hotel rooms, then make plans to add more gambling space. For example, just six months after opening, the Borgata announced plans for a 500,000-square-foot expansion of its casino.

A Nice Place to Gamble... Atlantic City has held its own against Las Vegas in terms of gaming revenue. Now Atlantic City is looking to boost non-gaming revenue.
Year	Atlantic City		Las Vegas Strip
	Total Gaming Revenue*	YOY % Change	Total Gaming Revenue*	YOY % Change
1997	$3.9 billion	2.4%	$3.8 billion	6.4%
1998	4.0	3.2	3.8	0.1
1999	4.2	3.3	4.5	17.7
2000	4.3	3.3	4.8	7.0
2001	4.3	0.1	4.7	-2.1
2002	4.4	1.8	4.7	-1.0
2003	4.5	2.4	4.8	2.3
* -- Numbers rounded. Source: Nevada Gaming Control Board, New Jersey Casino Control Commission