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
No Vacancies, No RevenueAtlantic 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%|
|* -- Numbers rounded. Source: Nevada Gaming Control Board, New Jersey Casino Control Commission|
"Experience has shown that building hotel towers in Atlantic City is a good investment," says Bradford Smith, principal partner of International Gaming Consultant Services. "Harrah's has done very well in that regard, expanding the Showboat. Each time a hotel has been added, it has resulted in increased revenue and profit. And others are looking at that. Tropicana has done that and is doing that."
Indeed, a close look at Harrah's operations shows how adding hotel rooms can affect earnings. While a number of Atlantic City casinos saw operating results drop because of the Borgata during the seasonally slow fourth quarter, Harrah's Showboat casino posted record results, thanks in part to the 544-room hotel tower it added in the second quarter. Revenue rose 3% year over year, with EBITDA from the property up 9.1%. That kind of success hasn't gone unnoticed. In September, the Tropicana, a unit of Aztar ( AZR), will open the Quarter, a $245 million Mardi Gras-themed expansion that will include 502 hotel rooms and 200,000 square feet of entertainment, shopping and dining facilities, which include the Palm, the iconic steakhouse chain. Once construction is complete, the Tropicana will become the largest hotel in New Jersey, with 45,000 square feet of business meeting space. And along the boardwalk, where Atlantic City's schmaltzy past lives on in schlocky souvenir stands, Caesars Entertainment ( CZR) is building a vision of the future. Next year, Caesars will open the Pier at Caesars, a three-tiered entertainment and shopping complex, right on top of the famous Million Dollar Pier, where people came to ride roller coasters a half-century earlier.
|A Liz Makeover |
On Michigan Avenue, the new Liz Claiborne store awaits customers, while more stores like it await construction as part of the city's newest shopping mall, the Walk.
Long Odds on New CasinosBut adding restaurants, shops and hotel rooms is a very different proposition from building a completely new casino from the ground up. Thirteen years passed between the opening of Atlantic City's last new casino, the Trump Taj Mahal, and the opening of the Borgata. Duplicating the feat will be difficult. Land in Atlantic City is scarce. Because Atlantic City is surrounded by environmentally protected swampland, there are only 2,500 acres of developable land in the entire city, including what's already been developed. And while there are a number of vacant lots and dilapidated businesses crowding the boardwalk, consolidating them into a single property is an extremely pricey proposition. In 2001, the average Atlantic City home was worth $125,700, more than $20,000 below the national average, according to the National Association of Realtors. In 2003, the average Atlantic City home was valued at $174,400, a gain of nearly 40% in two years and $5,000 more than the national average. Furthermore, many of the properties on the boardwalk are older than Las Vegas itself, and their owners have been unwilling to leave just because a huge casino moves in next door. As a result, Sabatini's Italian Restaurant and a "cash for gold" pawn shop remain across the street from Bally's, decidedly out of scale and character next to the casino's enormous facade.
|Atlantic City Rising |
Three years ago, housing values in Atlantic City were more than $20,000 below the national average. Last year, they were $5,000 higher.
|Source: National Association of Realtors|
In Las Vegas, building a casino like the Borgata is easier. Operators can either buy an old hotel, like the Stardust, and demolish it in spectacular fashion -- or they can simply push further out into the vacant desert. But in Atlantic City, where gambling wasn't introduced until 1978, casinos have had to build on top of decades of history as a semi-residential beachfront tourist trap.
"Amassing big lots of land to build on in this town is tough," says Dan Heneghan, director of communications for the New Jersey Casino Control Commission. "The one thing people don't realize is how small Atlantic City is compared to Las Vegas. Only 40,000 people live here." The company best positioned to build a new casino is MGM Mirage, which owns a lot of acreage that could provide the foundation for new casinos. The company has already used some of its land to build the Borgata and will be using more to fuel its expansion. "Those of us at the Borgata realize that MGM Mirage controls a significant amount of developable land in Atlantic City and ultimately, they will make the judgment on how much we expand and whether another property will be developed here," says Bob Boughner, CEO of the Borgata.
The Tropicana's new complex, the Quarter (shown at right) will add to the city's growing number of upscale shops and restaurants, but it won't replace neighbors like the Econo Lodge, right across the street.