Casinos in Atlantic City, N.J., are poised to temporarily close Wednesday as part of an overall state shutdown of nonessential government services. The shutdown would come at a particularly
unwelcome time for Boyd Gaming ( BYD), which debuted a $200 million expansion of its hip Borgata casino in the city this past weekend. Boyd and MGM Mirage ( MGM) operate the Borgata as a joint venture. Harrah's ( HET) and Trump ( TRMP) also have a major presence in the city. New Jersey Gov. Jon Corzine and state Assembly leaders remain deadlocked on a new budget. Until one is approved, nonessential government services, such as the state's gaming regulators, will be shut down at 8 a.m. Wednesday, along with gaming activity. On Monday, a New Jersey appellate court rejected a plea by the casinos to stay open during the shutdown. Dan Heneghan, a spokesman for the state's Casino Control Commission, says he anticipates the casinos will now try to take the matter to the New Jersey Supreme Court. One justice was expected to begin hearing the case Monday, Heneghan said. Last year, July was Atlantic City's highest-grossing month ever, and the casino industry took in $16.3 million per day, on average. Jefferies analyst Lawrence Klatzkin says Harrah's and Trump will be most affected by any closures. Besides the potential short-term hit to companies' earnings, the longer-term effect of any temporary shutdown, he says, is the issue of whether budget matters will deter investment in the city. "Every year the casinos get threatened with this, even though they pay for their own regulators," Klatzkin says. "Do you want to be in a state that has this regular threat?" This would be the first government shutdown in New Jersey history. Three years ago, the casinos went to court to seek the right to stay open amid the threat of a shutdown, but a budget was reached at the 11th hour to prevent a closure.
Harrah's is currently spending about $500 million to expand its casinos in the city, while Trump is spending $250 million to expand the Taj Mahal site. The Borgata still has another $325 million expansion set to open in late 2007. "People who invest a lot of money want stable environments," Klatzkin says. Boyd Gaming shares fell 47 cents, or 1.2%, Monday to $39.89, and MGM Mirage rose 3 cents to $40.83. Harrah's fell 68 cents, or 1%, to $70.50; while Trump shares rose 13 cents to $20.28.