Go back 30 years, and there were, of course, really only two gaming markets: Las Vegas and Atlantic City, notes Alex Calderone, who provides turnaround and crisis management services to the gaming sector at Conway MacKenzie. Between 1980 and 1990 only a few more jurisdictions legalized gaming, like Iowa and South Dakota. From 1990 to the present, however, 30 additional states have legalized gaming or implemented tribal gaming. Pennsylvania, for one, has become the metaphorical thorn in Atlantic City's side. For investors, however, it represents an opportunity to get in on a rapid growth market. The state introduced slot machines in 2006, and in December, Pennsylvania's slot-machine handle, or how much money people put into the machines, surpassed Atlantic City's for the first time ever. Earlier this year, Pennsylvania also approved a bill that would allow table games in casinos. Games like blackjack and poker will be implemented in the state at Penn National Gaming's ( PENN) Hollywood Casino and Las Vegas Sands' ( LVS)Bethlehem property, as early as this summer. Sands, for its part, is using this opportunity to turn its Bethlehem casino into a weekend getaway, with plans to restart construction on a 300-room hotel tower next to the casino within the next several weeks. Beyond that, Wynn Resorts ( WYNN) announced on Feb. 24 that it is looking to take over the development of a casino project in Philadelphia, entering into a letter of intent with Philadelphia Entertainment and Development Partners. Wynn didn't release the terms of the deal and it still needs to be approved by Pennsylvania regulators, but it is expected to sail through. The project, which will be on the waterfront in Philadelphia, has been called Foxwoods Casino Philadelphia. While Wynn's move into Pennsylvania will likely pull even more market share from Atlantic City, such a development can also be a catalyst to awaken the sleeping giants on the Boardwalk and stir up some competition, Calderone says. Also nearby, Delaware passed a bill on Jan. 28 that will allow table games in the state's three racinos. These games will start rolling out in May.
This increase in competition has led numerous casino companies to forgo development in Atlantic City and to look toward other hot markets -- a move that investors might be wise to emulate. Pinnacle Entertainment ( PNK), for example, announced on Feb. 6 that it is abandoning its plans to build a $1.8 billion casino on the Boardwalk, and subsequently put its 19 acres of land, which was formerly the site of the Sands Atlantic City, up for sale. Pinnacle purchased the property in 2006 from Carl Icahn for $270 million. It demolished the casino, but halted development in 2008 because of problems accessing financing. "Pinnacle realized the last thing AC needs is more competition," Telsey Advisroy Group analyst Chris Jones says. Just three days after Pinnacle announced it's selling its Atlantic City property, MGM Mirage ( MGM) revealed plans to divest its 50% stake in Borgata. Last spring, New Jersey regulators deemed MGM's Macau business partner, Pansy Ho, unsuitable, due to claims that her family is involved in Chinese organized crime.
Thus, as MGM prepares for an initial public offering of its Macau asset -- which would strengthen its relationship with Ho -- New Jersey regulators want to hold a hearing regarding the partnership. But CEO Jim Murren has said he wants to put the matter behind him and continue with the growth opportunities in Macau. MGM is reportedly in talks with casino companies and investors, but has not yet reached a deal. Boyd Gaming ( BYD), which owns the other 50% of Borgata, has the right to match any offer MGM receives. Of course, choosing Macau over Atlantic City is only logical. As Atlantic City tumbled to its lowest gaming revnue in more than a decade, Macau reported a 10% surge in gaming revenue to $15.1 billion in 2009.
It's clear Atlantic City's playing board has been reconfigured, but what will the new Monopoly game look like over the next five years? "I would be surprised if
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