A small crowd waited to get inside the Atlantic Club Casino Hotel when it reopened the morning of Nov. 5 after a weeklong shutdown caused by Hurricane Sandy.
The meager turnout portended what was to come for the Atlantic Club and the rest of Atlantic City’s casino industry in the hurricane’s aftermath.
Although the casinos suffered little physical damage during the storm, their business has been seriously harmed and is unlikely to return to pre-hurricane levels for months, analysts warn.
They say the stronger casinos can withstand the downturn, but there are concerns that weaker properties such as the Atlantic Club may not survive if the market takes a long time to recover.
“If anything’s going to close, it’s going to be that one,” Greg Roselli, a casino analyst with UBS Securities, said of the Atlantic Club.
Michael Frawley, the Atlantic Club’s chief operating officer, denied that Sandy will put his casino out of business.
“We have no plans to close,” he said. “We are all going to do our best and react to the conditions that come up to us.”
Frawley, however, acknowledged that the already struggling Atlantic City market faces the additional challenge of reviving its customer base in the storm-ravaged feeder markets of metropolitan New York.
“I honestly don’t know what normal business levels are anymore,” he said. “We have been looking to find a bottom in this market. It’s been difficult.”
About half of Atlantic City’s business comes from New York and North Jersey, some of the areas hit hardest by the hurricane. Casino executives have stressed that gambling trips to Atlantic City will be the last thing on people’s minds as long as they are trying to rebuild their shattered homes and lives.
Gambling revenue at the city’s 12 casino hotels plunged 20 percent in October. Analysts are predicting big declines for November and December, too. Plummeting revenue has fueled speculation that more than one casino could be a hurricane casualty.
“It increases the likelihood of the potential for one or two casino closings,” said John Kempf, an analyst with RBC Capital Markets. “It doesn’t mean it’s going to happen, though.”
Tony Marino, an independent casino analyst and former Atlantic City Expressway executive who compiled the annual visitor trips to the gambling resort, said Sandy’s impact will eventually fade, but a greater threat continues: the intense competition from casinos in surrounding states.
“The continuing long-term threat is the vanishing day-trip visits of gamblers being siphoned off by casinos closer to their homes,” he said.
Meanwhile, Marino envisions Atlantic City becoming more of a seasonal market, one that thrives during the peak summer tourist months but struggles the rest of the year. He grimly predicts that two to four casinos will fall into bankruptcy or merge over the next 24 months in response to the slumping market.
Revel, Atlantic City’s newest casino, has gotten off to what analysts say is an underwhelming start. Revel had been placing a disappointing eighth in gambling revenue each month since opening in April, but it slipped to 10th in October, taking in just $9.3 million from its slot machines and table games in the hurricane-shortened month.
Some Wall Street analysts have been warning that Revel’s revenue may be insufficient to meet the casino’s debt payments. Two credit-rating firms, Standard and Poor’s and Moody’s Investors Service, recently lowered their ratings on Revel, underscoring the casino’s financial struggles.
Kempf believes that Revel has enough financing on hand to turn things around. Revel lined up a new $100 million financing package in August to help pay its operating expenses through 2013 while it works on refining its business strategy.
“I think Revel still has enough liquidity to last a little bit longer,” Kempf said. “I think they should still have time.”
Revel CEO Kevin DeSanctis issued a statement saying it will take some time for the region to recover and for visitors from New York and New Jersey to return to his casino. One encouraging sign, DeSanctis noted, is that most of the groups that canceled trips to Revel during the hurricane have since rebooked.
“This is an important segment of our business, and we are focused on rebooking the remaining groups and driving new business in this area,” DeSanctis said.
In the meantime, Revel is gearing up for the holidays, including an Aerosmith concert over Thanksgiving weekend, DeSanctis said. He added that Revel will soon be announcing other headliner acts as well as new promotions for the holiday season.
“We look forward to welcoming back guests who have been unable to visit due to the storm,” DeSanctis said.
Sandy was not the first hurricane to disrupt a casino market. Analysts have begun comparing Atlantic City to the Gulf Coast casinos, which were battered by hurricanes Katrina and Rita in 2005. Pointing to the Gulf Coast’s recovery, Roselli said Sandy may be only a “temporary hiccup” for Atlantic City.
“For the most part, we’re expecting it to get back to normal,” Roselli said. “But it’s hard to gauge (how long) because we’ve never seen a storm like this one in Atlantic City.”
Roselli maintained there is hope for even the weakest casinos as long as sports betting and Internet gambling remain possible. New Jersey is waiting for the courts or Congress to give final approval for sports betting and Internet gambling in the state, although both could face long odds.
“I think there’s always going to be someone who’s willing to take a chance on the Atlantic City casinos,” Roselli said of the prospect of sports betting and Internet gambling.
Kempf said Atlantic City should be boosted by additional state funding as New Jersey looks to protect its crown jewel of the tourist industry in Sandy’s aftermath. Atlantic City attracts close to 30 million visitor trips on an annual basis. Gov. Chris Christie created Atlantic City’s state-run Tourism District last year to make the resort safer and cleaner for visitors.
“My sense is that business will eventually come back. I am of the opinion that this is the turning point for the tourism industry,” Kempf said. “I think there will be a lot of state money shoveled down not only to Atlantic City but also to the entire Jersey Shore to help them come back.”
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