New Jersey’s gambling revenues have lagged Pennsylvania’s for more than 14 months, and yet, Atlantic City — excluding newcomer Revel — has had three consecutive quarters of improving gross operating profits.
Whether that streak will continue for a fourth quarter will be answered Wednesday when the New Jersey Division of Gaming Enforcement is expected to release the latest profit figures.
According to the division, during the first half of this year, several casinos decreased their operating costs and expenses, including from savings due to property tax assessment challenges. Capitalizing on hotel stays, retail business, restaurant meals and other nongambling offerings also played a role, according to casino executives, although numbers released by regulators show only a modest contribution.
Still, executives and some analysts believe if Atlantic City is to remain competitive against rivals who have begun to pull ahead in gambling revenue, growing the resort’s entertainment, food and other nongambling offerings is crucial. Revenue from some of those sources may not show up on the casino’s bottom line — for instance, from restaurants and retail outlets that operate independently — but their presence is the key to drawing crowds, some analysts said.
“You have to give them a reason to drive past Pennsylvania and come to Atlantic City,” said Joe Weinert, senior vice president of Linwood-based Spectrum Gaming. “People are spending money in Atlantic City — it’s not showing up in the casino (floor).”
Bolstering nongambling offerings as a way to draw crowds and make a profit has been relatively successful in other markets, such as on the Las Vegas Strip where a decade earlier gambling accounted for 44 percent of total revenue but last year was only 38 percent, according to the Nevada Gaming Control Board. The mix translated to a 6 percent increase in gambling proceeds and a much stronger 9 percent increase in total revenue last year.
Figures from the New Jersey Division of Gaming Enforcement show Atlantic City starting to move away from its dependence on gambling revenue, but much less so when compared to Las Vegas.
A decade ago, Atlantic City drew nearly 82 percent of its net revenue from gambling; last year, casino wins accounted for 73 percent. Borgata Hotel Casino & Spa led the way with casino revenues making up 68 percent of total revenues last year. For Harrah’s Resort, it was 69 percent.
Even Revel, which opened April 2 with more of an emphasis on resort amenities than any other Atlantic City casino hotel, had only about 60 percent of its total revenue coming from gambling, according to its second-quarter filings. The struggling casino start-up also posted a gross operating loss of $35 million in the second quarter. Chief Executive Officer Kevin DeSanctis has said the casino must improve its gambling floor performance in order to reverse the loss.
Through the first half of this year and excluding Revel, Atlantic City had shown signs of promise, with a string of quarters showing increasing profitability. The last time the industry had any growth in its gross operating profit was 2006. At the same time, although net revenue from nongambling offerings grew just shy of 2 percent, the drop in gambling revenue was significantly more and resulted in a 6 percent drop in total net revenue during the first half of 2012.
Some analysts said they are doubtful Atlantic City will ever be able to redefine itself and attract the visitors who go to Las Vegas from across the world. While Las Vegas has a full service international airport, Atlantic City International Airport features a single carrier, Spirit Airlines, with limited destinations.
“There’s a limit to what you can do,” said Eugene Christiansen, a New York City gambling industry analyst. “To do that without air service, without real air service, I think is hard.”
On the other hand, Atlantic City’s advantage is that there are millions of people who are within driving distance, according to Weinert, the Spectrum analyst.
“Atlantic City still has these giant gaming resorts on the sea that will always be a significant draw,” he said.
Driving distance also has proved to be a weakness, particularly as neighboring Pennsylvania has grown its gambling industry in recent years and begun to draw people who used to drive to Atlantic City. Pennsylvania has casinos spread across the state, which makes it more convenient to gamblers nearby who don’t want to drive to Atlantic City.
“Pennsylvania pulls from more than one market,” Weinert said. “It has a geographic spread.”
That state authorized casino gambling in 2006 and by December 2009, slot machine wins in Pennsylvania totaled $186 million — which was the first time the state surpassed New Jersey’s $179 million in slot wins.
By 2010, just as Atlantic City was ticking off more than two dozen months of gambling revenue declines, Pennsylvania pulled ahead. That December, Pennsylvania took in $253 million in casino winnings to New Jersey’s $237 million. Since then, the two states have competed fiercely for gamblers, with Pennsylvania edging out New Jersey nearly every month. So far this year, New Jersey’s gambling proceeds have fallen behind that of its neighbor every single month — also another first.
Pennsylvania is expected to soon issue a license for a new casino in Philadelphia, which inevitably will increase competition.
“From casino win perspective, Atlantic City does have challenges ahead,” Weinert said.
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