ATLANTIC CITY — Boutique casinos, Internet gambling and sports betting will be of little help to Atlantic City’s troubled casino industry and possibly could harm the existing gaming halls, a financial services company warned Monday in a new report.

Wall Street ratings company Moody’s Investors Service said all of those initiatives would add up to a “zero-sum game” for Atlantic City because gaming revenue would simply go “in one pocket and out the other.”

New Jersey’s Legislature is considering sweeping regulatory reforms to help revive the gaming industry, now mired in a four-year revenue slump caused by the weak economy and competition from casinos in surrounding states.

In responding to the Moody’s report, one of the chief proponents of the reforms said changes are needed “to create a new reason” for tourists and investors to come to Atlantic City.

“To me, doing nothing is not an option,” said state Sen. Jim Whelan, D-Atlantic. “Atlantic City needs new product for the tourism, entertainment and gaming industry. If you don’t give the public new product, you’ll continue to slide backwards.”

Neither Gov. Chris Christie’s office nor Senate President Stephen Sweeney, D-Salem, Gloucester, Cumberland, could be reached for comment on the Moody’s report. Both Christie and Sweeney are playing major roles in plans to overhaul Atlantic City’s casino regulations and tourism industry.

Proposed legislation would allow smaller boutique-style casinos with as few as 200 rooms to encourage new development in construction-starved Atlantic City. Lawmakers are also considering bills to legalize sports betting and Internet gambling at New Jersey’s casinos and horse-racing tracks.

However, Moody’s says the smaller casinos would cannibalize business from existing operators such as Borgata Hotel Casino & Spa, Trump Entertainment Resorts Inc. and Caesars Entertainment Corp.

Moody’s also predicted that Internet gambling and sports betting in New Jersey would ignite “a casino arms race” with competitors in neighboring states. At the same time, Moody’s believes that existing federal bans on Internet gambling and sports betting make New Jersey’s proposals a longshot at best.

“If the proposals survive legal challenges, we do not believe neighboring states would sit still,” the report said. “New York, Pennsylvania and Maryland are likely to embark on a casino arms race, moving to legalize both sports betting and Internet gambling as a way to protect operators such as Yonkers Racing Corp. in New York and Mohegan Tribal Gaming Authority in Pennsylvania.”

In New Jersey, Internet gambling and sports betting would need approval of both houses of the Legislature and state voters. But Moody’s noted that the federal government currently bans Internet gambling and allows sports betting in only four states: Nevada, Delaware, Oregon and Montana. Those four states had some form of sports betting on the books before the federal government enacted a ban in 1992.

New Jersey has filed a lawsuit in hopes that the courts will overturn the federal ban. In the meantime, the Legislature has proposed legalizing an intrastate system of online gambling operated by the casinos and racetracks. If passed, the system would be limited to New Jersey residents and foreign countries where Internet gambling is legal.

Moody’s said that even if Internet gambling becomes legal in New Jersey, the benefits should be minimal because recession-weary consumers aren’t likely to spend their money on yet another form of wagering.

“We do not believe Internet gambling and sports betting will grow the overall market because consumers will continue to feel pressure from economic forces such as high unemployment for some time,” the report said. “We expect revenue would go in one pocket and out the other as gaming companies use different forms of gambling to vie for the same customer base.”

Contact Donald Wittkowski:

609-272-7258