PHILADELPHIA — Pennsylvania’s surging gaming industry will probably overtake Atlantic City next year as the nation’s second-largest casino market, Wall Street analysts predicted Tuesday.

Pennsylvania has been growing by double-digit margins at the same time that Atlantic City’s gaming revenue has plunged 30 percent since peaking at $5.2 billion in 2006. Pennsylvania’s 10 casinos, which are spread across the state, took in about $2.5 billion in revenue in 2010, compared to $3.6 billion for the 11 gaming halls in Atlantic City.

As Atlantic City continues to decline, it seems inevitable that Pennsylvania will become the next $3 billion market and should surpass New Jersey for the nation’s No. 2 spot in gaming revenue behind Nevada, analysts told an industry conference.

“Pennsylvania gaming, sometime next year, will most likely be bigger than Atlantic City,” Andrew Zarnett, managing director of Deutsche Bank, said during a panel discussion at the Pennsylvania Gaming Congress.

Zarnett and other Wall Street observers believe Atlantic City will continue to struggle as competition intensifies in the Mid-Atlantic gaming market, including the opening later this year of a new slots parlor at New York’s Aqueduct racetrack.

Even the opening next year of the $2.4 billion Revel casino may not be enough to reverse Atlantic City’s slide, the analysts stressed. Revel, a Las Vegas-style megaresort, is being counted on to draw high-end customers and more conventions.

“I think Atlantic City will fight back a little bit with the opening of Revel,” said Christopher Jones, a director at Telsey Advisory Group.

However, Zarnett contended that Revel will not expand the market overall. He warned that Revel may cannibalize a large piece of the marketplace from the existing casinos.

“That is not success for Atlantic City,” Zarnett said.

Adam Steinberg, another gaming analyst, said Revel is destined to fail unless it can attract a more upscale customer base than the typical “$35 and a pack of Marlboros a day” crowd at Atlantic City’s lower-end casinos.

In addition to the opening of Revel, Atlantic City’s hoped-for recovery will depend in large part on changing the town’s reputation as a crime-ridden area, Steinberg said.

“Atlantic City needs to be fixed. It’s not a safe city,” Steinberg said. “Right now, people don’t want to go to Atlantic City because it’s not safe.”

New Jersey Gov. Chris Christie signed legislation Feb. 1 to create a state-run Tourism District to oversee Atlantic City’s casino zones, beaches and Boardwalk. The plan calls for making the city more attractive to tourists by cleaning up blight and tackling crime.

A gaming official at The Richard Stockton College of New Jersey disputed Steinberg’s comments, arguing that the perception of Atlantic City as an unsafe area is not supported by crime statistics.

“I don’t think there is any evidence of that at all. The bottom line is, he is talking about perception, not about the facts,” Israel Posner, director of the college’s Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism, said of Steinberg.

Hurt by the sluggish economy and competition from casinos in surrounding states, Atlantic City has suffered 30 straight months of revenue declines dating to September 2008.

Alex Picou, managing director and gaming sector head for FBR Capital Markets & Co., gave a gloomy assessment of regional gaming markets such as Atlantic City. He also said Las Vegas will remain under pressure from overall weakness in the gaming industry.

“I think we’re in a challenging environment for the next four to six years,” Picou said.

But Pennsylvania’s rapidly growing market is transforming it into the new “Beast of the East,” according to a panel discussion of casino executives. Pennsylvania has had slot machines since 2006, but undertook a huge expansion in July by introducing table games such as blackjack, craps, baccarat and poker.

“It’s been a very good run for us since the opening of table games,” said Robert DeSalvio, president of the Sands Casino Resort in Bethlehem.

DeSalvio noted that table games have attracted more customers from the New York and northern New Jersey markets. He also said tables have allowed the Sands to retain more customers from the surrounding Lehigh Valley area instead of losing them to the Atlantic City casinos.

Now that table games are in place, the next step in Pennsylvania’s evolution as a full-service casino and entertainment destination will be the development of new hotels, executives said. Mount Airy Casino Resort in the Pocono Mountains is currently the only Pennsylvania gaming hall that has a hotel. The Sands is preparing to open a 300-room hotel tower as part of its strategy to draw more overnight guests and convention business.

Wendy Hamilton, general manager of the SugarHouse Casino in Philadelphia, said hotel rooms are what really distinguish the Atlantic City casinos from their Pennsylvania rivals right now.

“I think hotels are the next obvious step in this market. In order to compete, we need more amenities,” Hamilton said, adding that SugarHouse is considering a hotel in its longer-range expansion plans.

While Pennsylvania has enjoyed robust growth, some panelists wondered whether the market is already saturated. Zarnett and Picou urged the state to place a moratorium on new casino licenses to allow the existing operators to complete their expansion projects without having to worry about extra competition.

“You kind of go slow from here,” Zarnett said. “I think that’s the prudent thing to do.”

Contact Donald Wittkowski:

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