Fertitta Entertainment has done a great job with its Golden Nugget Atlantic City, making it one of the city’s leading casinos. Its total gaming revenue for April and May was the second highest among the nine casinos and, year-to-date, it ranks only behind Borgata Hotel Casino & Spa. Golden Nugget and its partners are the market’s leaders in online gaming.
Yet a few days after August’s results were announced, owner Tilman Fertitta complained that there were too many casino hotels in Atlantic City. He said New Jersey’s casino gambling market can support seven casinos, but not the current nine.
If casino gaming were part of the U.S. free-market economy, participating companies would decide what’s the right level of investment and competition in Atlantic City. But it’s not. New Jersey created and highly regulates Atlantic City’s casino gambling market.
The state wants casino companies to be successful — they generate a lot of revenue for the state and provide other benefits — so it carefully considers their needs. For example, Gov. Phil Murphy recently signed a bill allowing Golden Nugget to offer wagers on NBA games, even though Fertitta also owns the Houston Rockets (whose games will be excluded from wagering). Fertitta said the change “will be huge for us.”
Fertitta suggested that with nine casinos in Atlantic City, casino companies wouldn’t get enough cash flow to justify putting money back into their properties. He said that happened in the past when competition from neighboring states reduced revenues in Atlantic City.
Jim Johnson, special counsel to Murphy and co-author of the state’s Atlantic City transition report, already had recommended exploring the possibility of capping the number of casinos or limiting total market capacity.
Even in an open market, companies often try to get government help restraining their competitors as a relatively easy way to preserve and increase profitability.
On the face of it, Fertitta’s view seems to embody a long-discredited economic idea — that the size of a market, its jobs and profits are fixed. Often called the “fixed-pie fallacy,” it imagines people and businesses competing in a zero-sum contest in which one’s gain is another’s loss.
The truth is that markets grow (and shrink) all the time. Growing the Atlantic City tourism market is an important goal of New Jersey’s effort to reinvent the city as a more appealing destination. If the state and city can clean up the Tourism District and make it as safe and attractive as is customary in numerous other resorts in America, the pie being shared by casino companies will be larger.
That pie already has been enlarged by the state in the form of legal sports betting and wagering online. Casino companies are still in the early days of making the most of those business segments, and they have the potential to further increase cash flow at city casinos as well.
Whatever the state does to ensure that casino companies have the opportunity to thrive, it must also work toward building Atlantic City into a bigger and better visitor destination.
Economic growth would solve a lot of problems for the area’s people and businesses.