Longtime casino operator Kevin DeSanctis, as Hard Rock CEO Jim Allen recalled on Tuesday, once had a dire warning at the annual East Coast Gaming Congress event.
“He stood at this same conference many years ago, when the [Atlantic City casino] market was at $5.2 billion, and said, ‘If we don’t wake up, Pennsylvania is coming and we’re going to lose half of our revenue,'” Allen said Tuesday at the gaming conference held at Harrah’s. “And we all know he was 100% correct.”
In fact, it’s eerie just how correct DeSanctis was. After an uninterrupted rise in annual industry revenue from 1978’s debut of Resorts casino to that peak of $5.2 billion in 2006, the opening of those casinos all over eastern Pennsylvania led to a shrinkage of revenue all the way down to a bottoming-out number of $2.6 billion in 2016.
Before the Pennsylvania casinos opened, leading Atlantic City casino executives at the time expressed misplaced confidence that the higher quality of entertainment and dining options and the cluster of casinos on the Boardwalk and in the Marina District would keep their Keystone State customers loyal to Atlantic City.
Now it’s Allen’s turn to sound the alarm — this time over the planned opening of three new casinos in the New York City region in the next few years, with one of them possibly being a Hard Rock property.
“They say a cat has nine lives. Does Atlantic City have 99 lives?” Allen said. “It seems like it does.
“But what percentage of Atlantic City’s gross gaming revenue comes from downstate New York and upstate New Jersey? It’s nothing less than 26.7%, and some people will tell you it’s over 40%. When [New York has] true entertainment facilities, including the full scope of table games, that product is going to be a challenge to compete against for Atlantic City.”
Doomsday scenario: repeat of 2014
Atlantic City operators already lost numerous customers 15 years ago when Yonkers Raceway and Aqueduct each debuted thousands of slot machines adjacent to those horse racing facilities. But nearly all of those customers play for small stakes. It’s the “whales” who spend six or seven figures per year at casinos who may abandon Atlantic City if three casinos in the New York City region — two of which simply could be upscaling of the Yonkers and Aqueduct sites — offer comparable amenities to Atlantic City counterparts.
After years of declines, four of Atlantic City’s 12 casinos closed in 2014: the Atlantic Club, Showboat, Trump Plaza, and Revel. A fifth, Trump Taj Mahal, shuttered two years later.
Hard Rock opened in mid-2018 as a refurbished version of the latter casino, while Ocean Casino launched on the same day as a reincarnation of Revel. The city has remained at a total of nine casinos since.
But will the industry hold its ground once New York City-area casinos open?
“The last thing we need is for another casino to close,” said Allen, an Atlantic County native who began working in AC casinos more than 40 years ago. “Atlantic County, New Jersey, was number one in America in foreclosures after those casinos closed down.”
Allen said it was critical for state officials and casino operators to “come together, because I’m not sure if we have another life to take us to 100. So many times, Atlantic City has had its challenges, but it always rebounded. I’m just not sure the town can absorb another 30 to 40 percent loss of revenue.”
Allen has a preference between city and state
Much of Atlantic City was taken over by the state five years ago, but Allen singled out city officials for praise.
“I have to compliment the mayor [Marty Small Sr.] and the city of Atlantic City,” Allen said, “because I used to be this crazy person saying, ‘Can we at least cut the grass?’
“The city does a great job with that,” he added. “When you leave here tonight, look at the curbs, look at the signs, look at the landscaping.
“You can tell where the city does it. … One block is beautiful, the next block is completely crazy.
“Why can’t we take some of these vacant lots, and just make them green?” Allen asked, while lauding Asbury Park’s renaissance to the north.
Other CEO musings
DraftKings‘ meteoric rise in the U.S. sports betting industry was praised by Allen — but with a caveat.
“Does anyone know the cost of obtaining a customer in that space? It’s in excess of $500, and in many markets it’s up to $1,000,” Allen pointed out. “I don’t think that works long term.
“So what is going to happen two, three, five, seven, eight years from now? We are looking at 2026, 2027 as years when a tremendous amount of consolidation will have occurred.”
The agreement this summer between the Seminole Tribe — which owns the Hard Rock casino, hotel, and restaurant empire — and Florida state officials to bring legal sports betting to Seminole-owned casinos in the state and, if the tribe prevails in court, to bettors statewide on their smartphones “did not come cheap,” Allen said.
“We did not have to reinstate our revenue share until the year 2030,” Allen said. “Frankly, $400 million a year times nine years is almost $4 billion. Is that still worth it? One hundred percent it is.”
In addition to plans to express formal interest in the New York City casino process in December, Allen told the ECGC audience that Hard Rock will do the same for a proposed downtown Chicago casino by the end of this week.
Allen added that the company still expects to build a casino on the Las Vegas Strip, once the right location is secured.
“We 100 percent believe that a Hard Rock guitar-shaped hotel in Las Vegas would, on a longterm basis, potentially be very profitable for the tribe and for the Hard Rock brand,” Allen said, noting the number of Floridians and Hard Rock supporters who visit Las Vegas annually.
Photo: Jon Bilous/Shutterstock
