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Fitch identified the Trump Taj Mahal, Resorts Casino and Golden Nugget as those “most susceptible to cannibalization.”
In its first two months, PokerStars has become the leader in New Jersey online poker, so any suggestions that its partner may go bust if new casinos are built in North Jersey is an issue of some concern.
Shortly before the Fitch statement, Resorts President and CEO Mark Giannantonio spoke at the East Coast Gaming Congress about the impact of the proposed North Jersey expansion.
He agreed that the impact on Atlantic City would be severe. Speaking in response to the suggestion that Atlantic City casinos could close, Giannantonio said:
“Mark it down in your pads today: It’s going to happen.”
Giannantonio foresaw a strong response from New York casinos which would create a secondary effect of reduction in Atlantic City revenues.
“The second these two new casinos open in north Jersey, New York City will retaliate violently.”
However, he disagrees strongly with the Fitch assessment that a 10 to 20 percent reduction in gross gaming revenues would put the Resorts casino “at risk.”
Giannatonio told OPR:
“The ownership of Resorts, Morris Bailey and his family, along with Mohegan Sun are committed to the long term viability of Resorts, our customers, team members and Atlantic City as a whole. Over the past 5 years, $100 million has been spent to reposition and transform the property into a world class destination.
Resorts is not burdened with debt and as a result, has been able to report strong financial results over the past few years. I am 100% confident that should the NJ referendum pass, Resorts is positioned to handle the impact and remain a successful entertainment and resort destination for generations to come.”
PokerStars’ Head of Corporate Communications Eric Hollreiser backed up Giannantonio with a strong statement of support:
“Resorts has been a great partner and an innovator in Atlantic City online and offline gaming, which is one of the reasons they have performed well in a challenging market. We have every confidence in Resorts to manage any future business challenges effectively.”
A referendum in 1976 resulted in a law that restricted casinos to Atlantic City. Governor Chris Christie supports the move to open up the market, partly as a response to casino development in neighboring states.
North Jersey is closer to New York than Atlantic City, so signature casino developments could lure more customers to visit New Jersey.
Conversely, the new casinos could take away gaming revenues from the Atlantic City casinos. The Fitch report is based on a basic analysis of that effect.
Fitch notes that there is considerable uncertainty about the overall impact, since many factors are difficult to quantify.
The proposals give Atlantic City casinos priority in applying for any new casino licenses to be granted in North Jersey, and tax revenues from the new casinos will be partly shared with Atlantic City.
There will also be a considerable time lag between the referendum vote and the opening of any new casino. Four years is probably a minimum, with five years a more realistic figure for completing the regulatory approvals and construction of what will be billion dollar projects.
Fitch also points to the fact that no tax rate has been set for the new casinos. In Atlantic City, the casinos have “an effective tax rate of only 9.25%,” whereas Pennsylvania and New York casinos are paying 45 percent and 65 percent respectively.
If a tax rate in that range is applied to the new casinos, then the Atlantic City casinos will have a cost advantage over the new developments.
Even though four of Atlantic City’s twelve casinos have closed in the last few years, the city remains a high profile destination for visitors. The famous boardwalk has even been turned into a successful TV series, the Boardwalk Empire.
The city may have huge financial problems, but it also has major advantages over the locations likely to form a home for the new casinos to the north.
Las Vegas has reinvented itself over the past decade, recognizing that gambling alone does not suffice to attract visitors in their millions.
A successful destination must offer a wide variety of entertainment, in a variety of environments. It must have a cachet so that visitors returning home are proud to tell their friends where they have been.
Atlantic City has many of the features needed to be a long term successful destination, not least the openness to innovation which has seen it introduce online gambling.
Any concerns that exist regarding whether PokerStars and Resorts have a future together should go firmly on the back burner.
The timescale of the threat from new casinos is long enough for Resorts to make full preparations for a different market environment, and the fiscal problems in Atlantic City make politicians dependent on the success of the casinos in delivering tax revenues to the city.
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