Jan. 12–When Atlantic Club Casino Hotel closes its doors Monday morning, it will mark only the third time in the city’s history that a casino has shut down.
But unlike the gambling halls that have closed before it — shuttered amid unfulfilled promises of bigger and grander operations to replace what had failed — this time, experts say, the closing comes with uncertainty for the property’s future and what might come next for Atlantic City.
Politicians, officials and analysts called Atlantic Club’s closing inevitable; the casino has struggled for years, and it only recently gained ground with locals after years spent pursuing a sale. Today, however, many say Atlantic Club’s demise is perhaps the first acknowledgment that the resort’s casino industry must be trimmed to survive and that further downsizing will come.
The industry spoke loudly about what it needs, analysts said, when two Atlantic City competitors — Caesars Entertainment Corp. and Tropicana Entertainment Inc. — teamed up with a bid that pulled Atlantic Club out of the market.
“It’s no secret that Atlantic City has been declining since 2006. This was inevitable, and it’s sad,” Tropicana President and CEO Tony Rodio said. “It’s just the harsh reality of the circumstances of the marketplace that we’re currently in. Will more (casinos) close? I certainly will say it’s possible.”
A far different story was told the last time a casino shut down in Atlantic City. Pinnacle Entertainment Inc. bought the Sands Casino Hotel for $270 million in 2006, only to tear it down a year later to make room for a $1.5 billion casino. The demolition began in grandiose form, with a fireworks spectacular for a crowd of 100,000, yet new development never materialized as the Atlantic City market began to decline.
Casino analyst Roger Gros, who publishes Global Gaming Business magazine, said the most direct effect on Atlantic City will be seen in the 1,600 jobs lost. An additional 800 hotel rooms gone from the resort’s stock of 20,000 is another concern, he said, though tourism officials argued that that number was negligible.
In the first nine months of 2013, Atlantic Club has registered a 69 percent occupancy rate, coming in second to last among the resort’s 12 casinos. Only Trump Plaza Hotel and Casino was lower, at 65 percent occupancy.
“Obviously, the industry wants this, because Caesars and Tropicana teamed up to shut it down. It gives me the impression that they expect more, or they would like more, of the casinos to shut down so the existing casinos that are surviving will do better,” Gros said.
Record low price
Caesars and Tropicana bought Atlantic Club at a record low $23.4 million, with Tropicana taking the gaming equipment and Caesars taking the property. What comes next for Atlantic Club — whether that be another sale, a lease, or a demolition — is not clear. Caesars has made few public statements about its plans. A Caesars spokeswoman referred to the company’s previous statements that it will not operate the property.
Casino Reinvestment Development Authority Executive Director John Palmieri is one of the few officials with any direct knowledge of Caesars’ plans for the property. Caesars executives have met with CRDA and discussed a few prospective uses for the building “in the most general of terms,” Palmieri said, declining to elaborate. But on the possibility of demolition, Palmieri said he was told that option was not off the table.
“We’ve already come to terms with the fact that we need to grow the nongaming economy here. It’s just the reality of a market that’s oversaturated,” Palmieri said. “We may need to reduce the number of casinos by a couple. My responsibility is to create other reasons for people to visit the city.”
Atlantic Club’s closing comes amid a state-led plan to revitalize Atlantic City and acknowledgments that the resort needs to grow beyond gambling to survive in the long term. Gov. Chris Christie agreed to block casino expansion beyond Atlantic City until February 2016 as state forces lead a revitalization effort. While officials in charge of that revitalization say the Atlantic Club development isn’t surprising, it nonetheless has created dialogue about a failed business.
Liza Cartmell, CEO of the Atlantic City Alliance, which is charged with marketing the city, said other casino properties would aggressively pursue Atlantic Club customers to keep them visiting the resort. The Alliance’s focus remains on drawing new tourists to Atlantic City under the premise that there are other flourishing attractions, she said.
“We’re not happy about this, but it’s part of the natural evolution of the marketplace,” Cartmell said. “If you look at what’s going on around the marketplace, it’s been a tough economy for five years, so I don’t think an individual closure is a unique story.”
What was state’s role?
Still, some who have watched Atlantic City’s market closely, including public relations consultant Wayne Schaffel, questioned why the state didn’t do more to save the Atlantic Club, especially as the city faces a crucial time in its history. Schaffel, a former Atlantic City casino executive, suggested that the state should have made commitments to keep Atlantic Club operating.
New Jersey Senate President Stephen Sweeney, the lead sponsor of the legislation that created the Atlantic City Tourism District, disagreed with that analysis, saying that the closing was inevitable and that the state should not be in the casino business.
“The state would then have to make major investments. We’ve already made a commitment to Atlantic City. We can’t step in and become casino operators. That’s not our job,” Sweeney said. “The Atlantic Club needed investment. It was a tired facility. I remember it when I went in the ’80s. It was the same. You just put different names on it.”
PokerStars’ almost save
Still, it’s not hard to imagine how the Atlantic Club’s fate might have played out differently. Last year, online gambling giant PokerStars, a company that has faced a tumultuous road in New Jersey licensing, had plans to buy the casino. After PokerStars financed Atlantic Club’s shortfalls to the tune of $11 million in anticipation of a sale, Atlantic Club walked away from the deal. A New Jersey judge ruled Atlantic Club could keep the money while terminating the plan.
PokerStars had planned to operate the casino while offering Internet gambling through the property, but it faced delays in licensing, likely because of the company’s troubled history with founder Isai Scheinberg, who is under indictment involving allegations of illegal online gambling operations. The state has since suspended the company’s application to operate Internet gambling in conjunction with Resorts Casino Hotel for two years amid those concerns.
Before the bankruptcy action, some suggested that a buyer may be interested in Atlantic Club for similar reasons as PokerStars. To enter New Jersey’s Internet gambling market, companies must team with a land-based Atlantic City property.
Spectrum Gaming Group Managing Director Michael Pollock said the fact that a buyer interested in Internet gambling didn’t emerge is not necessarily a commentary on the fledgling U.S. industry.
“Online gambling is not exactly a long-term strategy,” he said. “It created an ancillary revenue stream, but it’s supposed to be ancillary to the land-based operation — not the driver.”
Analysts have speculated that while PokerStars would have faced the same licensing dilemmas, the company may have been persuaded to make changes to its executive structure to please New Jersey regulators with a brick-and-mortar investment in hand.
PokerStars recently fired back at Atlantic Club in a company blog post suggesting the 1,600 jobs at the property could have been saved.
“The casino’s then-owners gambled with their employees’ future. In hopes that the improved economic picture could lead to more rewards for them, they walked away from our contract rather than wait another few months for the regulatory approval process to be completed,” the company wrote. “Now the Atlantic Club will be stripped for parts and its employees will be put out on the Boardwalk in search of new jobs in 2014.”
1,600 out of work
Officials overwhelmingly pointed to the 1,600 people who will be left without work as the most significant tragedy in the casino’s closing. At 11.7 percent, Atlantic County already has the highest unemployment rate in New Jersey, according to the U.S. Bureau of Labor Statistics, and that number will now increase. Atlantic City’s unemployment rate is 15.1 percent.
Casino workers union UNITE-HERE Local 54 represents about 750 Atlantic Club employees. The union members will each get a $1,500 severance payment as they search for work. Local 54 President Bob McDevitt suggested the companies involved in the sale should commit to hiring Atlantic Club’s workers as jobs become available.
“Caesars is getting one less competitor, and Tropicana is getting equipment. I think that their decision to shutter the property makes them morally responsible to do something to support the workers of Atlantic Club,” McDevitt said. “If a job opens up, they should go on a preferential list. I think they need to make that statement publicly because they are benefiting greatly from the suffering of these 1,600 families.”
Rodio, Tropicana’s president, said the casino had hired four top player-development employees and would like to see other jobs go to Atlantic Club workers. Unfortunately, in the slower winter season, not as many jobs are available, he said.
Contact Jennifer Bogdan:
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JBogdan@pressofac.com
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