Can A Non-Gaming Model Work For Atlantic City Casinos As It Does In Vegas?

Barbara Nathan January 11, 2019 77 Reads
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The year 2018 was a big one for Atlantic City.

But even so, many experts are concerned. They caution that being overly complacent could lead to big problems ahead. So what should the Atlantic City casinos do to avoid jeopardizing their future and continue to thrive even in the face of increased competition? Is copying the Vegas model a good bet for Atlantic City?

A brief history of casino gambling in the US

Casino gambling in the US has come a long way since the earliest modern-day casinos debuted in Nevada nearly a century ago.

However, even after May 1978 when Atlantic City became the first region outside of Nevada to offer legalized casino gambling, the growth of the casino industry in the US has been phenomenal.

Starting with the 1990s and continuing into the present century, the proliferation of casinos coast to coast has been so great that only a handful of states currently exist with no casinos at all.

Actually, the legislation in 1931 brought back rather than initiated legalized commercial gambling in Nevada. Limited forms of gambling were legal in the state from 1869 to 1909, when Nevada gambling once again became illegal and remained so until 1931.

However, the 1931 legislation resulted in “wide-open” gambling. That paved the way for casinos to open in hotels and eventually as the main attraction in complete “destination resorts.”

Early Las Vegas casinos

Looking at all the glittery mega-size casino resorts lining the Vegas Strip today, it’s hard to imagine there was a time that gambling in Vegas was on a small scale. Initially, it was mostly confined to downtown clubs and highway roadhouses. Then on April 3, 1941, El Rancho Vegas opened to become the first self-contained casino resort on what is now the world famous Vegas Strip.

Though tiny compared to the behemoth structures today, like the latter, it offered not just gambling, but also dining, drinks, lodging, entertainment and shopping.

Atlantic City casino gambling

As mentioned, until 1978, Nevada remained not only the first state in the US to offer legalized casino gambling but the only state.

Even so, 2018 already marked the 40th anniversary of legalized NJ casino gambling. At first, Resorts was the only game in town. But while that changed quickly, for over a decade, New Jersey was the only state other than Nevada where legal casinos existed.

A referendum on the state ballot in the November 2016 election asked NJ voters to say yes or no to expanding casino gambling to the northern part of the state. The consensus was that the competition from the additional casinos, which would have been much closer to NYC, would cause significant problems for Atlantic City. The referendum was overwhelmingly defeated.

Looking to the future

This means that the four-decade monopoly that Atlantic City has enjoyed on NJ casino gambling remains intact.

However, legal NJ sports betting is now an option, not only in Atlantic City, but also at Monmouth Park and the Meadowlands and in multiple facilities in nearby Pennsylvania.

And there is a good chance that before the end of the year, other nearby states such as New York and Maryland could be joining the fold, too.

Atlantic City is also facing growing competition from casino gambling in Pennsylvania, Maryland, Connecticut, and other nearby states.

And Atlantic City has already felt the impact of this competition. In fact, since 2014, five Atlantic City casinos closed.

However, during the past year, Atlantic City has rebounded in a big way, with two new casino hotels — Hard Rock and Ocean Resort — both opening on June 28. New restaurants and entertainment venues have opened as well, and seven of the nine Atlantic City casinos have sportsbooks.

However, there is widespread concern that in the face of ever-increasing competition, not all of the nine Atlantic City casinos will be able to survive. According to a Jan. 9 report from The Press of Atlantic City, Ocean Resort Casino is already in financial trouble.

The rumored sale of the property just six months into its latest life on the Boardwalk proved true on Jan. 10. An unidentified company will buy the property with a $70 million investment.

Should Atlantic City take a page out of the Vegas success story?

Initially, the primary source of revenue for casino properties in Las Vegas was casino gambling.

However, during the last 30 years, that has changed. The majority of the revenue from Las Vegas Strip casinos is now coming from sources other than gambling, such as hotel rooms, food and beverage costs, entertainment and retail shopping. Convention business has also been an important contributor. It is an approach that seems to be working fine.

Many casino gambling experts see the increased competition from other nearby gambling jurisdictions as a sign that Atlantic City casinos need to do likewise.

Rummy Pandit, executive director of the Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism at Stockton University, had this to say in a recent Press of Atlantic City article:

“Since the inception of casino gaming in Atlantic City, the revenue mix for the city’s operations have weighted heavily on the side of gaming revenue. While this gaming-centric revenue model was successful for decades, when Atlantic City was ‘the only game in town,’ recent increases in regional competition for gaming dollars have challenged this approach. In high-density markets like Las Vegas, Nevada, casino properties have distinguished themselves from competitors and created sustainable revenue through embracing an integrated resort or ‘non-gaming revenue model.’”

Data show that compared to 1989, when gaming revenue accounted for just under 59 percent of the total for Vegas Strip casino properties, the percentage dropped to 48 percent in 1999, and less than 39 percent in 2009.

The percentage for 2018 was down further — to only 34 percent.

AC moving in the same direction, but not to the same extent

David Schwartz, director of the Center for Gaming Research at UNLV, feels that all of the Atlantic City casino properties need to increase their offering of non-gaming amenities. More options would “give visitors reasons besides gambling for visiting” and also “build the critical mass that is needed … to plan multiday trips, rather than just day trips.”

Schwartz admits that “incremental changes toward more non-gaming revenue” have occurred in some Atlantic City properties, but “it hasn’t been adopted universally as it was in Las Vegas.”

A divergent view: Don’t compare AC to Vegas

On the other hand, Kevin Ortzman, president of the Casino Association of New Jersey and regional president of the Caesars Entertainment Corp. Atlantic City Properties, feels that the comparison to Las Vegas is unwarranted.

Ortzman maintains that the two casino gambling destinations are very different in many ways, including the following:

  • Ease of access
  • Customer base
  • Length of stay
  • Number of hotel rooms

Ortzman also completely disagrees with the notion that the Atlantic City casino industry isn’t doing enough to diversify its amenities.

On the contrary, he has called attention to the fact that “the Atlantic City casino industry has invested hundreds of millions of dollars in recent years toward non-gaming amenities.” Among them are the Harrah’s Waterfront Conference Center and Tropicana’s expansion of the Quarter — to name two.

The times they are a changing

According to Ortzman, “Atlantic City has greatly increased its non-gaming amenities in response to a changing market.”

“In fact, for over a decade, the Atlantic City casino industry has worked to solidify the seaside resort’s comeback by diversifying Atlantic City’s offerings, as well as investing hundreds of millions of dollars in redevelopment projects and non-gaming services to attract new visitors. During that period the casino industry has been and continues to be focused on transforming Atlantic City from a predominantly gaming location to a diverse beachfront destination, where gambling is just one of the many activities bringing visitors to this great city each day.”

Changes in the percentage of gaming vs. non-gaming revenue in Atlantic City in recent years

Back in 2000, there were 12 casinos in Atlantic City, and gaming revenue accounted for nearly 82 percent of the total.

However, in 2017, with the number of casinos in Atlantic City down to seven, the percentage of revenue coming from gaming was 73 percent. The data for 2018 through September, including the two new casinos that opened in June, showed a further decrease. Fifty-seven percent of the revenue was coming from gaming versus 43 percent from non-gaming offerings.

However, at both Hard Rock and Ocean Resort, only 45 percent of the casino’s revenue was coming from gaming and the remaining 55 percent from non-gaming.

So those two casinos helped lower the percentage of gaming revenue for all of the AC casinos combined.

The future of Atlantic City

There has been a movement away from the original gaming-centric model of how casino properties should operate.

Instead, the services and amenities are of a more diversified nature. However, the shift in the respective percentages of revenue from gaming and non-gaming sources in AC has been nowhere near as dramatic as it has been in Las Vegas.

According to Ortzman, it doesn’t need to be since the dollar amount of gaming revenue has been increasing. However, it remains to be seen whether his assessment is correct or the experts who advocate emulating the Vegas model have a valid point.