The Fall of the Trump Casinos of New Jersey
The recent downturn for Atlantic City properties has not been kind to Trump Entertainment Resorts, the parent company behind Trump Taj Mahal and Trump Plaza. Once one of the most powerful forces in the region, slowing sales and weak customer engagement have left Trump’s properties gasping for market share, failing, and finally closing. In September, Trump Plaza closed its doors after thirty years of operation on the Atlantic City boardwalk. Now, Trump Taj Mahal is set to close its doors on November 13, 2014, if it does not get the concessions it’s seeking from its employees’ union, Local 54 of Unite-HERE.
Taj Mahal’s Final Days
Trump Entertainment Resorts has claimed that its excessive union fees have choked it into bankruptcy and it must be relieved of these costs for the hotel and casino to continue to operate beyond November 13th. 2,800 union workers are employed by the 24-year-old casino, which cannot meet its costs because of the lack of profits coming in through its hotel rooms, retail, dining, and gaming floors. In October 2014, the company went before a judge in Delaware to request tax breaks and union concessions from Atlantic City and the state of New Jersey. It proposed a complete reorganization of the company, fueled by an influx of $100 million from its majority shareholder, billionaire business mogul Carl Icahn. Under this plan, Icahn would become the casino’s new owner.
Understandably, union members are reluctant to allow Trump Entertainment Resorts out of its contract. Although Local 54 of Unite, the largest casino workers union in Atlantic City, offered to accept reduced pension contributions from the company, it remains adamant that the casino operator be held to its contractual obligations.
Trump’s Boardwalk Glory Days and Their Downfall
When Trump Taj Mahal opened on April 2nd, 1990, the climate in Atlantic City was worlds different that it is today. Eleven casinos operated within the city and brought in $2,951,581,000 from 31,813 customers that year. This was coming off Donald Trump’s explosive career in real estate during the 1970s and 1980s. Famous projects like the Grand Hyatt and the Wollman Rink in New York City launched Trump and his company, The Trump Organization, from a regional real estate developer to a household name. Taj Mahal was Trump’s third property to open in Atlantic City, following the Trump Marina and the Trump Plaza. In 1996, the Trump World’s Fair joined the lineup until its closure in 1999.
It took Trump’s company two years to complete the renovations to the building that was originally constructed by Merv Griffin’s company as Resorts Taj Mahal. It was the center of a controversy in 1988 when Resorts postponed the project indefinitely due to insufficient funds. Trump offered to purchase the property , Griffin refused, and a lengthy battle between Trump and Griffin ensued. When the dispute was solved and the Taj Mahal finally opened, everyone in attendance was treated to a live performance by Michael Jackson. At the time, the Taj Mahal was the most expensive, opulent casino in Atlantic City. It remained the city’s most profitable casino until the Borgata opened in 2003.
In 1995, Trump created Trump Hotels and Casino Resorts, which eventually was renamed Trump Entertainment Resorts. Its financial health began to falter in the 2000s and the company filed for bankruptcy in 2004, 2009, and 2014. 2009 was the year Donald Trump stepped down from his position as chairman of the board of directors at the company. Initially, Trump stated that he would fight the company’s ownership team, investors Carl Icahn and Andrew Beal of Beal Bank, to have his name and likeness removed from his former properties.
The Man and the Brand
Donald Trump is a powerful brand, and Icahn and Beal knew it. Although Trump stated that he’d never allow them to continue to use his name and likeness in hotel and casino advertising and décor, he settled for 5% stock in the company plus an additional 5% stock to allow them to continue to use his name and image.
Trump’s Properties Aren’t the Only Ones Suffering
The Trump Marina and potential Trump Taj Mahal closures are merely part of the larger trend of casino closures this year. The Atlantic Club, Revel, and the Showboat all closed for good in 2014, leaving conspicuous holes in the Atlantic City boardwalk.
Various factors contribute to Atlantic City’s downturn. The most significant factor is the recent construction of casinos in New York, Connecticut, and Pennsylvania that draw away clientele that historically visited Atlantic City. With more casino resorts, such as the Horseshoe Baltimore, offering modern, clean, safe alternatives to Atlantic City’s aging boardwalk offerings, the pressure for New Jersey’s casinos to retain their customers only becomes more intense each year.
Physical casinos aren’t the only threat to Atlantic City’s properties, though. Since late 2013, Internet gambling in New Jersey has changed the landscape for gamblers in New Jersey by allowing them to play slots, blackjack, and poker from the comfort of their own couches.
And the final factor, possibly the most fatal because it’s here for the long run, is that Millennials, young adults born in the 1980s and first half of the 1990s, just don’t visit the casinos the way their parents and grandparents did. Today, millennials account for 1/3 of the United States’ population, and their lack of gambling habits will only increasingly hurt casinos’ bottom lines in the future.
Once Trump Taj Mahal closes, Trump Entertainment Resorts will no longer have property in Atlantic City. Whether or not this happens in November depends on what the judge says about the company’s obligation to its employees’ union. If it can be relieved of some of its obligations, the Taj Mahal could remain a part of the Atlantic City skyline for the foreseeable future. If not, it will be the fifth casino to close this year, leaving Atlantic City to start 2015 with only eight operating casinos.
Pruning the Market So Others Can Thrive
Although these closures are a result of fewer people going to Atlantic City and playing in its casinos, analysts say that they’re the beginning of a stronger, healthier gambling market for Atlantic City. It’s Darwin’s theory of survival of the fittest applied to businesses. When the weaker competitors die off and exit the market, the stronger players have less competition among consumers and can attract a larger portion of the market share.
As some studies suggest, this could actually be a great thing for Atlantic City’s gaming market. It’s all about building the right-sized market for the city’s current consumers. When there are fewer people buying a product, the providers have to restrict its supply. The day the gate closes for good at the Taj Garaj will signify the official end of the Trump era, even if all that remains of his reign is his name.