Four years ago, Morgan Stanley (MS) began developing the biggest casino resort in Atlantic City. Then came the credit crunch, recession, competition from nearby states, and record drops in gambling revenue. In April the bank walked away from the casino, called Revel. Now its wave-shaped glass exterior and empty interior stand as a spectacular monument to a $1.2 billion losing bet on a shorefront in decline.
Enter Chris Christie, New Jersey's new Republican governor, with an ambitious plan to help finish Revel and start turning around Atlantic City's fortunes. In late July he proposed carving a state-controlled tourism district around the casinos. It would oversee policing, development of the famous boardwalk and the casinos alongside it, and upgrades of nearby blighted streets. "If we won't take steps to deal with this now, we won't be the ones who presided over the decline of Atlantic City "we'll be the ones who presided over its death," Christie said at a July 21 news conference.
He'd better have luck on his side. Six of New Jersey's 11 operating casinos have been through bankruptcy or restructuring in the last year. Betting revenue tumbled 25 percent from 2006 to 2009. Cash-strapped gambling houses have postponed renovations, and new development has stalled. The state projects 12 percent less tax revenue from gaming this fiscal year.
On the boardwalk on Aug. 7, carnivals, saltwater taffy stands, and Atlantic City's trademark rolling chairs competed for visitors' money, along with massage parlors and weatherworn casinos. A block inland, along Monopoly-famed Pacific and Kentucky Avenues, the homeless and down-on-their-luck tenants shared a gritty landscape of neglected yards, cash-for-gold shops, and Greyhound buses dropping off day-trippers. "Go a block off the boardwalk and you're in Beirut, basically," says Robert LaFleur, an analyst at Hudson Securities who follows the gambling industry.
Atlantic City casinos pay more than $900 million a year in state taxes and fees and about $1 billion in wages to 37,799 employees"down from the 2006 peak of 45,101. Revel was supposed to provide 5,500 jobs. The job losses are expected to accelerate when a casino opens next month in Philadelphia. "Atlantic City is surrounded on three sides by gambling, and the only reason it isn't on the fourth side is because it's an ocean," says LaFleur.
Christie's plan, most of which needs state lawmakers' approval, would stop the siphoning of $30 million in casino taxes to racetracks. He also hopes to save the resorts up to $25 million by overhauling two state regulatory agencies that the casinos fund and that Christie's plan says can be duplicative. The resulting $55 million would go toward marketing. Christie, who says his plan calls for little new state spending, is already borrowing from a casino development fund to upgrade roads and land around Revel, which the plan calls the largest property in the state.
Developer Kevin DeSanctis still needs to find more than $1 billion to finish Revel without ex-partner Morgan Stanley. "It's very, very important that we get Revel finished," says State Senator Jim Whelan, a former city mayor. "Otherwise, we're going to have a monument to the futility of investing in Atlantic City."
The Christie plan may be the struggling casinos' last resort. In December, Credit Suisse (CS) became the owner of Resorts Atlantic City, New Jersey's oldest casino, in default since 2008. Four others have changed hands. Carl Icahn acquired Tropicana Atlantic City from bankruptcy last year. Bondholders took over Trump Entertainment Resorts' three casinos last month. Pinnacle Entertainment (PNK) in February ditched plans to build a $1.8 billion casino. MGM Resorts International (MGM), a major Las Vegas operator, is leaving Atlantic City because New Jersey gaming regulators objected to its casino partnership with Macau, China.
Mark Juliano, CEO of Trump Entertainment, which exited bankruptcy for a third time in July, isn't giving up. Defending Christie's plan to ruffled state Democrats at an Aug. 6 hearing, Juliano said he sees a future in wooing vacationers and convention-goers now that bused-in gamblers have closer alternatives: "This is the first time in 33 years that we've had a sitting governor and the legislature reach out their hands to us and say 'we're here to help.' "
The bottom line: New Jersey's Chris Christie wants to create jobs and increase tax revenue by rejuvenating Atlantic City, a tall order after years of neglect.