New Jersey Governor Chris Christie is bucking voter skepticism and pushing ahead with his plan to revive the Atlantic City gambling resort, where casino revenue has plunged the most since the first one opened in 1978.
Christie, a first-term Republican, took control of the tourism district in the 48-block-long coastal city of 40,000 last month and relieved the 11 casinos there of some regulations. He redirected gaming fees to clean up and promote the area, and provided tax breaks to help restart construction of the $2.5 billion Revel casino that stalled in 2009.
The intervention may come too late, even with Revel opening in 2012, said Dennis Forst, a gaming analyst at KeyBanc Capital Markets. Gambling revenue in Atlantic City, the second-largest U.S. casino market, is down 30 percent from 2006. Older betting parlors may close as Sands Casino Resort in Pennsylvania, Dover Downs in Delaware and other rivals draw gamblers from Philadelphia and New York, he said.
“Outside competition is only going to increase,” he said during an interview in New York. “Atlantic City had 30 years to work this out, to make themselves indestructible, and they’ve wasted all of those years,” said Forst, who has covered the industry for 40 years. He received top rankings of analyst polls in the Wall Street Journal and Institutional Investor and Forbes magazines, according to KeyBanc.
New Jersey is seeking to halt a drop in the 8 percent tax on casino revenue that funds programs for seniors and the disabled. The industry gives another 1.25 percent of revenue to the Casino Reinvestment Development Authority, which helped fund $1.8 billion of projects since 1984, including airport expansion and housing for casino workers.
Atlantic City’s gambling houses employed 33,272 as of last month, down from more than 45,000 in 2004, according to state data. The 8 percent gaming tax netted the state $260.9 million in 2010, down from more than $400 million in 2006.
Amid the slump, car traffic into Atlantic City has fallen so sharply that Moody’s Investors Service this week downgraded the toll-revenue bonds of the South Jersey Transportation Authority, which operates the 44-mile (71-kilometer) Atlantic City Expressway. The municipality itself, which relies on casinos for 74 percent of its taxes, had its credit rating cut by Moody’s in November.
Christie, 48, announced the planned takeover of the casino district last July, six months after he took office. Standing on the 50-yard line of the New Meadowlands Stadium in northern New Jersey, the governor said the state needed to make a “new, bold commitment to Atlantic City” by taking control of policing, land use and business development in the area.
“It wasn’t a selection done philosophically,” Christie said during a March 15 press conference in Trenton. “Atlantic City, given the continued declines in gaming revenue and the continued loss of employment in the southern part of the state, was at a crisis level. We decided to deal with that crisis.”
Christie’s decision has yet to win over taxpayers. In a February poll by Fairleigh Dickinson University’s PublicMind, voters opposed the takeover, 43 percent to 29 percent. Republicans were more likely than Democrats to disapprove, with 48 percent of respondents in Christie’s party opposed.
“Many voters want to curb state government spending, not expand its functions,” said Peter Woolley, the poll director. “They’re simply not confident the state can run things well.”
Neither is Lorenzo Langford, the city’s Democratic mayor. While Christie’s plan may help the casino district, Langford said it won’t help the rest of the city, which suffers from 16.4 percent unemployment. The statewide rate is 9.1 percent.
“All of the predominantly white neighborhoods and the commercial district are in it, and the historically black neighborhoods are left out,” Langford, who is black, said in a telephone interview. “It’s Big Brother wanting to come in and control Atlantic City.”
Atlantic City was a decaying resort area until New Jersey legalized casino gambling in 1976 and limited it to one location. The first casino, Resorts International, opened in 1978. Revenues rose steadily each year, reaching a peak of $5.2 billion in 2006.
Wagering then tumbled for four straight years, to $3.6 billion in 2010, after nearby states including Pennsylvania, New York and Delaware allowed slot machines. Six of the 11 Atlantic City casinos went through bankruptcy or restructuring.
“New Jersey is one of the more stressed states in the country, and any revenue flow is important,” said Alan Schankel, a fixed-income analyst at Janney Montgomery Scott LLC, a Philadelphia-based money-management firm. “He has more to work with in Atlantic City and there is no comparable revenue stream outside of it.”
‘Las Vegas East’
Keeping the casinos profitable and hiring is Christie’s best shot for reversing the state’s economic slide, said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Brunswick. There is also little or no up-front investment, he said.
“You have an entity that was once known as Las Vegas East, and through many years all of a sudden it’s in peril,” Hughes said in an interview. “This was a situation he had to address. Given the position we’re in right now, the best shot was at retention.”
Christie’s changes, lobbied for by companies including Caesars Entertainment Corp., which has four Atlantic City resorts, improve the city’s prospects, according to Chief Executive Officer Gary Loveman.
“We don’t have high aspirations for things being especially dynamic,” Loveman said on Caesars’ Feb. 25 earnings call. “But I do think we’re in a period now where we could see some stabilization in that market, improving margins as we manage these businesses more efficiently, and over time, the reinvigoration of the market.”
The half-built hulk of Revel bears witness to the challenge Christie faces. The governor has said he’s counting on the casino, the only new one under construction there, to add jobs and inject new life into the city’s gambling industry.
Revel last month raised $1.15 billion to restart construction after some investors were reassured by the government’s decision to provide $261 million of incentives by reimbursing state taxes the resort is expected to generate over 20 years. The arrangement includes $125 million to upgrade the boardwalk and other parts of Revel’s neighborhood. The project is estimated to create 5,500 permanent jobs.
The risk, analysts say, is that Revel will woo customers from other Atlantic City casinos rather than lure new visitors, hastening the demise of older, struggling resorts.
“New and refurbished casino resorts will likely take share from their dated peer group,” said Dennis Farrell, a casino-debt analyst with Wells Fargo Securities LLC.