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Atlantic City's losing game of monopoly

Atlantic City is reeling as four casinos have closed, a fifth might shut down in November, and more than 10,000 jobs could be lost. It is clear the industry and state failed to recognize that its gaming monopoly was temporary and Atlantic City should leverage its monopoly power to develop a more diversified and secure economy.

Guests arrive at the SugarHouse Casino, Sept. 20, 2010. The owners of SugarHouse Casino have formally objected to the scheduled awarding of a second casino license in Philadelphia. ( Tom Gralish / Staff Photographer )
Guests arrive at the SugarHouse Casino, Sept. 20, 2010. The owners of SugarHouse Casino have formally objected to the scheduled awarding of a second casino license in Philadelphia. ( Tom Gralish / Staff Photographer )Read more

Atlantic City is reeling as four casinos have closed, a fifth might shut down in November, and more than 10,000 jobs could be lost. It is clear the industry and state failed to recognize that its gaming monopoly was temporary and Atlantic City should leverage its monopoly power to develop a more diversified and secure economy.

Interestingly, the lessons of the boom and bust imply New Jersey should not build a North Jersey casino, but a second Philadelphia casino license should be awarded.

When Resorts Casino opened in 1978, the sky seemed to be the limit for Atlantic City. Gaming was going to revitalize the badly faded resort town. And it worked. Visitors came by the millions - more than 30 million a year starting in 1987. By 2003, the casinos employed nearly 50,000 workers in the peak summer season and wages paid topped $1 billion. The gaming industry had become a $6 billion colossus.

So what happened? Even before the Great Recession and surrounding states approved gaming, the unlimited hopes for Atlantic City were problematic. The A.C. casino industry and the state regulators didn't recognize until too late what even Las Vegas had understood more than a decade earlier: There had to be more than just gambling if the city was to survive.

Monopolies can make boatloads of money for an extended period - but not forever. Ultimately, the core monopoly business becomes a risk. The government might break it up, consumer preferences often change, or technical innovation can create new products, allowing competitors to arise. When enough money is at stake, people find ways to get their share of the profits.

Blinded by its gaming monopoly in the Mid-Atlantic region, Atlantic City failed to diversify. There was gaming and little else. Enter a casino and you could be on the moon. A boardwalk? What is that? The ocean? A diversion from the real business - gaming. Plans for entertainment facilities never panned out.

In contrast, Las Vegas built "theme" hotels that provided a reason, other than gaming, to visit. It is amazing that Las Vegas is now viewed as "family friendly," but a city with beaches couldn't or wouldn't sell that advantage.

Once Pennsylvania and other nearby states legalized gaming, competition, which had been hundreds if not thousands of miles away, was now within a short drive from much of Atlantic City's customer base. Given that more than 98 percent of Atlantic City visitors arrive by automobile or bus, that was the death knell.

So what should New Jersey and Pennsylvania take away from this crisis? Not what you think. It was not breaking the monopoly that caused the Atlantic City casino industry downfall - it was the failure to use its monopoly position to diversify and build for the future.

What are the implications of that failure? For New Jersey, plopping a new competitor in North Jersey, in the middle of Atlantic City's customer base, makes absolutely no sense. All it would do is further cannibalize Atlantic City's business. That could lead to more casino closings offsetting gains from the new casino.

Worse, it could harm Atlantic City's ability to attract visitors as it tries to reposition itself. Similar to vehicle dealerships, casinos group together to create a larger market than any one individual casino could develop. The many options bring in the customers. Another New Jersey casino could reduce the size of the A.C. gaming industry to where it has minimal attractive ability.

The lesson for New Jersey: Don't build a North Jersey casino, but assist Atlantic City's transition to a real resort.

As for Pennsylvania, it should recognize that maximizing gaming revenues means broadening economic activity. Currently, the one casino in Philadelphia, SugarHouse, is largely a "box of slots" that attracts mostly gamblers. It was not granted a license because it would add greatly to the non-gaming economy - and it hasn't.

Philadelphia has done a masterly job of failing to build major facilities to complement sports facilities or casinos, and spawn additional economic activities. That must change.

The lesson for Pennsylvania: Grant a second license to a facility that would diversify and expand the city's economic base.

A second casino might cannibalize SugarHouse's customer base. But it could also cause it to meet the challenge and become more than just a gaming destination. Doing so would help Philadelphia increase its tourism reputation as a place with great history, world-class cultural facilities, Iron Chef restaurants, sports teams that win occasionally, and oh, by the way, where you have a choice where to gamble and do a variety of other things.

jnaroff@phillynews.com.