Atlantic City bets on hotel rooms to secure future

ATLANTIC CITY - The co-owner of the Borgata Hotel Casino & Spa, this city's top-grossing casino, watched as the final steel beam was laid today on what it hopes will secure its future in this gambling mecca.

"This will be a four- or five-star hotel in the market, the only one," said an ebullient William S. Boyd, the chairman and chief executive officer of Boyd Gaming Corp. of Las Vegas, who flew in for the topping-off ceremony for The Water Club, a $400 million hotel tower next to the casino that redefined Atlantic City's skyline when it debuted in July 2003.

The Water Club is slated to open in the first quarter of 2008 with 800 rooms and an array of other amenities, including five pools, a giant spa and luxury lofts.

To compete against Pennsylvania slots, "hotel rooms are our new slot machines," Borgata president and chief operating officer Larry Mullin said today. "The long-term growth is going to be based on that hotel guest who can stay and spend more money."

The $400 million Water Club is the latest in the seemingly nonending buildup of attractions in Atlantic City as the casinos here feel the growing heat from Pennsylvania and New York slots competition.

In a recent investor note, Deutsche Bank AG gambling analyst Andrew Zarnett said of the Borgata: "Driven by the success of Phase 1 expansion, which added 36 tables and 500 slots, management intends to utilize Phase II expansion to maintain Borgata's status as the premiere property in Atlantic City."

The New Jersey Casino Control Commission reported last week that six of the 11 gambling halls here sustained revenue declines at the start of what is typically their peak season. Operators attributed those declines partly to five slots parlors in Pennsylvania. "Up against regional competition that is pulling away its day-trip business, it is essential for Atlantic City to keep on building rooms at various price points," Zarnett said. "Thus, growing the overnight business, which generates significantly more revenue than the daytrip business.

"That will be what saves Atlantic City," he said.

Day-trippers are generally customers who come into Atlantic City by bus, gamble for a few hours, and head back home. They tend to be older, lean more toward slots machines, and do not stay in the casino hotels.

Atlantic City has 14,510 hotel rooms, compared with about 130,000 in Las Vegas.

Boyd has always referred to the Borgata as his company's "crown jewel," and its biggest revenue generator among 17 properties. Boyd Gaming owns the Borgata with MGM Mirage.

"You can call this the only major hotel in Atlantic City without a casino," Boyd said. "The casino will be close by, but that will not be part of the hotel itself."

He said adding hotel rooms and other nongambling attractions will be the key to this resort's longevity as competition from Pennsylvania and New York slots intensifies.

"We think Atlantic City is making its way closer to what the Las Vegas market is today . . . where more and more of your revenue comes from nongaming sources," Boyd said.

Philadelphia has two casinos planned for the waterfront. Each of the two city operators - SugarHouse Gaming out of Chicago and Foxwoods Development Corp. L.L.C. out of Connecticut - has plans to add a 500-room hotel to its slots parlor in the near future.