Learning to live with a downsized Atlantic City

In 2006, the casinos in Atlantic City took in more than $5 billion in revenue. This year, total revenue will likely be about half of that amount. The results are devastating to the city. What happened?

With the addition of the super-hotel-casino Revel, there could have been a total of 13 casino hotels in the city. But the Claridge closed and was later reopened as a hotel only. A similar fate came to the Atlantic Club. The Showboat just announced it would close, as did Trump Plaza. Both are likely to be sold and to reopen as hotels only.

And then there is Revel.

This resort filed for bankruptcy twice and is scheduled to be sold at auction on Aug. 6. Judging from reports that it will probably cost about $150 million to make renovations to correct design flaws, the auction will yield a price of less than $100 million, and maybe as low as $50 million. Once the new owner completes renovations and rebrands the casino to change the poorly planned marketing that has been done so far, Revel should be able to survive. This model has already been used and is somewhat successful.

Both Resorts and the former Trump Marina were purchased for about 10 percent of their original value. After the owners renovated the properties and changed marketing strategy, both are surviving. By reducing the capital cost at Revel from $2.2 billion to $200 million, it can survive too.

Atlantic City's casino industry began its decline in 2007. At that time, increased competition and a poor economy began to reduce revenue. When the city's first casino opened in 1978, it was the only place aside from Las Vegas where Americans could go to gamble. Since then, the industry has expanded dramatically in the United States. Today there are almost 1,000 casinos, and gambling generates revenue in 41 states.

After the shakeout is complete, Atlantic City will probably have seven or eight casinos, with annual casino revenue in the $2.5 billion range. However, further damage to the market will occur if casino gambling is expanded to other parts of New Jersey.

There is currently a movement to put a referendum on the November 2015 ballot asking voters to allow casino gambling in the northern part of the state. In anticipation of approval, there is already a proposal to build a $4.6 billion mega-resort at the Meadowlands Racetrack, which would include a 90-story hotel and residential tower in addition to the world's largest Ferris wheel and a car-racing stadium that would seat 100,000 people.

The timing for this referendum is based on Gov. Christie's 2010 promise to help Atlantic City and give it five years to recover. The five years are up in 2015, and it doesn't appear that the city will recover by then.

For its part, the city is trying to fight back. It has brought in experts in inner-city development, marketing, and rebranding, but so far the results have been modest. Don Guardian, the newly elected mayor, is enthusiastically attempting to restore Atlantic City. He has recognized, as do most tourism leaders and other government officials, that Atlantic City must reinvent itself as a tourist destination that offers many reasons for people to visit, rather than just selling it as a casino town. There has been some success, but it's proving difficult.

The city, like the casino industry, is facing tough financial times. As with many cities in the United States that depend on property taxes for revenues, declining real estate values have reduced revenue even with contracted costs continuing to rise. The result is a significant budget shortfall that, if not corrected quickly, could force a municipal bankruptcy.

For all the good intentions of city leaders and others, the sad fact is that Atlantic City is going to undergo change again, and this round is going to be painful for many casino employees. When markets contract, businesses are forced to close and, unfortunately, people lose their jobs. In 2011, there were about 33,000 people employed in the casino industry. After the shakeout, the number will be about 20,000.

As for the future, Atlantic City will still have a substantial gaming market, but it's going to be smaller than it was. The difficult tasks facing the city are how to attract tourists to increase nongaming revenue and how to balance a municipal budget with significantly less tax revenue. Local residents can only hope someone will be able to figure all that out.