Wednesday, November 20, 2002
Copyright © Las Vegas Review-Journal

Atlantic City competition heats up

Construction on the new Borgata casino in Atlantic City continues Monday. The resort is expected to open in summer 2003. AP Photo

There is good news and bad for the gaming industry in Atlantic City. That sounds like the straight line to a joke, but this is no joke.

The good news is that the Borgata is opening in the middle of next year and should be driving an added $265 million a year into Atlantic City casino coffers by 2006, a Bear, Stearns & Co. report released Tuesday shows.

The bad news is that added competition from new gaming operations in neighboring states likely will be "cannibalizing" $750 million out of the Atlantic City market.

Overall, total gaming revenues in Atlantic City are expected to drop $400 million, or 8 percent, by 2006.

The new Borgata, the first new casino in Atlantic City since the Taj Mahal opened in 1990, should generate $630 million in new gaming revenue in 2006. Of that, however, $365 million is expected to come from the current operators in Atlantic City.

If that were the whole story, Atlantic City gaming revenues would increase 5.3 percent to $5.3 billion, up from $5 billion.

However, Atlantic City is also expected to take a hit from new gaming operations in New York, Pennsylvania and Maryland.

Between now and 2006, Bear, Stearns estimates that 37,600 new gaming positions will be added at 14 facilities within 200 miles of Atlantic City.

This would include 18,600 positions at three American Indian casinos and three race tracks in New York, 10,000 positions at four racetracks in Pennsylvania and 9,000 added positions at four racetracks in Maryland.

These operations should cannibalize $750 million of Atlantic Cityıs annual revenues by 2006, clipping the cityıs gaming revenues to $4.6 billion.

The biggest winners will be Boyd Gaming Corp. and MGM Mirage, joint venture partners in the $1 billion, 2,010-room Borgata, and International Game Technology, the major manufacturer of slot machines.

"We hope they're right. The Borgata is our central focus right now. We're in the home stretch of a six-year process," Boyd Gaming spokesman Rob Stillwell said.

"We're extremely excited about the project and what it's going to do for our company," he said.

It has been touted as Atlantic City's first Las Vegas-style destination resort and is expected to set the standard for future gaming development in the mid-New Jersey coast area.

"This is the first next-generation project for our company. Looking beyond the Borgata, all the land we have at the Stardust site presents us with great longer term growth opportunities," Stillwell said.

The biggest losers in the competition for Atlantic City gaming dollars, Bear, Stearns analysts say, will be Tropicana operator Aztar Corp., Harrah's Entertainment and Park Place Entertainment Corp.

Of the three, Harrah's may be "best positioned to retain share. It should be better able to market and retain a loyal base of customers, but it will not be immune (from the competition) and has few near-term catalysts for growth," Bear, Stearns analyst Jason Ader said.

Harrah's spokesman David Strow acknowledged that in the short run, the added rooms of the Borgata will have an effect.

"But in the long run, we feel we're well positioned there with a $193 million expansion at Harrah's Atlantic City and a $90 million expansion of the Showboat now under way."

With regard to competition from neighboring states in the form of racinos, Strow said Harrah's expects the impact to be "negligible."

"Aztar is (more) likely to be hurt since the bulk of its revenue comes from its Atlantic City properties," Ader said.

Park Place will feel the effects of competitive pressures since a quarter of its cash flow comes from Atlantic City operations and it has very few near-term growth opportunities, he said.

At Park Place, spokesman Robert Stewart said: "I beg to differ with the Bear, Stearns analysis. We're going to be a leader in gaming in New York state."

Further, "our concentration of market power at the center of the Boardwalk in Atlantic City is a major competitive advantage for us. Frankly, we're recreating Atlantic City as a destination resort," he said.

In the past 12 years while development has lagged in Atlantic City, 12 megaresorts have opened in Las Vegas including Excalibur, Treasure Island, Luxor, MGM Grand, New York-New York, Stratosphere, Monte Carlo, Bellagio, Mandalay Bay, The Venetian, Paris Las Vegas and Aladdin.