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Atlantic City Faces New Challenge

29 October 2001

by Michael Pollock

ATLANTIC CITY, New Jersey -- Casinos are coming. Casinos are coming. That clarion call has been sounded countless times over the past quarter-century, threatening to end Atlantic City's dominance as an East Coast gaming resort. Perhaps even threatening to end Atlantic City's ultimate viability as a gaming center.

The questions began when Florida held a failed referendum to legalize casinos in 1978 (just two years after New Jersey voters approved a similar constitutional referendum to legalize casinos in Atlantic City), and it was reprised in 1986, when Florida again tried and failed

The questions were asked when various movements gained steam in the 1980s to legalize casinos at resorts in the Pocono Mountains of Pennsylvania. They were heard when Steve Wynn, then chairman of Mirage Resorts, undertook a Herculean effort to legalize a casino in Bridgeport, Connecticut. Ditto when casinos were proposed along the Delaware River in Philadelphia, on cruises to nowhere out of New York City, at racetracks in Pennsylvania and Maryland.

And in the old Borscht belt resorts in the Catskills of New York, such questions were heard more often than Henny Youngman one-liners. Take the idea of casinos in the Catskills. Please.

After the New York Legislature approved a bill this week to allow six Indian Casinos, with three in the Catskills, plus slots at five racetracks, the process has begun anew. The questions never change. The answers, however, are constantly evolving. And from the standpoint of Atlantic City, the answers always get better.

Certainly, if Florida voters had approved casinos in 1978, both Atlantic City and Miami Beach would have been far different places today. The cities would have competed for capital investment from gaming companies, and they would have done battle over who has the tightest or loosest regulatory requirements. And, of course, they would have vied for visitors. Las Vegas would naturally have responded, perhaps as it did in the 1980s by reinventing itself as a global gaming destination. Only sooner.

The Poconos had an opportunity to reshape Atlantic City by nipping the Boardwalk's burgeoning future in the bud. But it didn't. Ditto for the Catskills and Philadelphia. Atlantic City was once as vulnerable as a newborn. But much has happened over the years to dramatically reduce that vulnerability.

Consider these changes, all of which make Atlantic City something more than vulnerable, but something less than impervious:

* Atlantic City remains the only regional gaming destination with a high concentration of casino hotels in close proximity to each other. This may not be critical mass, but it is something close. Casino patrons enjoy walking from one resort to another, with waterfront views as a backdrop.

* Before casinos could ever get up and running in the Catskills, Atlantic City will be a lot closer to critical mass. The $1 billion Borgata project is still under construction, and is still likely to be a huge success. That success will do a lot to soothe jangled nerves on Wall Street and in corporate offices.

* Casino entertainment is not a zero-sum game. The size of the existing gaming market in the Northeast is not the same as the size of the future gaming market. The rapid expansion of the gaming industry in the early 1990s demonstrates that the industry's growth fosters growth in the number of adults willing to spend discretionary dollars in a casino hotel. More gaming venues foster more trials from consumers who have previously eschewed gaming in favor of other entertainment pursuits, from bowling to watching spectator sports. Some do both. They watch re-runs of "Bowling for Dollars" on the Game Show Network. Perhaps a casino hotel in the Catskills can get them off their sofas. Once they taste the thrill of an Addams Family slot, at least some would be willing to visit Cousin It on the Boardwalk.

* From the 1970s through the early 1990s, gaming was a world in which cities competed against cities, and states against states. The war between the states is coming to an end. The growth and consolidation of the gaming industry over the past decade has dramatically raised the cost of entry, and has enhanced the bargaining power of large-cap gaming companies such as Harrah's Entertainment or Park Place Entertainment. The world is now largely one in which companies compete against companies for market share and for positions within that market.

At some point soon, Atlantic City will have capital investments from nearly all the gaming companies in North America that compete in that large-cap arena. Those companies will use new positions in the Catskills or elsewhere to both create new customers that can increase visitation at all their properties, and to increase the number of visits from existing customers.

Certainly growth in gaming anywhere in the Northeast will put a crimp in Atlantic City's future growth, but the factors that made Atlantic City appear to be a good investment in 1999 and 2000 did not evaporate simply because the New York Legislature is looking for new sources of revenue. The proper response will be for the public and private sectors in Atlantic City to invest more, and make the city even less vulnerable in the future.

Casinos in New York will not be the end of competition for Atlantic City, but will rather foster even more calls for casinos in the same old places: The Poconos, Philadelphia, various race tracks and other spots. With each proposal, the same questions will get asked, and Atlantic City will still be around to answer them.

Atlantic City is starting to look like the punch line in another Henny Youngman joke in which he talks about his long-standing marriage. Casinos in Atlantic City have been around for nearly a quarter century. Where did they go wrong?

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