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Atlantic City: Bring on Borgata2 July 2003Sure, Borgata's going to transform Atlantic City. That's a given, almost all of the experts say. But what's Borgata mean to Las Vegas, presumably unassailable in its position as the destination resort casino capital of the world? Will Atlantic City begin to take market share away from Las Vegas? No, say the experts, citing the seaside resort's quarter-century record of growing the casino market rather than tapping into Las Vegas' share. The big impact will be on two of Las Vegas' biggest gaming companies, Boyd Gaming and MGM Mirage, the two partners in the property. Since The Mirage opened on the Strip in 1989 there have been 11 Las Vegas megaresort openings, but none in Atlantic City. That changes Thursday, when Boyd and MGM Mirage are scheduled to open Borgata, New Jersey's first new casino resort in 13 years. Borgata marks the first foray into Atlantic City for both companies, but for Boyd Gaming, the property is its first megaresort -- modern casino resorts that combine thousands of guest rooms with dozens of dining, entertainment and retail options. Borgata's single tower features gold reflective glass covering its 2,002 rooms, the most rooms in the market, trumping Caesars Atlantic City's 1,764 rooms, Bear, Stearns & Co. reports. The property offers 11 restaurants, 11 retail boutiques, a 50,000-square-foot spa, 70,000 square feet of event space and parking for 7,100 cars. Boyd Gaming Chairman Bill Boyd recently reflected on his company's path to its first Atlantic City casino resort. Then-Mirage Resorts Chairman Steve Wynn called Boyd in 1996, offering the company a joint-venture opportunity. Mirage would provide the land on its marina site, then called the H-Tract, and Boyd would contribute the lion's share of the cash to build and then operate it. Seven years later, Boyd and Mirage successor MGM Mirage are ready to open Atlantic City's first modern resort. "We think it will have an effect in Atlantic City similar to the effect The Mirage had in Las Vegas," Boyd said from his Industrial Road offices, in the shadow of the company's Stardust resort. "It's tremendously exciting for us and for all of our people." If Boyd's prediction holds, the results will be dramatic. The Mirage sparked a Las Vegas building boom and is credited with changing the nature of the industry, reducing its reliance on gambling revenues and increasing food, beverage, entertainment, hotel and retail revenues. But Atlantic City isn't Las Vegas, and the city remains much more of a day-trip market than a destination resort market. Boyd thinks Borgata is Atlantic City's first step toward becoming a destination that will attract visitors for a couple of days, allowing the effect of increased hotel and other revenues to multiply. The East Coast's biggest casinos are no longer in Atlantic City but on tribal reservations in southeastern Connecticut. The undisputed power of Foxwoods and Mohegan Sun and the possibility of additional slots at racetracks in states up and down the coast made MGM Mirage decide to delay building its own Atlantic City casino next to Borgata, but Boyd isn't fazed. "We think we'll be competitive with Foxwoods and Mohegan Sun," he said. Boyd said Borgata's expected success will enable the company to more quickly redevelop its prized Stardust real estate. The more successful Borgata is and the more vibrant the north Strip is after Wynn Las Vegas opens in April 2005, the sooner Boyd will look at redeveloping its own land, Boyd said. Both companies have avoided predicting Borgata's cash flow performance. But executives and analysts alike agree that the megaresort's results will be critical to Boyd, a much smaller company than MGM Mirage. JP Morgan gambling industry analyst Harry Curtis predicts that Borgata will be significant to both Boyd and MGM Mirage. "The Borgata's cash flow will mean more to Boyd on a percentage basis because it's a smaller company," Curtis said. "For MGM Mirage, the Borgata could help it decide how much it wants to invest in Atlantic City." Borgata also gives both companies more geographic diversity, analysts said. Boyd is often compared to Harrah's, its bigger and even more geographically diverse competitor. Both companies have strong Nevada bases, riverboats and racinos, and Boyd will now join Harrah's in Atlantic City's Marina District. Harrah's also operates Showboat on the Boardwalk. MGM Mirage has no casinos in the Northeast, but has a deal to operate video lottery terminals at New York pari-mutuel tracks. MGM Mirage Chairman Terry Lanni said Borgata's performance will affect his company's decision about where next to develop. Lanni said the company has the financial wherewithal to develop both an Atlantic City casino on a 55-acre site it owns next to Borgata and a 55-acre Strip site it owns near the CVS drugstore, north of Harmon Road. Key to MGM Mirage's decision is Borgata, he said. "This is the $64,000 question," Lanni said. "If Borgata merely takes business away from the other (Atlantic City) properties and doesn't grow the market, if it's a zero-sum game, that wouldn't be a good sign (for a new MGM Mirage property in Atlantic City." But that's not what the savvy operator expects. "My view is that Borgata will indeed create new business," he said, noting Borgata executives' plans to try to capture people Lanni called "Atlantic City rejectors," people who have previously been less than pleased with the seaside resort. Lanni said he expects to soon have enough feedback on Borgata's performance and impact on the market to begin focusing on the New Jersey and Strip development sites, locations company bosses call "55 East" and "55 West." "Realistically by the end of the year we should be in a position to make a decision," Lanni said. "Is it project 55 East or 55 West?" Lanni cautioned that possible tax increases in each state could also affect the decision. Borgata's impact on Las Vegas companies would affect more than just Boyd and MGM Mirage, analysts agree. UBS casino industry analyst Robin Farley recently predicted that Borgata will impact results for Atlantic City's existing casinos, a projection that could hurt Strip heavyweight Park Place Entertainment. "We note that our (earnings per share) estimates for Park Place are below consensus, which we attribute to the fact that we are below management's more optimistic guidance that (fourth-quarter cash flow) in Atlantic City will be flat to up over last year," Farley noted in a research report. |