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Rod Smith

Atlantic City Still Seen As Little Threat

8 August 2005

Atlantic City is undergoing a renaissance that city fathers say represents a new dawn, but which industry experts say will leave the Mid-Atlantic destination an isolated regional market in a dynamic world of casino developments.

While Atlantic City's new-found interest in younger, high roller and nongaming customers mirrors the Strip, industry experts also said the East Coast city poses no threat to Nevada, and could give Las Vegas a marginal boost.

Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, said historically Atlantic City has been seen as a threat to the gaming market here.

However, time has proven that Atlantic City has a distinct and separate customer base, even with today's effort to broaden its appeal, he said.

Goldman Sachs analyst Steve Kent said nongaming development is everywhere in Atlantic City today, from the beach bars, to restaurants, to shopping areas.

New projects include the House of Blues, a "Vegas-style" nightspot, modeled on its sister at Mandalay Bay; the Havana-themed Quarter at Tropicana; the Pier at Caesars which apes the Forum Shops here; the Borgata expansion; and plans for new towers at Atlantic City resorts.

"These amenities are definitely drawing in a more diverse, younger and affluent crowd which should result in sustained growth," he said.

But even that poses a challenge, however, as management works to avoid alienating its core older customer base, Kent said.

In addition, he said promotions and discounts, rather than quality resorts and amenities, still reign supreme in capturing customers for Atlantic City.

And nearly every casino is adding table games, specifically poker, which may pressure margins unless volumes and nongaming revenue offset this, Kent said.

"But all Atlantic City is doing is penetrating its existing drive-in market deeper even though it's moving away from targeting just casino customers," he said.

Despite the summer trends to-date, a Goldman Sachs investor advisory released Thursday rated the performance of Atlantic City as a whole no better than "OK."

Schwer said even the newest developments leave Atlantic City largely dependent on daily bus arrivals of value-oriented customers from New York City.

Younger customers, who are likely to spend more freely, may substitute their spending from casinos to other concerns, but there is unlikely to be much crossover with Las Vegas, he said.

University of Nevada, Las Vegas professor Bill Thompson, who specializes in gaming studies, said Atlantic City will continue to simply focus on East Coast gambling, given the built-in handicaps it faces.

"They still don't have the large airport near by. Their improvements may allow them to hold their regional customers in the face of Pennsylvania racinos," he said.

Jim Medick, chief executive officer of the MRC Group, Nevada's largest market research firm, said Atlantic City is also at a competitive disadvantage in terms of security perceptions and transportation needs among visitors.

"And AC's Boardwalk and surrounding areas need massive development to compete with Vegas' ability to move between entertainment options," he said.

University of Nevada, Las Vegas history professor Hal Rothman said proximity to New York City and Philadelphia is Atlantic City's saving grace, but also its curse, discouraging the development of an overnight market.

Thompson said in the face of these issues, Atlantic City is in a panic mode of trying just about anything to reinvigorate its gaming market.

"But it seems that there is no vision in Atlantic City planning. On one hand, they are looking at a young market, but on the other hand table games," Thompson said.

"The improvements will give them a chance to better compete with Foxwoods and Mohegan Sun (in Connecticut)," Thompson said. "But Atlantic City is like downtown (Las Vegas) and Reno. They're into holding patterns that involve a lot of improvements, but mostly a 'we gotta do something-anything' attitude."

Medick said Atlantic City for some time has had an urgent need to address its "gray-hair image."

Developments to attract younger, hipper customers should be entirely positive for Atlantic City since one segment is made up of day-trippers while concertgoers and vacationers are more likely to be overnighters, he said.

"But as far as a threat to Vegas, again the impact is zero. All it amounts to is creating a good training ground for newbies to Vegas."

Kent agreed developments in Atlantic City are unlikely to cannibalize the Las Vegas market or add to it in a meaningful way.

"What it may do is encourage people who go on to Las Vegas to stay at properties with which they are familiar from Atlantic City," he said.

Alan Feldman, spokesman for MGM Mirage. which owns the Borgata with Boyd Gaming Corp., added that Atlantic City could whet the appetite for visitors to Las Vegas.

"But we believe that these are two distinct markets with some overlapping customers," he said. "Las Vegas remains the dominant marketplace worldwide for gaming and entertainment. While the changes under way in Atlantic City, and many others that are in the early stages of development, will clearly benefit that market, they will have little or no direct impact on Las Vegas."

Rothman, however, was more optimistic about the likely impact of Atlantic City developments on Las Vegas.

"Especially for people in East Coast, Atlantic City's proximity dulls its attraction. It's common, ordinary, and not special," he said.

"Las Vegas remains exotic, a place you fly to and you can't go to every weekend. So hip life in Atlantic City is fine and dandy, but if you're a hipster, it will whet your appetite for Las Vegas," he also said.