Atlantic City, N.J.’s pride has become its downfall. In the past few years, many of the city’s casinos have closed down or entered bankruptcy. Consequently, the city itself, which is heavily dependent on casino revenue, has taken a severe financial hit.
Atlantic City’s decline is due in part to the legalization of gambling and casino operations in neighboring states. Since the town’s chief draw for many years has been gambling, there is now less of a reason to visit Atlantic City if other cities with more diverse attractions (like Philadelphia and Baltimore) also offer luxurious casinos and good gambling opportunities. As a direct example of the impact other cities are having on Atlantic City, last summer gambling giant Caesars Entertainment Corp. closed its Showboat casino in Atlantic City within a month of opening a new casino in nearby Baltimore.[1] From 2006-13, overall casino revenue in Atlantic City fell more than 40 percent from over $5 billion to just over $2.8 billion.[2]
Relying on Revel
City officials have not been blind to the events taking place around them. As far back as 2012, Atlantic City realized that it was headed for trouble. But instead of trying to diversify its revenue base, the city instead placed its hopes on the opening of a lavish new casino, Revel.[3] During the course of its relatively brief existence, Revel Entertainment Group filed for bankruptcy twice in four years, most recently in June 2014. To avoid closing its doors permanently, Revel sought a buyer in bankruptcy and pursued Glenn Straub’s Polo North Country Club Inc.[4] Although the initial bid to purchase the casino was $110 million,[5] after many difficulties the final sale to Straub was approved for just $82 million,[6] representing a 96 percent discount from the $2.4 billion that it cost to build the resort.[7]
During this time, the numerous stops and starts relating to the sale of Revel have created uncertainty for Atlantic City as a whole, as the casino resort that was once regarded as the city’s saving grace teetered on the edge of dissolution. Now, Straub’s hopes to turn the casino into a more family-friendly destination have been put on hold due to a payment dispute between Straub and the operator of the casino’s power plant.[8]
A Blow to the Economy
Casino closures and bankruptcies have also had a direct impact on Atlantic City residents. Atlantic City’s job market has taken a blow as casinos have closed or restructured their employee agreements. For example, Trump Entertainment Resorts Inc. (Trump), another major player in the Atlantic City casino scene, filed for bankruptcy and ended operations at the Trump Plaza Hotel & Casino last fall.[9] Trump then created a plan of reorganization around Carl Icahn’s promise to invest $100 million in the company.[10] In return, however, Icahn asked Trump to end union pension obligations for the Trump Taj Mahal, another Atlantic City casino. After the Taj Mahal received court approval to break its labor agreement, the union, which represents over 1,100 casino workers, challenged the ruling, and workers picketed in the streets.[11]
The effects of casino closures and bankruptcies on Atlantic City’s economy are staggering. Casinos account for nearly half of the jobs in Atlantic City (5,883 positions out of 13,500), and about 8,300 people lost their jobs when three casinos closed in September 2014.[12] Atlantic County, which contains Atlantic City, saw the biggest non-farming employment drop of all U.S. metropolitan areas in July compared with the same time the previous year.[13] Finally, in March, Moody’s cut the city’s $245 billion in general-obligation debt to junk status, directly pinning the city’s struggle on its dependence on only one industry.[14] Indeed, about 70 percent of the city’s tax revenue comes from casinos.[15]
Overreliance on Gambling
Atlantic City’s troubles illustrate the dangers of relying on a single industry for financial stability, but diversification will be difficult for the city. As a recent example, Stockton University, a public college in New Jersey, purchased an old casino from Caesars late last year with the intention of transforming the casino into a residential campus.[16] Yet Stockton has faced resistance from its neighboring casino, the Trump Taj Mahal, which had a legal agreement with Caesars mandating that the property be used only to house a high-end casino and hotel. The Taj Mahal is threatening to enforce this covenant because it does not want to operate next to college students. Setbacks like these have made it difficult for Atlantic City to attract a wide mix of businesses to the city.
Atlantic City’s problems have now begun to draw attention at the state level. Late last year, two state senators devised a rescue plan for the city, which included tax breaks for the city’s eight surviving casinos, state aid for the city, and mandated minimum insurance and benefit packages for each casino worker.[17] Governor Christie has even appointed an emergency manager for the city, marking a significant shift from New Jersey’s typically strong state oversight of its localities.[18] Although it is unclear whether chapter 9 bankruptcy may lie in Atlantic City’s future, the city faces a long road in its return to financial health.
[1] Terrence Dopp, “Atlantic City Adrift as Casinos that Revived Resort in ’70s Die,” Bloomberg News (July 18, 2014).
[2] “Revel Files for Bankruptcy Again, Threatens to Close,” Associated Press (June 19, 2014).
[3] Michael Bathon, “Revel Can Pay Bonuses if Sale Nets High Enough Price,” Bloomberg News (July 30, 2014).
[4] “Revel Files for Bankruptcy Again,” supra n.2.
[5] “Brookfield Wins Auction for Bankrupt Revel Casino,” Reuters (Oct. 1, 2014).
[6] Michael Bathon, “Revel Wins Court Approval to Sell Casino for $82 Million to Polo North on Fourth Try,” Bloomberg News (April 2, 2015).
[7] Tom Corrigan, “Judge to Approve $82 Million Sale of Revel Casino to Florida Developer,” The Wall Street Journal, April 2, 2015.
[8] John Brennan, “Revel Papers Claim Shutting Off Casino Power Puts Lives at Risk,” NorthJersey.com (May 12, 2015).
[9] Bill Rochelle and Sherri Toub, “Trump Entertainment Seeks Union Concessions: Bankruptcy,” Bloomberg News (Sept. 30, 2014).
[10] Michael Bathon, “Trump Entertainment Plan Pegs Survival on Icahn, Cuts,” Bloomberg News (Oct. 2, 2014).
[11] Peg Brickley, “Judge Clears Trump to Exit Bankruptcy, But Hurdles Remain,” Dow Jones Daily Bankruptcy Review (Mar. 13, 2015).
[12] Dopp, supra n.1.
[13] Hilary Russ, “Atlantic City’s Laid-Off Casino Workers Swell Jobless Rolls,” Reuters (Sept. 3, 2014).
[14] Terrence Dopp, “Atlantic City Faces Downward Spiral with Revel’s Demise,” Bloomberg News (Aug. 12, 2014).
[15] Id.
[16] Natalie Kitroeff, “Why Is a College Fighting for an Old Atlantic City Casino?,” Bloomberg News (April 6, 2015).
[17] Wayne Parry, “Bill Would Aid Atlantic City, Casinos on Taxes,” Associated Press (Dec. 2, 2014).
[18] Hilary Russ, “Moody’s Slashes Atlantic City Rating on Bankruptcy Potential,” Reuters (Jan. 23, 2015).