To Save Atlantic City, State Lawmaker Rolls the Dice for Casinos

Atlantic City's gaming industry is in peril. Some casinos in the seaside New Jersey town are declaring bankruptcy, and others are on the brink. Casino construction in Atlantic City is on life-support. Pinnacle Entertainment canceled planning on its megacasino, and construction on Revel, an ambitious resort casino, has ground to slow-down mode.

It's hardly an auspicious time for casino development in A.C. But that's precisely what State Senator Jim Whelan, formerly the mayor of Atlantic City, hopes to stimulate. Whelan proposed a bill this week to permit gaming licenses for hotel casinos with 200 rooms or more, situated on the Boardwalk. Until now, gaming operators have needed at least 500 rooms, but the cost of building a 500-room casino runs up to $1 billion -- a sum nobody's raising in Atlantic City these days -- says Whelan's chief of staff, Beth Schroeder.

To compete with the newly approved table gaming in Philadelphia -- Steve Wynn is angling to open an outlet there -- Whelan figures Atlantic City needs additional properties. "We need to bring more people to Atlantic City," says Schroeder, "and the senator believes that new casinos will create excitement and drive business."

Hard Rock to the Rescue?

The move sounds counterintuitive -- it could cannibalize Atlantic City's ever-shrinking market -- but at least one casino boss is staying open-minded. "If somebody comes in to build an ordinary casino, with 200 rooms attached, we're not interested," says Don Marrandino, president of Harrah's eastern division. "But if they build a cool hotel, with celebrity chefs, beachfront attractions, and great design, along with a casino, it will increase visitation to the market. And we are interested in that."

Marrandino may get his wish, with an Atlantic City Hard Rock. Jim Allen, chairman of the rock'n'roll-themed chain, has expressed interest in the market under the new licensing condition. "Despite current headwinds," he said in a statement, "Atlantic City remains the country's second-largest gaming market and would be an exciting location for a Hard Rock Hotel and Casino."

"Done right, the Hard Rock has the potential to bring people in from Philadelphia and New York," says Larry Klatzkin, gaming analyst with Chapdelaine Credit Partners. "Somebody who visits the Hard Rock won't just gamble at the Hard Rock. Visitors to Atlantic City tend to go to three or four different casinos per trip."

Fighting Against Philly

But not everybody is thrilled with even the poshest of operations. Bob McDevitt, president of Unite-HERE Local 54, representing thousands of service employees in A.C. hotels, is concerned about new casinos "cheapening the billions and billions of dollars already invested in Atlantic City" -- and, more to the point, hastening the demise of struggling properties that employ union members.

Bob Boughner, president of Borgata, Atlantic City's most luxe property, says legislators should focus their strategies on increasing business for existing casinos, rather than opening new ones, which some fear will dilute the market. The negative scenario will most certainly play out, one analyst warns, if trendy boutique Chelsea Hotel gets licensed. "They already draw their pool of customers," says the analyst, who asked not to be named. "They will not bring new traffic into Atlantic City and they will take gaming business away from currently operating casinos." (The Chelsea does not have a casino, as it failed to meet the 500-room threshold when it opened in 2008.)

Whelan's plan may be imperfect, but it may also be the necessary Hail Mary play at a desperate time. "They need to do something in Atlantic City, and this is one strategy," Klatzkin says. "If Steve Wynn comes to Philadelphia, that will probably have a larger impact than can be expected from new properties in Atlantic City."