Misplayed Hand?

Atlantic City's shifting sands: Showboat is to close, while Revel (right) awaits an auction.
Atlantic City's shifting sands: Showboat is to close, while Revel (right) awaits an auction. (Bloomberg)
Posted: August 11, 2014

Four years ago, Gov. Christie stood on the Boardwalk in Atlantic City and declared that his five-year revitalization plan would give the faltering casino town the chance to become "Las Vegas East."

Since then, conditions in Atlantic City's gambling industry have only gotten worse. The Atlantic Club closed in January. Showboat and Trump Plaza are slated to close this summer. Revel's bankruptcy auction, originally scheduled for Thursday, was postponed to Wednesday.

In retrospect, any notion that Atlantic City, saddled with myriad long-standing challenges off the Boardwalk, could become Las Vegas, was, to be kind, ambitious. Now, with gambling competition, including Internet gaming, savaging New Jersey's casino revenues, modeling Las Vegas seems preposterous on all levels.

Yet public officials and other advocates for Atlantic City keep pushing the idea that the path to saving the city goes through Las Vegas, which has managed to keep gambling central to its economy while building a tourism infrastructure that induces visitors to spend far more off the casino floor than they do on it.

Atlantic City had a chance to be great, given its 15-year head start with casinos on the East Coast, Peter Carlino, chief executive of Gaming & Leisure Properties Inc., said last fall at an investor meeting.

"Atlantic City could have and should have been Cannes - and I'm not joking. It could have been the finest city, like the French Riviera," Carlino said, according to CNBC.

Instead, politicians are still emphasizing the city's progress toward becoming "clean and safe" and looking for ways to persuade visitors to stay longer.

To what end?

Two recent reports, one from Moody's Investors Service and another from a professor of economics at Richard Stockton College of New Jersey, detail huge differences in the cities' economies and undermine arguments that Atlantic City should strive to be more like Las Vegas.

The Aug. 3 Moody's report - "Las Vegas-Atlantic City Peer Comparison: Why Las Vegas Holds the Stronger Hand" - focused on the credit quality of the cities' bonds and drew sharp contrasts.

"Las Vegas' demographic profile is an overwhelmingly positive credit factor with strong population growth, healthy income levels, and a recovering employment picture," said Vito Galluccio, a Moody's analyst. "In contrast, demographics are weak in Atlantic City, with no population growth, high levels of poverty, and persistently elevated unemployment."

That description holds despite the fact that casino gambling was supposed to be a "unique tool of urban redevelopment for Atlantic City," according to state law.

As recently as four years ago, Moody's noted, Atlantic City's municipal credit rating was only three levels below the one for Las Vegas. Now it's eight notches below and was recently downgraded to junk-bond status.

Oliver D. Cooke, the Stockton economist, argued in the most recent issue of the  South Jersey Economic Review that there is far more to Las Vegas' success than a more diversified leisure and hospitality sector.

The difference in population growth is key.

From 1980 through 2012, the population of Clark County, Nev., where Las Vegas is located, grew more than four times as fast as the population of Atlantic County, which is home to Atlantic City, according to an Inquirer analysis of U.S. Census data.

The average annual growth rate in Clark County was 4.7 percent. In Atlantic County, it was 1.1 percent. Population growth in Las Vegas kept pace with the surrounding county, while Atlantic City's population fell slightly over the period.

The population surge in the Las Vegas area unleashed broad economic growth that helped a number of jobs outside the leisure and hospitality sector to more than double between 1990 and 2013, Cooke's analysis found. In Atlantic County, by contrast, jobs outside the leisure and hospitality sector increased just 12 percent.

"Absent the ability to replicate Las Vegas-like population growth, redevelopment programs in Atlantic City based solely on a deeper and more diversified entertainment portfolio are likely to prove disappointing over the long run," Cooke wrote.

Cooke's advice to policymakers is to look at ways to diversify the economy. Talks on establishing a Stockton campus in Atlantic City are an example of that.

Cooke is not the first to stress diversifying the economy.

In 1974, before the first, failed, gambling referendum, which was meant for Atlantic City but would have allowed casinos anywhere in New Jersey, a politician argued against it.

"I am concerned with the future of Atlantic City. I want the city redeveloped on a solid future, not the shifting sands of gambling," State Sen. Anne Martindell said, according to the book Boardwalk Empire by Nelson Johnson.

Specifically, Martindell, who was from Princeton and died in 2008, argued that Atlantic City wasn't entitled to a quick fix and should diversify its economy through light industry and businesses outside the hospitality sector.

A second referendum in 1976, limiting casinos to Atlantic City, passed.

The law written to implement casino gambling after that referendum declared that New Jersey public policy is the "restoration of Atlantic City as the Playground of the World."




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